Monthly economic brief: October 2020

Labour Market

Unemployment remained low by historical standards in August, supported by the Job Retention Scheme, however wider labour market indicators signal challenging labour market conditions.

Coronavirus Jobs Retention Scheme (CJRS) and Self Employment Income Support Scheme^[13]

• The CJRS has been supporting the retention of jobs and incomes since March, during both the national lockdown phase and as restrictions were relaxed in the third quarter of the year. Latest HMRC data show that at the end of August, 242,600 employments in Scotland were on furlough, 160,500 on full furlough and 82,100 on partial furlough.
• As restrictions continued to ease in August and people continued to return to work, the number of employments on furlough fell 153,200 (-39%) over the month. Employments on full furlough fell 150,100 (-48%) and employments on partial furlough fell 3,100 (-4%), suggesting that firms continued to require flexibility on staffing levels as they resumed operations though with many operating below capacity and with ongoing cashflow challenges.

• More recent Scottish Government analysis of ONS BICS data show a similar trend with businesses in that survey reporting around 11.9% of their workforce were on furlough in October, down from 32.1% in June.^[14] 

• In terms of the Self Employed Income Support Scheme (SEISS), HMRC data show that by end of September, 137,000 claims in Scotland had been made to the second SEISS which opened on 17 August.  This represents 66% of the eligible population, with an average claim of £2,500.  The number of claims was down from the first SEISS in which there were 158,000 claims in Scotland.

Official labour market statistics

• The latest labour market statistics cover the period June to August when the economy was reopening from national lockdown and businesses were receiving support through the CJRS and SEISS to support employment levels.^[15]

• Over the quarter to June to August 2020,^[16] the employment level increased by 15,000 in Scotland and the employment rate increased by 0.4 percentage points to 73.9% (UK: 75.6%). 
• The unemployment level remained broadly stable over the quarter and the unemployment rate was unchanged at 4.5% (UK: 4.5%). 
• The improvement in employment over the quarter is mainly reflected in a decrease in economic inactivity (those neither in employment or ILO unemployed), with the level falling by 15,000 and the inactivity rate decreasing by 0.4 percentage points to 22.6% (UK: 20.8%).

PAYE payrolled employment

• More timely Pay As You Earn (PAYE) Real Time Information data for September indicate that compared to the same period one year ago, the number of payrolled employees in Scotland has fallen 2.7% (-63,000) to 2.3 million employees (UK: -2.2%).^[17]

• In September, the number of payrolled employees in Scotland recovered slightly over the month (+3,000 from August), however remained 69,000 (2.9%) lower compared to March 2020. 

Claimant Count

• Scotland’s Claimant Count (the number of claimants of Job Seekers Allowance and claimants of Universal Credit who were claiming principally for the reason of being unemployed) continued to rise in September reflecting that the number of people that are unemployed or employed with low income and/or low hours is increasing.^[18]
• In September the number of claimants increased by 1,500 (0.7%) over the month to 224,200, taking the Claimant Count rate to 8.0%.

• Compared to last year, the Claimant Count has more than doubled (up 101%), however most of that increase has come in recent months with the number of claimants rising by around 112,800 since March (+101%). 

Demand for staff in Scotland

• The RBS Report on Jobs survey for September^[19] signalled a further stabilisation in hiring activity, following the sharp slowdown during national lockdown.

• The number of permanent placements continued to fall in September, though the rate of reduction eased further from recent months. In contrast, the number of temporary staff placements increased for the first time in 10 months, reflecting the reopening of businesses and firms looking to clear backlogs. 
• While hiring activity remained subdued, staff availability increased further in September, albeit at a slightly slower rate than in August, and reflects the increase in number of job seekers which survey respondents linked to layoffs and redundancies. 

• Starting salaries remained stable in September following sharp falls in recent months, however this was driven by stabilisation in permanent salaries while temporary salaries continued to fall. 

Earnings

• During the pandemic and the associated policy responses, there has been a sharp slowdown in earnings growth in Scotland, with annual growth falling for four consecutive months between March and June.  However the pace of growth strengthened in July and August as national lockdown restrictions eased and business activity stabilised.

