Unemployment support post Covid: learning from the job retention scheme | CPAG

Unemployment support post Covid: learning from the job retention scheme

Published on: 
13 May 2020
Written by: 

Tom Lee

Senior policy analyst

Yesterday, the Chancellor announced that the job retention scheme will continue until October. This will be a huge relief to the 7.5 million workers who rely on support from the scheme, and will avert a huge second surge in unemployment as a result of the crisis, which is already set to rise to its highest level for 25 years. This extension is welcome, but there is no reason why more generous unemployment benefits couldn’t exist in the UK permanently. As part of the Secure Futures project, where we consider the long term reforms of our social security system that are needed, this blog examines the principles behind the coronavirus job retention scheme and considers the viability of introducing a similar scheme in the UK on a permanent basis, with lessons from other European countries.

Increasing the generosity of unemployment benefit. The job retention scheme gives people up to £2,500 a month. This is a massive increase on the amount available through universal credit (UC). Even with the recent £20 a week uprating, a single person (aged over 25) only receives £400 a month, and jobseeker's allowance (JSA) is paid at even less (£74.35 a week for over 25s). This level of support is substantially lower than in other European countries where an unemployed person previously earning an average wage would receive 50-80 per cent of their past earnings. Having generous unemployment benefits does not, as commonly argued, lead to high unemployment rates. Germany and Netherlands, two countries with the most generous systems, had pre-Covid unemployment rates lower than the UK. The government should increase the value of unemployment benefit in the UK post-Covid to help people meet their costs.

Paying people benefits based on their past wage. Pre-Covid, unemployment benefit was paid at the same rate regardless of whether you were earning the minimum wage or £100,000 a year. The job retention scheme explicitly links the amount received to past earnings up to a threshold of £2,500 a month. Linking benefits to past wages is the norm in most European countries, although systems vary in how high they set the maximum threshold. You could argue that people on higher wages have made more contributions into the system, might have higher unavoidable costs (e.g. mortgage repayments) and therefore should receive more support. It might also be more politically acceptable. But there is no inherent reason why support has to be linked to someone's past wage. There is also a strong argument that we should treat everyone the same in their time of need and not give more to previous high earners. The important thing is to hold people close to the labour market, so re-entry is made easier. Rather than plunging them onto very low incomes, which makes unemployment more scarring and arguably more difficult to return to work. Regardless of how it is calculated (previous earnings, or a flat rate) the key issue here is generosity and making sure everyone has enough to meet their basic needs.

Providing support through employers. In the job retention scheme, support is provided to furloughed workers through employers. This was not the case pre-Covid and is not the case anywhere else in Europe. The reasons for the use of this mechanism for the job retention scheme are likely to have been two-fold. Firstly, to not overwhelm other arms of the social security system in a time of crisis, and secondly to preserve employee-employer relationships in order to help the post-Covid economic recovery. In the long term, there is no need to have unemployment benefit paid through employers. Post-Covid the social security system has the necessary infrastructure in place and would be best placed to administer such a scheme.

Supporting all workers regardless of how much they have previously worked. Provided that their employer has furloughed them, anyone is eligible for the job retention scheme. In most European countries, there are restrictions on who can claim the primary (more generous) unemployment benefit. These generally take the form of having worked a certain amount of weeks over the past year or two, as is the case with contributory jobseeker's allowance in the UK. This is then supplemented with a secondary scheme for people who are not eligible for the primary one. It is likely that any post-Covid unemployment benefit scheme would have some restrictions on eligibility, so the challenge for government is ensuring eligibility does not exclude people arbitrarily or discriminate unlawfully. For example, consideration would need to be given to the position of women who may spend more time out of the formal labour market as a result of caring for children.

Supporting workers for a fixed period of time only. Currently the job retention scheme is open until the end of October. This is due to the high cost as well as concerns about the incentives for firms to start producing again to help with the recovery. In most European countries, there is a time limit (generally six to twelve months) for claiming the more generous unemployment benefit. This period is short enough to keep costs down and make sure workers have an incentive to search for their next job but also long enough to avoid the pressure to choose the first available job, regardless of whether it is a good match or not. A workable version of a post-Covid unemployment benefit scheme is likely to need some restrictions on the amount of time people can claim for.

The emergency measures in response to the Covid-19 pandemic were necessary only because of the inadequacy of the existing social security system. Therefore, providing much more generous unemployment benefit should be a key feature of the post-Covid social security system. Other European countries have shown us that much more generous schemes can work with a functioning labour market, can help to stabilise the economy in times of uncertainty, and play a significant role in helping to reduce and prevent poverty. The unprecedented number of people facing unemployment as a result of Covid-19 makes the time right to re-examine our inadequate unemployment benefits and put in place more effective support systems that provide greater security for workers in their time of need. This is an essential component of a stronger, more effective social security system, one that can provide a secure future for children and families.