Today marks an important anniversary in the economic management of the Covid-19 pandemic.
The Coronavirus Job Retention Scheme, or ‘furlough scheme’ as it is more affectionately known, has been officially paying the wages of almost one third of Northern Ireland Workforce for exactly 6 months. Anniversaries are usually time for reflection and pause, and this holds true for economic anniversaries as well.
The furlough scheme is due to end on the 31st of October and there have been many calls for it to be extended. The furlough scheme in the Republic of Ireland is being extended until next March at the earliest. It is absolutely necessary for support to workers to continue beyond the end of October. However, it does not naturally follow that continuing the furlough scheme is the best way to do that for all workers.
The first thing to acknowledge is that the furlough scheme, and its self-employment counterpart, have done an extraordinary job in holding the economy together during this crisis. It was unquestionably the correct policy measure to pursue back in March and it has achieved its objective. Nonetheless, after 6 months, it is worthwhile reminding ourselves what that objective was.
Back in March we were facing an almost complete lockdown of our economy in order to avoid a pandemic overwhelming our health services. In order to prevent our economy from disintegrating it became necessary to put in place a scheme that would essentially freeze the economy as it was in March and then defrost it once this period was over.
The most important aspect of the furlough scheme was that it retained the connection between employees and employers. Letting people fall into unemployment breaks that relationship and would have made it harder to restart the economy once the pandemic was over.
The problem now is that the pandemic isn’t over and its unlikely to be over anytime soon. When the scheme was first proposed, it was thought that it would last for a number of weeks, not months. Most businesses could survive a pandemic that lasted a few weeks, but many of them will not survive if restrictions continue well into next year.
It is highly likely that the current phase of the of the pandemic is going to be with us for some time. Some businesses are fully open, some are open with restrictions and others remain closed. It is also clear that the NI Executive intend to respond to daily case figures by tightening and loosening restrictions in an attempt to maintain the appearance of some form of control over the virus. It is fair to say that this is not where we thought we would be by now back in March.
The situation we now find ourselves is more complex and multi-layered and, as a consequence, our policy response needs to adapt to that reality. In formulating that response we need to think about what the prospects are for those currently on the furlough scheme.
In the same way that the current phase of the pandemic restricts some firms more than others, it also impacts some workers more than others. The furlough scheme has already started to wind down with employers being asked to contribute to pay in the month of August. This will give us the first indication of which firms have survived the pandemic and those that have not.
For these workers, a continuation of the furlough scheme is merely delaying the inevitable. Their firms exist merely as zombies, and maintaining the pretence that they will eventually go back to work is not good for anyone involved.
Since July, firms have also been able to bring workers back to work for part of the week and have them remain on furlough for the remainder. This ‘flexi-furlough’ as it has become known is in reality a short-time work scheme which is a very common labour market measure used in Germany and other European economies to respond to cyclical downturns.
The flexi-furlough part of the Coronavirus Job Retention Scheme should almost certainly remain in place. However, short-time work schemes, when they have been used in Europe, are about easing firms through recovery. In this instance there will be many firms who cannot begin the journey to recovery until restrictions are lifted, and even then, it may be an uncertain journey.
This means that we should only really offer flexi-furlough to firms for which the prospect of a return to normal trade is foreseeable in the near future. Once again, pretending that a firm will be able to reabsorb its full workforce is not helpful for anyone involved.
Additionally, over the last month there will be many workers who have been brought off the furlough scheme and back into work who do not ultimately stay there. This is bound to happen to firms in some sectors as expectations of a return to trade fall short of the reality. The fact workers in these firms would then fall into unemployment is not something that we should tolerate.
While some form of qualified flexi-furlough should remain in place, we need to start thinking about a retraining and reemployment scheme which has the same financial clout as the furlough scheme. Such a scheme would seek to maintain the level of furlough payments that a worker was receiving and provide retraining opportunities with a job guarantee at the end.
This would mean partnering up with firms which are likely to experience growth in the near future and providing them with the workforce that they will require. However, we will need to go beyond this and any scheme would have to be complemented by a significant programme of state investment in infrastructure and public services.
The global climate crisis presents and obvious infrastructural challenge and it is quite clear from the experience of this pandemic that our public services cannot be run with such limited spare capacity in the future.
The furlough scheme as it stands should probably end in October, but this should be seen as an opportunity to improve our response to the crisis, not to conclude it. This requires being realistic about our prospects in the short term and ambitious about our potential in the long term.
Paul MacFlynn is senior economist at the Nevin Economic Research Institute