The tsunami of layoffs may not work as badly as expected

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Unlike a typical recession, job losses are likely to be concentrated in a few sectors where the constraints of social distancing are greatest. They are also more likely to hit the lowest paid workers, especially young people. This poses its own problems, but it should at least reduce the impact on the rest of the economy. The fairly well-targeted measures in the Chancellor’s Summer Economic Update should also help the most vulnerable.Above all, the UK’s relatively flexible labor market is generally effective in creating jobs to replace those that are lost. This contrasts with the euro zone, where the unemployment rate was already above 7% before the pandemic struck.

The turmoil in retail is a good illustration of this. Thousands of job cuts have been announced recently. However, despite hundreds of thousands of layoffs in this sector over the past few years, the UK as a whole has started 2020 at a level close to full employment. Even in retail itself, sales have already recovered to a hair’s breadth of pre-crisis levels, and many online and out-of-town stores are recruiting.

All of this suggests that unemployment is set to drop sharply again as the economy adjusts to whatever “new normal” it is. The fundamentals remain in good shape and, even without the CJRS, there is a huge amount of policy stimulus in place. The recovery should therefore still look like a “V” as allowed by the gradual lifting of the lockout, despite a painful rise in unemployment in the meantime.

Julian Jessop is an independent economist. He tweets @julianhjessop. Jeremy Warner is currently absent.

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