OECD predicts 7.1% unemployment in UK and criticises lack of training

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The Organisation for Economic Co-operation and Development (OECD) has forecast that unemployment will rise from its current 4.5% to 7.1% in 2021, less than some earlier projections from within the government. It added it was ‘remarkable’ how job support schemes in countries had kept mass unemployment at bay.

The think-tank also revised its estimate for the UK economy upwards slightly, suggesting it will contract by 10.1% rather than the 11.5% it forecast in June.

In July, the Office for Budget Responsibility said that unemployment could peak at about 12% this year.

Policies that were applied had an impact on reducing unemployment both in the UK and other parts of the world. Without the job retention scheme we would see a much bigger rise in unemployment. The schemes were extremely effective and critical. It is remarkable the way it has kept unemployment down” – OECD

The UK’s economy shrank in the second quarter of the year by the most of any in the G7 leading nations.

According to the organisation, in the second quarter of 2020, in the euro area the employment rate decreased by 1.9 percentage points, to 66.2%, with decreases of 3 percentage points or more in Estonia, Ireland and Spain. Among other countries, it fell by 1 percentage point in Japan (to 77.0%), by 0.2 percentage points in the UK (to 75.4%), and by more than 3 percentage points in Australia, Chile, Colombia, Iceland and Turkey.

However, the organisation warned that Brexit would add to the problems faced by the UK economy next year, with a large chunk of the economy’s shrinkage being accounted for by the country’s departure from the trading bloc. Even with a broad trade deal with the European Union the UK economy would end up 4.2% smaller than if it had stayed in the bloc because of border checks and the cost of red tape for EU workers. The organisation recommended close alignment with the EU and single market.

The OECD, an economic organisation with 37 member countries, said: “While restrictions have eased, the country now faces a prolonged period of disruption to activity and jobs, which risks exacerbating pre-existing weak productivity growth, inequalities, child poverty and regional disparities.”

Chancellor Rishi Sunak was encouraged to extend job support: “Additional spending on active labour market measures are welcome and further increases would help to accompany unemployed workers in their job search and ease adjustment to new working arrangements,” the OECD said.

In-work benefits and tax credits were recommended as the best way to support low paid workers; the authors said that increasing the minimum wage now could prove damaging to employment and would harm the prospect of younger less qualified workers. Previous minimum wage rises had had an insignificant impact on employment, they said.

There was also a risk that the economic damage caused by the coronavirus would set back efforts to close the gender pay gap because of the loss of precarious female-oriented roles. This was likely also to lead to a rise in child poverty and increases in already high rates of inequality.

Overall public investment has been lower than in other leading economies in recent years, and investment in digital infrastructure still lags investment in transport, energy and utilities” – OECD

The proportion of low-qualified workers in the UK was among the highest in any OECD country, the report said, a situation not helped by an overall decline in public and corporate spending on adult and lifelong learning. Further measures to those already set out by the government were needed to bolster ICT training and apprenticeships.

Low borrowing costs allowed for more public spending, the OECD stated, and the government should be relaxed, for now, about paying it back. But it also pointed out that the UK’s tax take was low in relation to other European countries.

The OECD commended job support schemes in the UK and elsewhere: “Policies that were applied had an impact on reducing unemployment both in the UK and other parts of the world. Without the job retention scheme we would see a much bigger rise in unemployment. The schemes were extremely effective and critical. It is remarkable the way it has kept unemployment down.”

However, the UK needed to improve its performance in regards to training and productivity: “More could still be done to encourage innovation and reduce gaps in adopting new technology between leading firms and laggards. Overall public investment has been lower than in other leading economies in recent years, and investment in digital infrastructure still lags investment in transport, energy and utilities.

“These are all areas where the UK lags the best-performing OECD countries and which are likely to bring high productivity gains. Planned spending to improve digital skills could also be more ambitious, as the Covid-19 crisis makes the low level of adult training in the United Kingdom a more urgent concern.”