Certain uncertainties: Labour lockdown

By Laurence Hopkins, Consultant
21 April 2020

As the lockdown continues there are few agreed certainties but one of them is this: we are all correct to be concerned about the short and long-term implications on the economy, the labour market and our own UK HE sector. However, even pessimists would have been surprised at the possible economic hit facing the UK when the Office for Budget Responsibility (OBR) published its ‘reference scenario’ featuring a 35% drop in GDP in the second quarter of this year. In this context, our report for UCEA members provides an overview of a range of forecasts and scenarios and how the Covid-19 pandemic might affect HE employers. The report looks at three ways of trying to answer this question: Looking back at history; looking at current data; and looking at forecasts.

While the coronavirus situation is unprecedented in many ways, there are four previous pandemics in the last century that we can look to for economic lessons: the ‘Spanish flu’ in 1918-19, the 1957-58 flu pandemic, the Hong Kong flu in 1968-69 and the relatively recent ‘Swine flu’ in 2008. The economic reaction and recovery from these pandemics provides much needed good news right now – while there’s predictable economic reaction, growth picks up pretty quickly after the bad times unlike other types of economic recession. The report explains why the most common comparison is to the Spanish flu, although prevailing economic conditions are completely different – pandemic comparisons are consistently and inevitably challenging.

Current economic and labour market indicators are soon dated in this scary and fast-moving world, while robust official data takes its time to be produced. But global stock market reactions are confirming the expected magnitude of the impact from Convid-19. Our report provides a snapshot that will soon become dated but the trailblazing lockdown countries such as China saw a 14% fall in industrial output in February alone. Furthermore, some economic commentators have suggested that these figures could deteriorate further in the second quarter of 2020 as virus containment measures will severely constrain business activity. But let’s keep positive and not forget that recovery can be quick - it is important to look forward. This is why we look at economic forecasts, touching on two types of forecast – those that modelled the impact of a fictional pandemic prior to Covid-19 and those that forecast the impact of Covid-19. Previous research on economic impacts of pandemics indicates huge uncertainty in modelling economic impacts at the time which leads to fluctuating forecasts being published every week. All forecasts should be taken with large spoonfuls of salt in terms of financial planning but, as Henri Poincare wrote ‘it is far better to foresee without certainty than to not foresee at all.’

Of course we are all asking what this means for the sector and HE employers. The economic fundamentals are important to the HE sector but it will be the knock-on effects to public finances of the government’s response which could be more consequential in the long run with the deficit expected to reach 14% of GDP in 2020-21 according to the OBR scenario. We are well aware that Universities UK estimates that around £6.9 billion is at risk across the sector from international student fee income alone and has recommended support proposals worth around £2 billion, stating that ‘without government support some universities would face financial failure’. 

The labour market impact will be varied with public sector employment remaining stable in the near-term while certain sectors are already seeing significant falls in employment. In the longer-term the future is hazy, but we may see public sector workforce cuts (health and social care an exception), as the government looks to manage its huge debt. We could also see the return of public sector pay policy for some groups of staff but elsewhere we could see a rush to recruit once the virus is under control which could lead to increases in starting salaries - this might explain the OBR’s startling expectations for wage growth in 2021 (+18% following a fall of 7% in 2020). Universities will therefore need to balance financial pressures within changing labour markets. When the virus becomes manageable and the dust settles there is a great deal to do.