“I never make predictions, especially about the future”, the American sage Yogi Berra is reported to have said. If only the rest of us had such a luxury.
The encouraging news over the last couple of weeks on COVID-19 vaccines holds out the prospect that many of the restrictions we have been living under will be lifted over the months to come. The economic fallout of the pandemic is harder to predict. And yet despite this uncertainty, big decisions have to be made around savings, investment, education and spending. Individuals, businesses and governments face massive dilemmas over how best to prepare for the world to come.
One judgement call with particularly high stakes is whether governments should continue to keep firms afloat and ensure that people do not lose their jobs, given that they may not have jobs and markets to come back to after the crisis. Initially, when the virus seemed like it might be a short-lived phenomenon, many countries attempted to ‘freeze’ their economies in their pre-covid state. For example, Emmanuel Macron made the commitment in March, that “No business whatever its size will face risk of bankruptcy”. The British Government’s furlough scheme continues to subsidise 80% of workers’ wages to ensure they are kept on.
As time has passed, some have questioned the sense of this approach. The Economist recently described Britain’s economy as ‘zombified’, worrying that the “government is retarding economic recovery by discouraging the reallocation of workers from dying industries to growing ones”. It’s a diagnosis the Chancellor has seemed at points to share. In September’s Winter Economy Plan, he announced a substantial reduction in the generosity of the furlough scheme intended to ensure only “viable jobs” would be supported, before rowing back and re-committing to the original design.
What reason do we have to think that people are being trapped in unviable jobs in doomed firms in dying industries? The claim gets at least some of its plausibility from the fact that many of the sectors worst hit by the current crisis seemed to be facing structural challenges before coronavirus struck. Pubs, bars and restaurants claim they are facing devastation, but the number of pubs has been falling for 20 years and the restaurant sector was already in the middle of a “casual dining crunch”. Cineworld may just have shed 6,000 jobs, but movie theatres have long been worried about losing younger generations to home streaming. Coronavirus has been disastrous for the high street, but as my colleague Scott Corfe has pointed out, it just continues the existing trend towards online retail. In all these cases, it seems as though the current recession has only accelerated job losses that were in the post anyway.
That impression is misleading. Though the number of pubs and bars has been in decline, employment in the sector has actually risen in recent years, with opportunities in larger pubs offsetting the impact of smaller pubs closing. For all the doom and gloom around the restaurant industry, the number of eateries in the UK has risen every year from 2011 to 2020, and the number of restaurant staff rose 13% between 2015 and 2018. After accommodation and food services, the sector next most exposed to the crisis is arts, entertainment and recreation. There, job growth has been less impressive, but still positive, increasing by 1% (11,000 jobs) between 2016 and 2019. For all of cinema’s travails, the number of people employed in ‘motion picture projection activities’ rose from 20,000 to 22,000 between 2015 and 2018. In general, there is not much of a relationship between a sector or industry’s employment trends and how badly it has been affected by the crisis.
The major exception is retail, whose struggles have certainly not been overstated. Between 2015 and 2018, employment in the retail sector fell by 55,000, a drop of 2%. If there are many jobs fatally wounded by coronavirus, it seems the place to find them will be on the high street.
In most cases, though, there is little evidence to suggest that the jobs currently under threat were much imperiled going into the crisis. In sectors like hospitality and arts, the unviability of thousands of jobs arose with the pandemic, and it may disappear with the pandemic. It is possible that the virus represents an inflection point where previous trends go into reverse, but that for now that is pure speculation.
The world has been turned upside down for the past six months, and from this vantage point, it is hard to imagine many things returning to the way they were before. We should be wary of that impulse, though. The experience of the financial crisis and great recession should caution us that dramatic social and economic changes can be short lived. Back then, commentators lined up to predict that conspicuous consumption was over, and a new era of frugality had arrived. It never came to pass. High unemployment was expected to become endemic, but by 2015 had returned to pre-crisis levels. Going back further, we should remember all the economic activities that progress and automation were supposed to kill, but which tenaciously survived (for good and for ill): bank tellers, book publishers, hand car washes.
Writing off entire industries can have severe consequences: ruined livelihoods, disrupted communities, economic scarring. With an end to the Coronavirus crisis hovering tantalisingly into view, the outlook for many businesses might be less bleak than many think. Policymakers should give them a chance to make it through.
N.b. Like most fun quotes, it’s unclear whether Berra ever said anything of the sort, and the first occurrence of the phrase is apparently from an early 20th Century Danish politician. But that’s less fun.