Employment Emergency! Where have all the workers gone?

As economies across the globe begin their journey on the long road to recovery, many businesses are asking the question: “where have all the workers gone?”

The disappearance of many low-skilled or unskilled staff from multiple industry sectors has been observed across many western economies during recent months, leaving employers struggling to fill vacant positions as they try to open back up for business.

So, what exactly is happening in the job market? Why are employers finding it impossible to fill these job vacancies?

Generally speaking, economists are laying the blame squarely at the door of the current COVID pandemic, framing it as a temporary blip or unforeseeable problem – and certainly not related to any macro-economic factors propagated by specific governments. But can it be that simple?

Jobs that were most affected by individual country lockdowns are arguably those within the hospitality and leisure sectors. Bar, restaurants, beauty salons, etc all received the harshest treatment by being forced to close for the longest – leaving millions of people without employment. So surely one would expect that as these businesses begin to reopen, workers who previously filled these positions would simply slip back into them? Well, that’s exactly what governments and employers alike were expecting, but boy did they get a shock!

Let’s take a quick look at the US where the service worker shortage is clearly evident – US employers are having difficulty recruiting at current wage levels, leading to vast closures of businesses, some of them after every worker quit on the same day, others having tried to keep things going after many didn’t return after shutdowns.

The US has a distinct, but not unique situation – it, like many other westernised nations, has an incredibly stingy social security framework. However, during the COVID crisis, unemployment payments have been considerably topped up – by $300 a week, leaving people who usually have no choice other than to work for even poverty wages with at least some alternative options.

Whilst Biden has made it clear he doesn’t intend to keep the boosted unemployment insurance forever, workers now have a degree of leverage – albeit temporary – to try to get better pay, or to use the time to retrain, upgrade their skills and find better jobs.

The UK’s story however is quite different to that of the rest of the world. Apart from having to deal with the most disruptive pandemic for a hundred years it’s also still adjusting to its new position in the world following the most publicised and hostile of divorce proceedings… Brexit!

The UK has also had a COVID boost to benefits, through universal credit, albeit on a far smaller scale to the US that couldn’t, on its own, come close to explaining the staff shortages that businesses are experiencing. The UK’s current worker shortage is far more broad reaching and is affecting all levels of employment across all corners of industry. Employers are finding it extremely difficult to fill vacant positions at all levels across manufacturing, construction, hospitality, logistics and distribution, health and social care, and agriculture.

Part of the answer is likely to lie in the furlough scheme, which paid people unable to work due to lockdown – or whose employers chose to furlough them – up to 80% of their usual income, while leaving them free to do other work.

The furlough scheme gave service workers in particular time to search for another job and the income to bridge the gap to a new role. While some people love service sector jobs and wouldn’t wish to switch elsewhere, the pandemic highlighted previously unforeseen vulnerabilities and insecurities of working within the sector that spurred many people to retrain or upgrade their skills to find work in other sectors.

Official figures show that, despite the lifting of all pandemic restrictions that previously limited people returning to work, about 1.5 million workers in the UK are still furloughed. At its peak almost 9 million jobs were furloughed during the first wave of the pandemic, with about 5 million in the wave in January this year.

Sounding the alarm over the risks to economic recovery from acute labour shortages, the Recruitment and Employment Confederation (REC) and the accountancy firm KPMG said the number of available workers plunged in June at the fastest rate since 1997.

Firms are reporting hiring challenges across several sectors of the economy, led by shortfalls in areas such as transport and logistics, hospitality, manufacturing, and construction.

As well as the trouble recruiting chefs, kitchen porters, cleaners and warehouse staff recorded in previous months, recent research indicates that issues for employers were spreading to typically higher-paying sectors such as finance, IT, accounting and engineering.

The rush to reopen after pandemic restrictions is leading to bottlenecks. UK employers are finding added complications as fewer EU workers travel to Britain because of COVID border controls and the government’s post-Brexit immigration rules.

An estimated 1.3 million non-UK workers have left the country during the pandemic. There are also far fewer foreign workers seeking employment in the UK, with overseas interest in UK jobs more than halving from before the pandemic; indicating that UK employers can no longer rely on overseas workers to plug employment gaps.

Some business leaders say easing post-Brexit immigration rules could help address shortages, but also called for further investment in skills and training from the government to increase the numbers of domestic candidates. Employment experts believe people are being put off from work in certain sectors that have developed reputations for low pay and poor conditions in recent years, and that concerns over continuing high rates of COVID are also having an impact.

