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Different working patterns and too much unemployment

The slow easing of restrictions means the jobs market will take time to recover but investment in technology could provide a productivity boost.

Different working patterns and too much unemployment

by
John Redwood

in Features

05.05.2020

There is welcome news this week that on both sides of the Atlantic governments are thinking about ending lockdowns and moving to the next stage in tackling the virus. The pace of relaxation is going to be slow, and there will be many restrictions on how people can work. Nonetheless, the direction of travel is positive, with more companies being able to generate some revenue after a period of shut down.

Office workers will still be encouraged to work more from home, trains will take far fewer commuters, and factories will need new shift patterns and more social segregation of employees. There will be more use of protective clothing and new devices to keep people apart will be fitted to workplaces. Companies that have goods and services designed to help businesses adapt will enjoy higher turnover.

Jobs data

This month we need to be braced for bad news on unemployment. We will soon see dreadful figures for unemployment in the US, the Euro-area and the UK. In the US, we have already seen more than 30 million people make their first applications for unemployment benefits in a little over a month.

In the UK, where the furlough scheme is cushioning the blow, more than 1 million new Universal Credit claims have already been reported in the media. Daily we hear the bad news of job losses. Rolls Royce announced a possible 8000 job losses as a result of anticipated much-reduced demand for jet engines. In a strongly contested move, British Airways is proposing to make 12000 of its staff at Gatwick redundant.

Future forecasts reported cover a wide range, but most think unemployment will leap up on both sides of the Atlantic above the 10% level it reached in the banking crash. Italy and Spain, which still had high unemployment before the virus, are likely to record worse figures. This is despite the various government schemes to lend money to businesses, to pay grants and to offer assistance with payrolls. Such a shock to the system will lower national incomes and have a negative impact on consumer confidence and spending power.

The optimistic view

Some in the markets take a relatively optimistic view of this worrying development. They think high unemployment will be short-lived, with jobs being generated on a huge scale to compensate as soon as economies start to come out of lockdown. Others argue that maybe unemployment will settle at higher levels once economies have recovered a bit, but productivity will be higher. They anticipate that it will be the less productive companies and areas that will suffer most.

There are also less happy views around. A sharp V-shaped recovery is unlikely, as governments are opting for only a slow and partial relaxation of controls. Some of the most labour intensive areas like hospitality, events and tourism will be the last to recover. Official controls will stay in place for longer and it will take time for consumer confidence in such settings to recover. This implies unemployment staying higher. It is true that if it is the most manpower intensive activities that are delayed, there will be a gain to productivity from the way the numbers are calculated. The business areas that remain will tend to have higher productivity scores. There is however the danger that the productivity of the remaining sectors will be impaired by the needs of social distancing. Food retailers with higher turnover are having to recruit more staff to clean baskets, restock shelves and enforce limits on people in store. Transport systems will have to run more planes, trains and buses for any given number of passengers to allow less crowded journeys. There will be more staff in most businesses providing higher standards of hygiene and supervision of social distancing.

Technology and productivity

There is the possibility that despite these shorter-term requirements weighing down productivity there will be a big expansion of investment of capital and management time in changing many businesses to remote technology and online models, which will prove more productive. Saving people many journeys to events and to face to face meetings, switching more work to computers and artificial intelligence and finding digital ways to conduct business will boost productivity and cut costs in many cases.

So, how do we reconcile the bull and bear cases on unemployment and employment? It comes down to time scale.

The immediate future is a surge in unemployment. It will take time to bring that back down owing to the slow timetables for lifting restrictions. In the short term, the outlook for productivity is also clouded, as businesses take on extra costs to handle the need to protect the workforce and customers, whilst revenues do not regain old levels quickly. Consumer demand will be depressed by unemployment, by consumer caution, by government restrictions, and by continuing negative feelings about the growth areas of travel, tourism and hospitality.

In the longer term, the digital transformation is positive, offering more for less and allowing higher pay for higher productivity. Investment needs to reflect these dramatic changes in the business landscape, accenting these areas that will flourish in these difficult times.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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