27 July 2020

Unemployment

The long drop

Millions are fearful about losing their jobs as the cliff edge of an historic recession looms

By Chris Cook

Children in wetsuits patter in bare feet along the low road bridge that cuts along the waterfront in Penzance. Then, one after another, they clamber over the railings – and leap into the water below. I wince: how far is it down? How deep is the water? I can’t see – and the dark green offers no clues. But, in they go.

The British economy is now following a similar path to our Cornish jumpers. We have certainly left terra firma. At the moment, we are hanging in the air. But we do not know how cold the water is, nor how deep. The whole of the UK policy establishment expects a horrendous rise in unemployment. But when? Where? And how much? We cannot gauge the pain of the fall.

This recession is stunning and strange. We have asked people to stop working if their workplaces are not safe. As a result, there has been an entirely unprecedented economic shock. The total number of hours worked collapsed – and so did output.

But the latest official figures show 3.9 per cent of working-age people are unemployed – an historically low number. Why? The scale of the drop-off in output has not yet fed through to the number of people out of work.

But this is because of the furlough process: there may be only 1.35m unemployed people, but 9.4m jobs were placed on the Job Retention Scheme. Their employers have been subsidised to keep them on their pay-rolls while the country waited for the virus to come under control. What we do not know is what will happen when economic gravity pulls us into the sea.

It is widely expected that businesses who struggled through the spring and summer will cut their costs when the government no longer helps with them in the autumn; the scheme is becoming less generous in August, and will end in October. The government has introduced incentives to keep employees on, perhaps part-time – but their effectiveness is uncertain. Paul Gregg, an eminent labour market economist at the University of Bristol, still anticipates unemployment breaking 10 per cent, a level not seen since 1993.

But the scale of what may be about to happen is unclear – and it is uncertain which people, sectors and geographical areas will be most affected. There are, however, clues in the furlough data.

We can see that staff in industries directly or indirectly linked to tourism have been suffering deeply. This confirms what the Tortoise Corona Shock tracker of household spending found: places reliant on travel are hard hit.

What is not clear from the data is whether they are going to be able to bounce back – which is why I found myself on the train down to Penzance in the first place. Appropriately masked and socially distanced, my big question was whether we can see a rebound on the way. As the restrictions of lockdown are peeled away, will businesses ping right back and save those jobs?

Penzance is a handsome harbour and market town, perched at the very toe of Cornwall. It is blessed with remarkable urban fabric: Georgian streets, Regency terraces, Victorian roads. It once made its living as a local market town and the rail link for farmers to get their produce to the rest of the country. But the key to its future today is visitors. It is a town of about 22,000 people – and 1,000 guest rooms.

It is a port of departure for visitors to the Isles of Scilly. And while it does not have a sandy beach of its own, it is a base town for plenty of sun-seekers, surfers and visitors to Land’s End. I took a short walk to Mousehole, Dylan Thomas’s candidate for the prettiest village in England.

The fishing village of Mousehole, near Penzance

But the town’s economy has been hit hard by the virus. Tortoise’s monitoring of household spending picked out Penzance and its surrounds as one of the places which saw the heaviest declines in consumer spending. So is this translating into job losses? And, since our last data update in mid-June, how are things looking now?

The lockdown has relaxed, but the town is not yet its old self. Last week, the first week of the school holidays, it was positively sleepy. By 8:30pm, I discovered – at great personal cost – that all the fish and chip shops were shut.

On Causewayhead, the historic market street, there are 54 shops which were in operation at the start of the pandemic. Last week, about 11 were closed due to the pandemic. A further two were only open for very limited hours. The small units, which in normal times are part of the charm of the town, have made these businesses hard to open safely with social distancing in mind.

I spot a sign advertising a tarot reader – who better to ask about the town’s fortunes – only to catch her locking up her little shop. It is impossible to open safely, Mary Smith said, given the intimacy of the work and her tiny premises. (Yes, the fortune teller said, I was the first person to ask if she had been forced to close due to unforeseen circumstances.)

Tarot card reader Mary Smith in Penzance

Susan Stuart, is owner of Chapel House, a guest house perched up above the harbour in one of the town’s remarkable buildings. She worries that some of these premises may never come back: “It may just mean that some businesses just give up basically, not exactly go down the pan but say that ‘I’ve had my 10 grand [in grants] from the government. I can just about scrape through – but it’s not worth me opening anymore.’”

But it is not a straightforward story of gloom. Dennis Peacock, who runs part of the Penzance antiques centre says they are doing excellent business as buyers leave their isolation. “You have regulars, local regulars that come in every week. They haven’t been able to spend their money for three months, four months… they’ve been stuck inside with nothing to do.” The Bank of England has recently released data showing enormous surges of saving in bank accounts; the rich have cash to spend.