Unemployment in the UK has fallen in recent months as firms scrambled to hire, dropping to 4.7%, or about 1.6 million people. The Bank of England forecasts that unemployment would rise to 5.5% after the furlough ends. However, this is significantly below expectations last year that COVID would drive up job losses at the fastest rate since the 1980s, leading to 12% unemployment.

In a sign of the growing pressure on companies, surveys from the British Chambers of Commerce showed 70% of businesses that had tried to hire staff in the three months to June had struggled to do so.

One of the most seriously affected sectors by the UK’s worker shortage is the haulage industry. It says it is struggling to find enough heavy goods vehicle (HGV) drivers to keep the economy moving. HGVs transport just about everything around the country – around 90-95% of all goods.

But thanks to a combination of COVID, Brexit and other factors, there aren't enough drivers to meet demand. Based on a survey of its members, the Road Haulage Association estimates there is now a shortage of more than 100,000 drivers in the UK.

There are a number of reasons why the shortages have become so severe - COVID is certainly a part of it. As travel became increasingly restricted last year, and large parts of the economy shut down, many European drivers went home. And haulage companies say very few have returned.

The pandemic has also created a large backlog in HGV driver tests, so it's been impossible to get enough new drivers up and running. The haulage industry said that there were 25,000 fewer candidates passing their test in 2020 than in 2019.

However, COVID wasn’t the only reason why many European drivers went back to their home countries or decided to work elsewhere. When the UK was part of the single market, they used to be able to come and go as they pleased, but the additional border bureaucracy after Brexit meant it was too much hassle for many of them to drive into and out of the UK. Many drivers are paid by the mile or kilometre rather than by the hour, so delays cost them money.

Haulage companies also want better conditions for drivers in general, and recognition that they are a vital part of the economy. They say the average age of HGV drivers in the UK is 55, and more needs to be done to attract younger workers. It is not a role that seems to encourage or appeal to enough younger potential employees entering the market and the issue has of course then been exacerbated by Brexit.

So, what is the government doing about shortages? For now, it has slightly relaxed the Drivers' Hours rules, which means drivers will be able to increase their daily driving limit from nine hours to 11 hours twice a week. But this has been criticised as compromising safety standards and the industry says it will do little to ease the problems it is facing.

Instead, haulage companies have been calling for a change in the rules to make it easier for drivers from abroad to get temporary visas to work here. They want foreign drivers to be added to what's known as the Shortage Occupations List, allowing them to qualify for a skilled worker visa.

But the government isn’t keen and argues that progress is already being made in testing and hiring, and it says a big push is also being made towards improving pay, working conditions and diversity.

With many drivers taking time off during the summer holiday season, though, there is real concern that the crunch may be about to come. There are now warnings from companies and hauliers that they can no longer guarantee all pick-ups and deliveries. Retailers are predicting crippling shortages on shop shelves due to the increasing inability to transport their goods. And just this week, KFC has warned customers that it is facing a shortage of some items as it becomes one of many businesses in the UK hit by supply issues.

Another industry notably affected by the UK’s worker shortage is the agriculture sector.
Many farmers breathed a huge sigh of relief when the UK and EU reached a last-gasp post-Brexit trade deal after nine tortuous months of negotiations. The long-awaited trade deal, which came into force when the Brexit transition period ended at the end of 2020, averted a no-deal Brexit – which most agreed would have been a catastrophic development for the agricultural sector.

Although tariffs are no longer a threat, Brexit has meant an end to free movement of labour, leaving food and farming sectors exposed to a huge shortage of seasonal and casual workers which have traditionally been filled by EU nationals.

EU workers who usually come to the UK to carry out jobs such as livestock slaughter and fruit, potato and vegetable picking and packing struggle to meet the criteria required under the Government’s new points-based system, which allows migrant workers to work in the UK.

Whilst the Government has relaxed the rules somewhat for vets, veterinary nurses, butchers, and agricultural engineers - and announced a seasonal workers pilot for 2021, with an increased quota of 30,000 - a shortfall of workers is still likely.

But there’s a double whammy for the farming sector – however successful it may (or may not) be in overcoming its worker shortage to get crops harvested, it now faces a second dilemma of how to get its produce onto supermarket shelves due to the worker shortage in the haulage industry!

A more unusual and unique phenomenon that has temporarily stalled the UK’s road to recovery is the emergence of the ‘Pingdemic’

What’s a ‘Pingdemic’ and why Is the UK having one?
July 19 was meant to mark the end of pandemic lockdown restrictions as progress continued in vaccinating people against COVID. But just as the country relaxed most restrictions, it was still dealing with a third wave of coronavirus infections as the highly contagious delta variant spread across the UK.