• PAYE mean monthly pay in Scotland in August was £2,394, a 2.9% increase from August 2019 (UK: +3.5%). However the pace of growth remains below its rates at the start of the year and in the second half of 2019.^[20]

How is COVID-19 affecting groups within our labour market? 

As COVID-19 and the government responses to deal with the pandemic have fed through our economy and labour market there has been widespread concern that groups already at a disadvantage may be hit particularly hard.^[21]

Groups expected to be hardest hit financially have already been identified in Scottish government analysis and include; low earners, young people, women, minority ethnic people, disabled people, those living in most deprived areas, and lone parents^[22]. Although the Job Retention Scheme (JRS) has had a significant role in mitigating unemployment rises for these groups emerging evidence around labour market outcomes demonstrates they have had differing employment experiences since COVID-19.

Gender

Early gender differences in employment have been moderate, but women still face established labour market barriers that are likely to impact in the longer term^[23], particularly around a disproportionate share of caring responsibilities. Although take-up rates of the furlough scheme in Scotland are equal for men and women (10%), the relative pace at which men and women return to the workplace over the coming months will be a key marker for how gender equality has been affected by the crisis, with initial HMRC analysis^[24] suggesting men are more likely to be retained by their employers than women.  

Age

It is clear that young people have seen particularly large impacts on employment. Latest LFS data^[25] (Jun-Aug 2020) shows the unemployment rate of 16-24 year olds in Scotland rose by 2.8 percentage points over the year, more than any other age group. Take-up of the JRS has also been much higher for younger age groups. This disproportionate impact is consistent with prior economic shocks and also that they make up large shares of employment in sectors most affected by the crisis (e.g. accommodation & food) and precarious forms of work (e.g. zero hours contracts). 

Low earners and those in the most deprived areas

The impact of the crisis has varied significantly by sector with implications for different experiences by wage distribution. The Institute for Fiscal Studies^[26] estimates that low earners across the UK were seven times more likely to work in a shut-down sector of the economy than high earners. ONS^[27] analysis of home working by occupation finds there can be less potential for home working in lower paid jobs (e.g. sales and customer service occupations) since these jobs are typically customer facing or based on business premises. This suggests they are more at risk of job losses or being placed on furlough.

By region, most recent claimant count data (Sept ’20) shows a broad based rise in claimant count rates but that the greatest rises have been concentrated in areas with already high claimant rates (e.g. Glasgow City, West Dunbartonshire).

Lone parents, disabled people, and minority ethnic people

There is less evidence of how the groups above have been affected by the pandemic, although we know that they are more at risk of impact in many cases. The labour market survey data which is traditionally used to understand the challenges these groups face can often be better suited to identify longer term trends than short term impacts.

However, disabled people do not appear to be experiencing a greater effect on employment status than non-disabled people, with the longer term trend in recent years of a narrowing of the disability employment gap unaffected to date. However, aside from labour market data there is evidence that compared with their non-disabled peers, disabled people have faced a greater impact on their lives from COVID-19^[28] and this has implications for employment prospects.

Similarly, although there is less available evidence of a disproportionate impact on employment status for minority ethnic groups, there is evidence that they have been particularly affected by COVID-19, with UK wide ONS analysis^[29] suggesting people from black and minority ethnic groups are over-represented in jobs with higher risk of exposure to COVID-19, accounting for 1 in 5 workers in the most at risk occupations despite accounting for 11% of the working population. Data from the Resolution Foundation also suggests that 22% of UK minority ethnic workers that were furloughed were no longer working in September, more than double the overall rate.^[30] 

Lone parents – predominantly women - have lower employment rates and are more exposed to reductions in earnings and job losses than those with partners as they are less likely to have someone to share childcare with and may be unable to work as a result. Lone parents may have been particularly affected by “self-furlough” through asking their employer to use the retention scheme if school closures or reduced access to childcare has reduced their ability to work.