New research finds that, whilst there are clear signs of recovery in the labour market, this should not be conflated with the idea that a total recovery has occurred. 

Research by the Resolution Foundation, an independent think-tank, warns that the UK labour market is currently “lukewarm” as opposed to hot.

The report identifies signs of recovery in the jobs market – including 80 per cent of furloughed workers now returning to work and vacancy rates now being higher than pre-pandemic levels.

Despite this, the think-tank warns that a total recovery of the labour market has not yet occurred.

Currently, the total hours worked in the economy remain around seven per cent below pre-crisis levels – which is a fall comparable to the height of the early 1990s recession.

Furthermore, one in 10 people (10 per cent) of people who were self-employed prior to the pandemic are not in work anymore.

The report also stresses that the level of pay rises currently taking place are being significantly overstated.

Although there has been a growth of 5.6 per cent in average weekly earnings in the three months to April, this has been driven by low-paid workers dropping out of the workforce as opposed to an uptick in workers’ pay.

However, on the opposite end of the spectrum, the Resolution Foundation have expressed that labour shortages are contained to specific parts of the economy as opposed to a reflection of the wider labour market.

Specifically, the report suggests that shortages in the hospitality sector can be attributed to the speed of reopening from a complete standstill and the recruits being young and largely unvaccinated.

The research ultimately refutes the idea of scrapping the Coronavirus Job Retention Scheme (also known as the furlough scheme) to remedy labour demand.

It argues that whilst some have stated that offering staff 80 per cent of their wages incentivises them not to look for a new job, employers will want to bring staff back from July where there is high demand as they are now expected to contribute 10 per cent to the wages of furloughed staff.

In addition, workers’ incentive to stay furloughed will also fall as the scheme nears its end.

This is because without the guarantee of a job to return to, staff will prefer to look for a permanent, new job elsewhere as opposed to receive partial wages under the furlough scheme for a few extra months.

Gregory Thwaites, Research Director at the Resolution Foundation, said:

The UK economy is bouncing back rapidly after a deep and painful recession. It’s particularly welcome to see so many furloughed staff back working again.

But these encouraging signs risk breeding dangerous complacency, as people over-play the health of the labour market, and under-play the risks that still lie ahead.

A recovering labour market is not the same as a recovered one. Labour shortages in hospitality aren’t a huge problem, and there is no real evidence of a new pay boom. Instead these things are part of the bumpy ride that emerging from a pandemic inevitably involves.

*This research has been obtained from the Resolution Foundation’s report ‘Understanding the Labour Market: Pandemic not Pandemonium’. Some figures in this report are from YouGov plc. The survey wave had a total sample size of 8,030 adults aged 18+. Fieldwork was undertaken by YouGov from the 3rd – 8th June 2021.