Corona-omics: Virus impact on employment and GDP
April 20, 2020
2 min read
What's going on here?
The COVID-19 global pandemic is set to double unemployment in the UK, leaving 2.75m jobless.
What does this mean?
The fall in employment levels and a predicted unemployment rate of 8% means the labour market will be harder hit than during the financial crisis. In addition, GDP is set to drop 13.5% which would be 6 times the contraction brought about in 2008.
Rising unemployment is not unique to the UK and similar issues are arising in Europe and the US. In the last week of March, the US saw a record number of unemployment claims – 3.3m in a week. To put this in context, the previous record number of claims stood at 282,000.
What's the big picture effect?
In response to the crisis, the government, led by the chancellor Rishi Sunak, has provided financial support for businesses to encourage them to keep employees on. The main initiative is the Coronavirus Job Retention Scheme, which allows businesses to “furlough” staff with the government covering 80% of their salary up to £2,500. “Furloughing” is the term used for granting employees temporary leave due to personal needs or economic conditions.
There have also been calls to renounce the increase in the national living wage which has risen from £8.21 to £8.72 as of the beginning of April. It is feared this increase will mean higher operating costs for business and will lead to the lowest-paid workers being made redundant to cut costs.
The sectors which have taken the hardest hit have been retail, hospitality and aviation. It is estimated that half a million people have lost jobs in the restaurant industry alone. Well-known brands of the UK high street are also not immune. Debenhams has filed for administration to access the statutory one year moratorium on claims from creditors. TM Lewin is in consultation with Deloitte and the Arcadia group owners of Topshop are putting pension payments on pause. In the aviation industry, British Airways has furloughed 36,000 of its staff and there are calls for the chancellor to offer a bailout. It is evident that the government is attempting everything to prevent a catastrophic economic crisis, but the question remains how many industries can the government bailout and for how long can it continue supporting the economy? Once the financial aid stops, these unemployment statistics can only worsen. Currently, like all of us, the economy moves day-by-day, relying on each government announcement to see what tomorrow brings.
Report written by Michael Johnson
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