The Office for Budget Responsibility predicts that unemployment will rise to ten per cent in the second quarter of this year before falling again slightly in the third and fourth quarters.¹ The Chancellor, Rishi Sunak, has also warned the UK faces a “severe recession” on an unprecedented scale as official figures show the fastest rise in unemployment since 1947.² One in nine people are now out of work in some parts of the country with 2.1 million claims to universal credit in the first two weeks of the lockdown alone. This predicts a bleak picture for the future of the UK labour market.

Current unemployment figures cannot be known as official statistics are only published by the Office for National Statistics every three months beginning in January.³ This means the last collection of statistics does not represent what has happened to the country since the COVID-19 pandemic struck. At present, the UK unemployment rate is under four per cent. However, looking at the universal credit claims helps to give a much better indication of the true picture. The UK government is also footing a large bill with the undertaking of the furlough scheme and is therefore currently underpinning the labour market. It is thought that without this job losses could have reached twenty per cent by now.⁴ The government will expect companies to start to pay a portion of their wage bill from August until the end of October, when the furlough scheme is set to finish completely. This is set to cause another wave of job losses as companies struggling through the pandemic are likely to make staff redundant.

The economic costs of high levels of unemployment are severe and multi-faceted: loss of income to the unemployed, less tax revenue and higher welfare payments for the government, social problems and inefficient use of resources.⁵ Unemployment is one of the biggest causes of poverty in the UK and can push people into debt or worse leave them homeless. Once out of work it can be harder to get back into work, sometimes perpetuating a cycle. People that are out of work for long periods miss out on training and work trends as well as suffer reduced levels of confidence. Keeping people in work is in the government’s best interest as someone that is out of work will not only pay less tax but also spend less, and will require support from a range of welfare measures.

The United States is in an even worse employment situation than the UK, as it is currently struggling with the world’s highest level of infection with over 1.5 million confirmed cases and over 94,000 deaths.⁶ The Federal Reserve has warned that the nation’s unemployment rate could reach 25% as a result of the effects COVID-19 has had on its economy.⁷ Unemployment levels like this have not been seen since the Great Depression of the 1930s when high levels of unemployment were only resolved through the reindustrialisation caused by the start of the Second World War. The Federal Reserve Chief is optimistic that this time around the current recession will be over by the end of the year, as he thinks spending mechanisms will allow huge sums of money to be pumped into the economy. However, since March 1^st the US national debt has grown by $1.5 trillion to $24.9 trillion, with the treasury is looking to support this with another $3 trillion dollars this quarter.⁸ The ability to finance this debt comes from foreign investors with ironically the country’s biggest creditor at the moment being China.⁹

Governments across the globe are suffering a similar situation but this pandemic has exposed particular problems within the US economy. Experts worry that the US could become stuck in a “debt trap” as their productivity shrinks. Servicing their debt could draw funding away from vital sectors such as education and infrastructure and means concerns such as climate change are moved off the US agenda. However, leading Republican senators have already been calling China to foot the bill of COVID-19 by cancelling some of the debt owed them by the US. This would go against the fundamental principles of the global financial market, making it harder for the US to borrow in the future, as well as having implications on China’s willingness to trade.¹⁰ With China owning around $1.1 trillion of US treasuries, questions are being asked why the US government has left themselves so economically vulnerable to a competing foreign power.¹¹

A concern for government forecasters is that high levels of unemployment and a stagnant job market tends to lead to social unrest. Strikes, demonstrations and violent protesting are the last thing an economy needs when trying to get back on its feet. A report by the International Labour Organisation analysing the effects of the financial crisis of 2008 indicated that: “economic growth and unemployment rate are the two most important determinants of social unrest”.¹² Jobs are what keep people and families going. The harder it becomes to find a job the greater the levels of poverty, tension and despair, feelings already prevalent in communities reeling from the effects of COVID-19.

Mental health awareness has become far more widespread recently, with growing awareness and concern about the psychological effects of the crisis amongst the government, businesses and charities. However, the Royal College of Psychiatrists has warned mental health services could be overwhelmed by a “tsunami of mental illness”.¹³ Many people are seeking psychiatric help for the first time, with fears over losing their job or business alongside bereavements and illness. The widespread isolation the pandemic has caused can be exacerbated by losing employment. The City Mental Health Alliance has particularly stressed the need for the mental health of furloughed staff to be supported during the pandemic.¹⁴ This is a new concept for many and they may be suffering more than most over feelings of insecurity about their future finances, as well as losing a sense of purpose. Being furloughed may have left them feeling undervalued and damaged their confidence, left them feeling isolated or abandoned through a lack of connection with work colleagues, with no guarantee of a job to go back to.

In Europe statistics show that Greece currently has the highest levels of unemployment at sixteen per cent, followed by Spain on thirteen per cent, Italy at nine per cent and France at 8 per cent.¹⁵ Youth unemployment rates are also correspondingly highest in these countries.¹⁶ It is likely that these countries will be the first to show signs of civil unrest as the true figures of unemployment come out in the coming months will undoubtedly be higher. National debt is also highest in Greece as it has been struggling to pay back its creditors since the 2008 financial crash.¹⁷ With an economy that relies mainly on tourism and shipping their economy is likely to have been hit exceptionally hard as a result of COVID-19. High levels of unemployment will mean their labour market will struggle to bounce back anytime soon.

With such high levels of unemployment predicted in some European countries, the UK included, will struggle to keep their populations productively occupied. A growing mental health crisis and such high levels of youth unemployment, civil unrest will now be a worry for many governments as an unintended consequence of the COVID-19 pandemic. Low unemployment levels are a sign of a healthy economy and while governments can carry a certain amount of unemployment the longer they have to the harder it becomes to increase growth. Quick and decisive action to get people back into work is now the best option through the looming economic crisis. However, with continued uncertainty over the longevity of the virus in society, new social distancing norms and working practices, the labour market may be slow to adapt.