John Matthews of the Woodstock guest house, Penzance

Other businesses have adapted. John Matthews, owner of the Woodstock Guesthouse, said: “We didn’t open until halfway through our normal season. And we’ve shut out half our rooms to provide more space for the guests when they arrive. So they’ve got their own bubble.”

Indeed, some of the guest houses are very busy. Stuart says she has been “run off her feet” since they were allowed to open in early July. “We’re extremely busy – really, really, really busy.”

But there is a twist. “So my normal customers were lots of empty nesters and people really ranging from 55 up to 75. Sometimes older, but that  age group. I’ve got eight rooms, now, I would say one of them will be taken by an older couple, the rest, mainly under 40. So it’s changed totally.”

Susan Stuart, owner of the Chapel House guest house, Penzance

The reason for the switch may be that part of the town’s appeal may now be a liability; the fast train from London to Penzance is a wonderful way to spend the best part of a day as the seaside zips past. But you can understand anxiety about being locked in a carriage with strangers during a pandemic – or even the discomfort of wearing a mask for hours.

The switch to younger clients is good for modernised guest houses. But some more traditional guest houses may not be able to recruit younger visitors (I stayed in a Georgian hotel with what I think was Regency WiFi). This could drive lots out of business. Stuart says: “There’s threat to the old school Bed and Breakfast sector because that was their guest demographic. So we’re really gonna have to try and help them find a different way forward or help them move their property on.”

Penzance in Cornwall begins to open up

Furthermore, the employment effects may be subtler in tourist towns. Stuart says, a lot of locals rely on making extra cash over the summer to get through the winter. Lockdown arrived just as that work would normally start. The loss of summer jobs could reinforce Penzance’s underlying problems, which identfies as“under-employment and low wages, very low wages. It’s quite a toxic combination”.

In addition to the immediate unemployment problems, there may be longer-term harms, too. Penzance is a town which, you can see, could build itself into something more. Its local economy is slightly underpowered: it has more commercial space than its businesses can fill. A huge Victorian market hall is currently being half-employed as a branch of Lloyd’s Bank. And this year should have been a good year of progress towards becoming a town that can inhabit its physical space.

The first day of opening of the Jubilee lido after lockdown. Open to NHS and other key workers

The Tour of Britain cycling race was scheduled to start in the town. And Penzance was awarded “town of the year” for 2020. A new geothermal heating system in the 85-year-old art deco lido was due a grand unveiling. But the lido opened at the weekend without the pomp the project had deserved. These events matter: they are things that drive momentum and make sure everyone has a job next year as well.

The loss of big local events and the seasonal work, however, is not just a problem for little towns. Plymouth, the largest city on the British south coast, was planning to bolster its visiting trade with one big event in particular. Once again, walking through the city of 260,000 people, I was struck that it was very subdued.

Tourists return to the harbour and the Hoe as Plymouth begins to open up after lockdown

This year was to have been dominated by the 400th anniversary of the Mayflower’s voyage – the Pilgrim Fathers leaving Plymouth, Devon, to land in Plymouth, Massachusetts. Tudor Evans, leader of the city council, said: “We had cruise liners lined up to come in – 15 of them, including the new Disney Princess… We could spend ages talking about what we might have had. But that isn’t gonna do very much good.”

I bothered some visitors and businesses on and around the famous Hoe, the green space at the heart of the city which offers the best views of its remarkable natural harbour. The business was generated, for the most part, by visitors from the local area. (One person, waiting to take their child on a little miniature train, told me they weren’t local – “I’m from Salcombe”, 25 miles away.)

Restaurants were open but, a number of business owners told me, social distancing meant they could not run at about more than 60 per cent of their normal capacity. I had a burger on the edge of the old harbour, which I ordered from an app which minimised the risk of contact between me and the waiting staff.

One restaurateur winced and told me it might be her last summer. As in Penzance, a lot of tourism businesses rely on making outsized amounts in the summer. The full consequences of the spring lockdown may only become apparent in the winter.

Tourists slowly return to the harbour and the Hoe in Plymouth

I head up to the indoor market, where stall-holders were generally more chipper. Karen Gooding, who runs a shop selling canes and wallets, said they came back “on the 15th of June, and not really knowing what to expect to be honest. And then the first week was better than we anticipated. Since then, it’s a little up and down. But the trend in the last couple of weeks has been up.” The council, which owns the market, did not charge rent during lockdown.

Carol Cox, who runs a gifts stall, says she did very well from selling puzzle books. People who had run out of things to do and read during the lockdown came back to stock up. Things are quiet, she told me, but she has been selling gifts for tourists, too.

