Getting Britain working (safely) again

The next phase of the Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme (JRS) has been a major public policy success. The unprecedented step of paying 80 per cent of the wages for 6.3 million jobs has made it possible to ask people to stay at home to save lives. This paper explores how the JRS should evolve as restrictions on activity are eased and the economy begins to recover.

High costs or ideological opposition to the JRS are bad reasons for immediately ending it in the face of the unprecedented circumstances of the current crisis. The risks to unemployment of policy moving too fast are particularly acute given that the traditionally labour-absorbing sectors in recoveries are the very sectors most likely to be shedding labour in this one. Instead, the motivation for JRS reform should be changes to the lockdown policy itself, which mean our economic objectives will shift too. Given that the timetable for adapting the lockdown is highly uncertain, so, necessarily, must be the timetable for any changes to the JRS.

The decisions to come about the JRS are much more complex than those taken upon its unprecedented, but ultimately relatively straightforward, introduction. Policy makers should not be thinking in terms of bouncing back to an old world, but instead aiming to optimise policy for a messy interim period dominated by social distancing. The JRS must be flexible enough to varying timetables for change and very different impacts across our economy. Trade-offs between objectives will also be more acute than during the hard lockdown, with the objective of job retention rubbing up against the scarring effects that long periods out of work have on skills and pay prospects. And the reality that firms face big uncertainty about future demand for their output brings risks of going too fast in phasing out the JRS (if changes force firms into bigger-than-necessary lay-offs), or too slowly (with individual firms worried about weak demand creating a self-fulfilling prophesy in aggregate).