When the facts change, I change my mind. It’s become a hoary old adage, but this is a good time for economists to reflect upon it. Nothing much has gone as expected during the past 18 months or so.
The economy has bounced back more quickly from the deepest recession in history than most of us dared to hope. A year ago, a big rise in unemployment was thought inevitable. Yet it looks like it will peak at just 5 per cent, about where it was in 2017 and vastly below its levels in previous recessions. And earlier this year neither the Bank of England nor the Office for Budget Responsibility was expecting inflation to take off. Both now expect it to hit 5 per cent in the first half of next year.
Inflation apart, that’s all a pretty positive turn of events. Look a bit deeper and plenty of other things are going rather better than expected.
A year ago, it looked like the pandemic would fuel another big increase in all the sorts of inequalities we have been worrying about for a long time. Take concerns about the young. Workers under the age of 25 were being hit much harder than older workers. They were several times more likely to be furloughed. Graduates and school leavers were having a torrid time, with employment rates well down compared with normal years. Yet come this summer all those differences had just disappeared. Those graduating in 2020 were in work in perfectly normal numbers — though they have ended up in slightly less high quality jobs on average. The furlough rate for the young was now a little lower than for older groups.
When it comes to differences between age groups, the problem has if anything reversed. It is older workers who appear to have been worst affected. During the financial crisis of a decade ago, the over-60s made up 6 per cent of those being made redundant. During the pandemic they have accounted for 10 per cent of redundancies. For the under-25s, the figures are 19 per cent and 13 per cent respectively. Moreover, among those in that older group who were made redundant, nearly six in ten were neither in work nor searching for work six months later. Pre-pandemic, that was true for fewer than four in ten.
With the labour market changing very quickly, younger workers were much more likely to move into jobs in new occupations and industries. New research by my colleagues at the Institute for Fiscal Studies, supported by the Nuffield Foundation, shows that under-30s who lost a job in the first lockdown were four times as likely as the over-50s in a similar situation to have found a new job in a different industry by spring of this year. The speed of economic reconfiguration is proving to be much more difficult for older workers to navigate than for the young. That happened in the 1980s too. It may be time to redirect some labour market support to these older groups. The cost to some of them, as well as to the economy as whole, from their withdrawal from the labour force is likely to be big.
Through the pandemic it was the least well paid and least well educated who were most likely to be furloughed or to lose their job. And if they did get made redundant, graduates were much quicker than non-graduates to find another job. Look at the situation today, though, and things are again reversing. Relative to pre-pandemic times, vacancies have grown most in occupations like warehousing, domestic help, transport and manufacturing. Competition for graduate jobs appears to have grown in a way that it has not grown for non-graduate jobs. Put this alongside big increases in the national living wage and it seems likely that wage inequalities will decline.
One thing that seems to have remained constant is the position of London. Londoners have suffered higher rates of redundancy and lower rates of re-employment during the pandemic, and a lower growth in vacancies since. Levelling up of a sort.
Initial indications that ethnic minorities and women were being worse affected economically also seem to have been confounded by more recent events. People from ethnic minorities had been much more likely to lose their job initially. But even by March of this year the employment gap between ethnic minorities and the white majority had returned to its pre-pandemic level.
In contrast with the experience of some other countries, women in the UK have not lost jobs at any greater rate than men, and average hours worked fell by less for women than for men.
So, I’ve changed my mind. A year ago, there was every indication the pandemic would widen inequalities in employment and earnings between old and young, whites and ethnic minorities, men and women. That now looks less likely. Indeed, take account of higher taxes and increases in the generosity of Universal Credit and we could even see household income inequality fall.
I can’t possibly end without two rather big caveats. First, I remain very worried about the effects on schoolchildren. The evidence is clear that learning loss was greater among poorer children, and especially among the most deprived. And the gaps between regions are startling. Learning loss was much more severe in the northwest, northeast and Yorkshire than in other parts of England. This could store up real problems for the future.
Second, with another cut in interest rates, another dose of quantitative easing, and a period of savings accumulation especially by the better off, house prices and asset prices are again on the up. To the benefit, once again, of those who already have assets. A reminder that inequality is increasingly about much more than just earnings or even incomes.
This article was first published in The Times and is reproduced here with kind permission.