But things are not yet fully restored. Luke Pollard, the MP for the heart of the city, said: “We’re not yet near the end of furlough – where we still have a lot of business, especially in tourism, hospitality. And in our aerospace sector, that’s still not yet back to work.”

Plymouth, of course, is much more than a visitor destination. It is best known as a military city. It has some very conspicuous military installations: the Royal Artillery occupies a seventeenth century citadel in the city centre; a huge naval base and dockyard, too. Those institutions have been able to keep working with fewer interruptions than many. Pollard says the dockyard managers “have taken a very sensible approach to social distancing whilst, as a business which is a key-worker business, keeping the operations going”.

Royal Navy base in Plymouth

This expertise is part of why the city also has a large manufacturing sector, particularly in marine engineering; 12 per cent of the workforce is in manufacturing. The national average is 8 per cent. Stuart Elford from the Plymouth and Devon Chamber of Commerce say:s “There are scientists there from all over the world who have come here…because this is where it’s happening. This is the cutting edge of marine environmental sciences.” I gawped at the huge Princess Yachts factory – a yard making leisure craft with, Evans told me, 3,000 employees. The city also has a lot of construction work going on.

Plymouth is, however, also a city with some significant pre-existing problems. It has lots of stranded commercial property and a problem with endemic low wages. Pollard says: “In my patch alone, over 1,000 young people are out of work, Universal Credit applications have gone up 126 per cent in the last month… Plymouth already had a rate of unemployment greater the national average before the pandemic. And we had levels of poverty that put us in the bottom 5% of poverty rates in the entire country.”

A young couple at the harbour and the Hoe, Plymouth

Those UC stats give another reason to worry about the labour market: it is available both to people in low-income work and the unemployed, so shows up both unemployment and, critically, under-employment. People who are in work but unable to make ends meet represent a growing national problem.

Evans told me: “We’ve been pursuing a strategy for ages and trying to upgrade the work… to raise those wages. Now we’ve slipped back from that lofty ambition to trying to support and save jobs at the moment. Everything we’re doing is about trying to stop job losses.”

It is a measure of the city’s level of worry that its post-pandemic plan is called Resurgam – the motto adopted by Plymouth when it rebuilt after the devastation wrought on the city during the second world war. The word – meaning “I will rise again” – speaks to the scale of what Plymouth fears may come.

Evans said: “There’s a huge number of young people… not quite at the end of their school careers that they’d anticipated. So we’re trying to design programmes to support them. Big focus on apprenticeships, work experience, things like that… a huge programme in construction skills.” The council, he says, is trying to accelerate construction works it has already scheduled.

The city’s fears are well-founded. Even a short sharp shock could be brutal. One paper, from 2004, found a single spell of unemployment for an individual was associated with an eight to 10 per cent drop in their expected wages at the age of 42. For people who drift in and out of work in their 20s, the penalties are much higher.

The photographer's pursuit of a visual metaphor. Plymouth.

More recent work, published by University College London, has found that people from poorer families suffer more in periods of weak labour markets – and the scarring can be transmitted. Even after adjusting for factors like geography, non-graduates are more likely to experience unemployment if their parents experienced it during their childhood. Having more deprivation makes Plymouth more vulnerable.

Evans’ focus on the young is also prudent. They are the group at most risk of unemployment. They are more likely to be newer employees with fewer rights. They are more likely to be in sectors, like tourism and food, which are troubled. They are also much more likely to have been furloughed.

Plymouth is better diversified than a lot of places, but that also means it is also exposed to a lot of risks. For example, the city benefits from the presence of three higher education institutions: the University of Plymouth, Plymouth Marjon and the College of Art.

If there is a resurgence of the virus, the fall-out for the city could be significant if it makes, for example, the loss of academic jobs, or renders housing developments, cafes and restaurants unsustainable. For the last city on my trip, that was an even bigger worry.

Exeter is, in lots of regards, one of the west country’s great success stories – and much is driven by the success of the university. A joke used in the city is that Exeter without a university would be Tiverton. Now admitted as one of the “Russell Group” of 24 research-intensive university, it has grown substantially in the past decade, now reaching about 25,000 students. And its growth has driven lots of change in the local economy. In a city of 130,000 people, they are usually a noisy presence.

And not just university students either. As you enter the city from the train station, its large and very successful further education college is very apparent. Exeter College serves 5,400 sixth-formers, 1,500 apprentices and 4,000 adult learners. More than half of those students travel in from outside the city. Exeter also has a number of language schools who troop through the city in their matching backpacks.

