The economy: the long, hard road ahead

7 Aug 2020 Nick Garbutt    Last updated: 7 Aug 2020

Pic: Unsplash

It will take Northern Ireland’s economy  between four and five years to recover from the Covid-19 economic crash, according to an Ulster University report released this week. 

The good news is that the recovery is already underway, the bad is that we’re likely to suffer more than most  because of NI’s heavy reliance on some of the sectors most badly hit by the shutdown. 
Pathways to Recovery was authored by academics at the university’s Economic Policy Centre. It compares the current crisis to previous recessions and concludes that continuing steps to restrict the virus mean that it will be a long time before we return to levels of economic activity achieved before the pandemic struck. 
The recession caused by the financial crash of 2008 led to a fall in economic output of 7.2% whilst employment fell by just 4.8%. The report predicts that this time there will be a significant impact on both. 
This is because of the impact restrictions have on three important – and labour intensive – sectors: retail, hospitality, and arts and entertainment.  Together they account for 24% of all employment in Northern Ireland. 
The report estimates that around 120,000 people are currently on furlough in NI (around half those originally registered for the scheme.) A further 76,000 self employed workers registered for the Self Employed Support Scheme. 
It adds: “By mid-June (the latest data released) the (unemployment) claimant count was estimated at just over 63,000, a level not seen since the height of the last recession.
“In the medium to longer term, one survey of UK SMEs suggests approximately 25% of those on furlough are at risk of redundancy. If that is reflected in NI, an additional 60k people could move into unemployment (increasing the rate to approximately 13%).”
These are troublingly high figures. 
To compound this those most likely to have been furloughed or laid off  are younger, lower skilled and temporary workers and are more likely to be employed in the more vulnerable sectors.
They might be the first out of work, they will also tend to be the last back in as employers will seek to recruit those with higher skills and more experience when opportunities return. 
This is will do nothing to improve inequality: the professional services and administrative sectors are the least vulnerable because they are less susceptible to social distancing rules with employees likely to be able to work from home. 
It took seven years for the local economy to recover from the financial crash. The report suggests that this time around it will take four or five. But unemployment will remain higher for longer – taking between 10 and 13 years to return to pre pandemic levels. 
Organisations are usually reluctant to make staff redundant because they don’t want to lose skilled, experienced staff – so as their economic circumstances tighten the first options include recruitment freezes, reduced hours and not renewing temporary contracts. 
However mass redundancies occur at a point when survival is threatened. Given that the economic outlook was worsening even before the pandemic struck and that future trading prospects are uncertain for so many it would seem that losses are inevitable, despite government measures to prop employers up. 
The report concludes: “When unemployment increases significantly, there is an increased risk that many of the jobs lost are gone forever. Research from the US suggests that in earlier recessions as many as 42% of lay-offs became permanent and thus creating the challenge of finding jobs for those workers. This ‘reallocation’ of workers is a difficult process and requires policies to encourage new business start-ups, prevent barriers to entry and increased provision of re-skilling programmes.”
So what can be done to help Northern Ireland face in to the looming jobs crisis? 
The report has a number of recommendations. 
These include: 
Keeping young people in education for longer. Currently around 25,000 young people leave the education system every year – and the latest cohorts will have very limited opportunities for work. Prolonging their stay outside the job market would be beneficial, especially if that helped them to learn new skills or new programmes (apprenticeships and the like) were to be developed. 
Re-skilling workers both during and after furlough. This to address skills shortages in emerging sectors with potential for growth. Whilst this seems obvious it is much easier said than done – skills shortages have been noted for a long time in NI and remain unresolved. 
Accelerating government investment plans. This would involve government identifying and quickly rolling out projects that would have the biggest impacts on local areas and also prioritising retrofitting housing stock to improve energy efficiency. 
Returning public sector staff to their town and city centre offices. This to help the ailing retail sector before more shops and cafes go to the wall. The report’s authors hope that this would provide leadership to the private sector to do the same. However, that ship may have sailed. Companies are more likely to make decisions based on comparative productivity of their own employees working from home and any potential savings on office space than saving shops. 
It also wants to see the next Programme for Government including “policies to raise, amongst many other things, skills, employability and the broader competitiveness of the NI economy.”
Pathways to Recovery is an important and sobering read not least because many of us are living in a fool’s paradise if we think that we’ve seen the worst of it. 
Technically the recovery is underway- we’re seeing month on month growth as the restrictions have lifted. However when government support for furlough and the self-employed comes to an end so too, sadly, will many jobs. That’s when we’ll really start to feel the effects – and why an urgent debate is so desperately required on this report’s findings. 


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