Delayed reopening will most hurt our young workforce, again

Reopening has been delayed, and this means many thousands will remain reliant on State supports, particularly the Pandemic Unemployment Payment (PUP). It has become clear since Tuesday’s announcement that more than a short delay to reopening is now in the mix, with the Delta variant raising fundamental questions. What will this mean for the jobs market, where it had appeared likely up to this week that economic recovery would lead to strong gains in the second half of the year? And in particular what will it mean for the younger workforce who have been most exposed in this crisis?

1. The PUP – rate of decline slowing

Unemployment remains high, but numbers relying on State support have been falling in recent weeks as reopening proceeded. From a peak of 485,000 in February, the numbers on the Pandemic Unemployment Payment (PUP) fell this week to just under 228,000. People in the wider accommodation and food sector have been signing off the register, but close to 58,000 remain on the PUP. Many would have been expected to sign off in the weeks ahead, but now will not, and some who had signed off to go back to prepare for reopening will now sign back on, with the closing date for new entrants extended from end June to July 7th to allow this to happen. PUP numbers will start to trend back up again.

While the recent fall in the PUP numbers has been steady, it did slow over the past week. According to Conall MacCoille, chief economist at Davy Stockbrokers: “the decline in PUP claims now appears to be slackening off after two months of eased COVID-19 restrictions.” This will concern the Government, he said, given that it had hoped the bulk of PUP recipients would be back to work by September. The decline in the latest week was 16,215 and just over 11,000 signed off this week and will fall out of the next set of data. The worry is a large group being left on the PUP whenever reopening is complete, who would then move onto the regular unemployment payments.

2. The unemployment rate – guesstimating

It is very difficult to put a firm estimate on the numbers out of work, due to the pandemic upheaval. The Central Statistics Offices publishes a pandemic adjusted unemployment rate – which includes everyone on the PUP. This was 18.3 per cent in May – and Davy estimates it has fallen now to around 17.2 per cent.

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However because many people on the PUP will return to work as businesses reopen – and because many students qualify, but would not do so for normal unemployment benefit – it is seen as an overestimate of the “ real” rate of unemployment.The normal unemployment rate, comprised of people on the Live Register, at 8.1 per cent, is clearly an underestimate. Economists at Ulster Bank in Dublin suggest a midway point between the two rates is a reasonable guesstimate of the underlying position – that would be around 13.3 per cent on the basis of the May figures and perhaps around 12.5 per cent given the decline in the interim. Official forecasts see the unemployment rate at somewhere over 8 per cent on average next year.

The key thing to watch in the months ahead is how the core unemployment rate reacts as the pandemic supports are wound down. As well as the PUP, there are close to 300,000 jobs supported by wage subsidies and some of these will be vulnerable too.

3.The reopening delay

With so much uncertainty over the timing of reopening of indoor dining and other indoor activities such as exercise classes, the outlook for jobs is clouded. This brings a few dangers. The first is the obvious one – people will sign back on the PUP or not come off it as they would have done had reopening gone ahead. We just don’t know now if this delay is for a couple of weeks or longer. Some official sources are nervous that reopening may now be delayed for some time.

A longer shutdown also increases the damage to firms, despite Government schemes which have saved many and will continue to do so. The longer term damage to the jobs market is likely to be significant. Already we have seen with sectors that have opened how significant numbers of employees remain on the PUP. Even with construction now fully open – and huge demand to build houses – some 20,000 from this sector remain on the PUP, as do almost 35,000 in wholesale and retail. The sector which includes hairdressers and other personal services, as well as some other activities, still has 10,000 plus on the PUP.

The evidence is there – the supply side of the economy is being damaged.

4. The jobs divide

As has been well documented, younger people, more prevalent in the consumer-facing sectors, have been worst hit by the economic impact of the pandemic. A prolonged closure of indoor dining, or rules seriously restricting the operation of the sector, threaten a widening of the jobs market divide. There are 100,000 under-35s on the PUP and the Covid-adjusted unemployment rate for under-25s is 44 per cent, compared to 15.5 per cent for over-25s. As explained above, the under-25s figure is significantly distorted, but the underlying rate is clearly still way higher.

Work by the ESRI has shown how the hit to the younger sections of the population has been greater than that for older age-groups and that this maintains a trend in place since the financial crash in 2008. In a report earlier this year on inequality, ESRI researchers found that at the end of 2020 “employment remained a third below its pre-pandemic level for those aged 15-19, a fifth below for those age 20-24, and 10 per cent below for those age 25-29, compared to 7 per cent for older age groups.” As a result, there were an estimated 112,000 fewer 15-34 year olds in paid work in the final quarter of 2020 than a year earlier, compared to 93,000 fewer workers aged 35-plus.

As the same sectors are affected in 2021, similar patterns are continuing. Worryingly, the ESRI found that younger groups had already been the slowest to recoup the job losses of the financial crash – with employment levels having just caught up before the pandemic, while for older groups this had happened in 2017. Some of this may reflect people staying longer in education, but the ESRI found there was also a large economically “inactive” young population, neither in work nor in training or education.

5. The policy challenge

There have been a string of positive forecasts, most recently from the Central Bank, of rapid growth this year – and this would boost the jobs market. Employment signals are also positive – research by IDA Ireland on the professional jobs market based on activity on LinkedIn shows hiring back at pre-pandemic levels. Already there are signs of a pick-up in spending.

The question now is how the delay in reopening will influence wider confidence and spending in the months ahead. Generally economic forecasters believe the recovery will continue, but clearly there is now a cloud over a significant sector of the economy as to when reopening might be possible. Meanwhile the longer term implications of the Delta variant remain unclear and are potentially damaging. As best they can, the task for ministers is to try to underpin confidence by developing a revised strategy.

The second key policy challenge will be retraining and re-educating workers in the sectors worst hit. In the professional market, the IDA survey did see evidence of people retraining and moving into higher demand sectors such as data analytics. However significant work will be needed to help those in sectors such as hospitality, aviation and tourism to reskill and find jobs. A revised Government policy document – Pathways to Work – is due on this shortly involving jobs placements, training and so on.