Customers join the queue to enter Ikea as the store reopens in Exeter

It reflects the centrality of the university to Exeter that Sir Steve Smith, the outgoing vice-chancellor of the university, chairs the city’s “Liveable Exeter Place Board”. And it reflects that the university has been seen to have driven an improvement in the city’s lot.

Heading into the pandemic, average wages in Exeter were well above the west country average, while unemployment was lower. In recent years, it has also started pulling in commuters from elsewhere. Karime Hassan, the chief executive of the city council, says the city now “has the fourth-largest daytime increase in population. You’ve got London, then you’ve got Cambridge, then Crawley [Gatwick Airport] and then Exeter”.

“The biggest issue that all employers have said to me over the last five, six years has been: ‘We can’t recruit the talent we want. And the biggest barrier for us growing is you’re going to get the labour in.’ We’ve generally had more a lot more jobs than we’ve had people.”

That growth was not just about academics: the university’s strength in environmental sciences allowed the city to become the new home of the Meteorological Office. The Environment Agency is already in place: 42 per cent of the city’s employees are in the public sector. There are other reliable employers, too – take Southwest Water and EdF energy.

The city has also seen growth in digital agencies and other online businesses. Hassan says: “One of the one of the reasons why I think we’ve been less concerned than other places about the long term impacts of Covid has been that the structure of these businesses means they can work from home.”

In the medium term, the fate of the university itself will determine much. It is an employer spending £525m a year in the city – including £330m on salaries. There are potentially three nightmares worrying the institution. The first is that the pandemic creates a wave of student deferrals. If, next year, the number of students is markedly down, the institution will suffer an enormous financial hit. That will hit the university’s payroll as well as student accommodation and the high street.

The second nightmare is China: the Chinese government warned its students not to go to Australian universities as a diplomatic reprisal. Britain’s tensions with China, which have risen over Huawei and Hong Kong, could yet rebound into UK university recruitment. The university has about 2,000 students from China. Nationally, this is a problem for all institutions: there are 136,000 students from China at UK institutions.

Face masks whilst shopping in Exeter city centre

The third factor, though, is Brexit: if UK institutions are excluded from European research funding programmes, that too will affect the bottom line. Exeter received £20m from the EU research budgets last year. These grants have multiplier effects: they allow the university to bring in other sources of income.

Sir Steve said: “For us, the number one requirement is to preserve jobs. We’ve put seven proposals to the unions with a variety of options for how we share the pain – including a 20 per cent cut in the senior team’s pay. If it’s a one-year phenomenon, we can get through it. If it’s two or three years, it’s going to be very hard.” The university has furloughed 820 members of its staff on full pay.

But there is a tale of two cities, here. The fact that so many of Exeter’s better earners can afford to stay home is a challenge to the high street. The dispersal of the students – who mostly left the city as the lockdown started – has cost the city centre. Shops are open again, but the centre is very quiet.

The city has already suffered steep losses during and before the pandemic: a row of mid-market restaurants has shut in a prime location, partly because national chains ran into trouble. Exeter has lost a Cafe Rouge, Carluccio’s, Byron Burger and Jamie Oliver’s all in a row.

The city’s taxi drivers are also wholly dependent on students: a man who described himself to me as being “Uber’s only driver in Devon” at the moment said things were enormously quiet with the students away. Students sustain an IKEA. Land Securities, a developer, came to see Sir Steve to ask about future student numbers before putting money in. If the start of the next academic term is disrupted, this could cause a wave of unemployment.

This may be the great difficulty of the pandemic. It is merciless to towns where a principal source of income is damaged, as in Penzance. But even in towns and cities that are well defended, like Exeter, with its fortress walls of public sector jobs, there is stress.

An empty Princesshay Shopping Centre in Exeter, April 2020

Indeed, the critical factors which make a lot of Exeter employers resilient – their ability to have staff operate remotely – cause problems elsewhere in the city: their staff are not visiting retailers on the way to and from the office. The government has sought to help the high street with a cut to value-added tax and vouchers towards meals. But this may be the wrong approach.

Lindsey Macmillan, a professor at UCL, said: “This is a recession like no other. You can’t necessarily protect businesses that you normally would with tax cuts that try to get consumers to start spending in the middle of a pandemic.” Macmillan, who is leading the new Centre for Education Policy and Equalising Opportunities at UCL, said: “The money would be better spent on making it cheaper to keep employees on.”

As the chances of a vaccine in good time seem to be rising, the cost-benefit analysis of supporting employment is improving; it may be affordable to support employers to keep more people in work until we are safe if an end is, indeed, in sight.

For now, things remain frozen – and not just in the south west. After a pause, the children leaping from the bridge in Penzance return to the surface. Not just unharmed, but elated. In the labour market, we still do not know how deep the water is.

Photographs by Tom Pilston and Getty Images

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