UK Labour Market Under COVID Part 3: Layoffs, Hiring & Wages

Recessions, usually signify a rise in layoffs. Even the last recession, which was accompanied by much more wage moderation than previous ones, generated a significant rise in redundancies. This time it is a little different. Furloughing allows firms to postpone difficult decisions. This can be seen in Figure 1 below which tracks layoffs week by week through the first 26 weeks of 2020 relative to the norms of the past 5 years. While there may have been a small upturn in layoffs from around week 16, it is hard to discern a pattern to weekly layoffs that lies outside the norms of the last 5 years. And since the last 5 years were not recessions, it is hard to see much evidence of layoffs so far.

Figure 1. Layoffs in 2020 Week by Week Relative to Norm

Nor is there much evidence of wage cuts in the face of the crisis. We know hours have fallen back and this may affect weekly wages, so to net this hours drop out out we can look at hourly wages. Figure 2 plots the level of hourly wages, adjusted for inflation, week by week. While there is a deal of volatility in these numbers, due to smaller samples, the overall picture is of continued real wage growth over the course of the crisis.

Figure 2. Hourly Wages in 2020 Week by Week Relative to Norm

So people may not have been fired or had their wages cut so far, but there haven't been many people hired. This, in addition to workplace absences, is perhaps the most noticeable feature of the UK labour market during the crisis so far. Figure 3 plots the proportion of employees who have been in new jobs for under one month as a proxy for hiring. Between 2% to 4% of the workforce is usually newly-hired in any week, with fewer hires typically in Spring and Autumn being the main hiring period. In uncertain times, many firms try to make do with their existing workforce rather than expand. They may not even replace staff who leave. Hiring rates in the spring and summer of 2020 were some 1 to 2 percentage points below seasonal norms in the weeks leading up to the lockdown and thereafter. In short, hiring stalled over the crisis. Cumulative hires were some 40.5 percentage points lower than usual by the end of week 26. This means around 4 million fewer hires than might be expected. Many firms are having to make do with existing staff.

Figure 3. Hiring in 2020 Week by Week Relative to Norm