A record number of people who had come into contact with an infected person were being asked to self-isolate, most of them having been ‘pinged’ by the National Health Service’s contact-tracing app.

The ‘Pingdemic’, as it has been dubbed, has produced huge disruptions for businesses and critical services that threaten to undermine efforts to revive an economy still recovering from its deepest recession in 300 years.

Some of it is conducted the old-fashioned way, by workers who interview those who test positive for the coronavirus, ask them about recent contacts and then contact those people. But it’s predominantly done via a National Health Service ‘Covid-19 app’ that residents can download onto smartphones.

If a user tests positive for the coronavirus and agrees to it, the app uses Bluetooth technology to identify other users who in previous days came close enough to the infected person for long enough to be at risk.

The app then notifies those people and asks them to self-isolate for 10 days. Isolation is mandatory only in the case of the old-fashioned method, not with the app. In any case, it’s not required to download the app, and since the start of the ‘Pingdemic’, thousands of users have deleted it to avoid having to risk isolation.

There are reports that the app has been overly sensitive, for example identifying neighbours as contacts through house walls. Another complaint is that users were being asked to isolate even if they’re fully vaccinated; however, that rule is set to be lifted on 16th August.

Why did the number of people notified hit a peak?
As of July 20, an estimated 1.73 million people in a country of 67 million were isolating. Almost 690,000 people in England and Wales were told to isolate by the app in the week ended July 21, up 11% from 620,000 the week before.

The peak was driven in its early stages by a combination of rising infections and increased movement of people. The weekend before most restrictions were ended, the UK recorded the highest increase in infections anywhere in the world, with cases topping more than 50,000 per day.

The delta variant makes up approximately 99% of all new cases there. Infections were higher in the UK in early January, but lockdown rules were still in place in many parts of the country, so those who tested positive then likely would have come into contact with fewer people.

What are the consequences of so many people isolating?
British business is being significantly disrupted. Food and logistics companies have warned of critical shortages of workers, and ministers have allowed limited numbers to avoid the 10-day self-isolation to ensure services can keep running.

Retailers were reporting absences of as high as 20% in some areas. Carmakers on July 29 urged Prime Minister Boris Johnson to make their workers exempt from quarantine as labour shortages were hampering production. Automakers in the UK produced 69,097 cars in June, the second-worst total for the month since 1953, according to the Society of Motor Manufacturers and Traders.

Business lobby groups say it’s difficult to make sense of the rules particularly amid conflicting advice from different government departments, for instance about whether it’s essential for people to heed the app’s guidance to isolate, and how businesses might get exemptions. Businesses have pushed for tweaks to the app to account for people’s vaccination status and for staff to be able to return to work after testing negative for the virus.

What does the government say?
Boris Johnson - who confined himself to his country residence after being ‘pinged’ following close contact with Health Minister Sajid Javid, who tested positive - said that while self-isolating is difficult, it is still an important tool for fighting COVID.

He said the country must reopen ‘cautiously’. Key workers who were vaccinated could apply for exemptions, but the government was recommending the majority of workers still self-isolate if ‘pinged’ even though there was no legal obligation to do so.

In a move to ease the Pingdemic, the app was tweaked on 2nd August so that it identified users who had been in close contact with an infected person in the previous two days rather than five.

This recent adjustment to the contact tracing app has seen the number of people being ‘pinged’ reduce by more than half from 690,000 at the height of the Pingdemic in July to 317,000 in the first week of August – but that’s still a sizeable portion of the population unable to work - forcing companies to temporarily close or reduce their opening hours to cope with the reduction in staff.

No matter what your opinions or beliefs are in regard to the current pandemic or your attitude towards specific government’s macroeconomic policies, there can be no doubt that many western economies are facing a colossal labour crisis.

For many countries only time will tell if the economists are right and that this is indeed just a temporary worker shortage blip caused by COVID, or if it is in fact the start of something bigger.

Will we see an awakening within unskilled and low-skilled workers seeking better pay, better conditions, and more workers’ rights? Will this be the start of a modern social revolution?

Sustained labour shortages, for whatever reason, lead to wage increases in order to attract workers. Of course, higher wages for typically low-paid workers is an extremely positive outcome; however, if this in turn leads to rising inflation as companies raise their prices to accommodate higher wage bills then is anyone really benefiting here?