Covid handouts have made people less willing to work, central bankers warn

Covid Workers
Covid Workers

Covid handouts have made people less willing to work, a group of the world’s most senior central bankers has warned.

The Bank of International Settlements (BIS) said “workers’ preferences have shifted in favour of fewer working hours” since the pandemic.

An unwillingness to work longer hours has been most pronounced in countries that gave citizens the biggest handouts during the pandemic, it said.

The BIS called out the UK specifically, where the Government spent tens of billions supporting furloughed workers during Covid, as well as the US and Canada.

While most countries’ workforces have recovered to the levels they were at prior to the pandemic, all three developed nations are notable exceptions.

The BIS linked this trend to generous state handouts during Covid, with its economists writing: “In addition to being held back by health concerns, [workforce] participation has been recovering more slowly where pandemic-related fiscal support was larger.”

The research suggests the no-strings-attached support given to people during the pandemic may have broken the link between the idea of working hard to earn more.

Hyun-Song Shin, head of research at BIS, said: “There has been this apparent change in the attitude towards work and the way we think about work and the labour market.”

The British government spent £70bn on furloughing 11.7 million employees during Covid, vastly adding to spiralling national debt.

By June this year, there were still 191,000 fewer people in work compared to prior to the pandemic, according to the latest available figures from the Office for National Statistics.

More recent numbers show the employment rate remains 0.9 percentage points below its pre-pandemic level, at 75.7pc. Roughly 76 in every 100 people are in work, compared to 77 prior to the pandemic.

Those who do have a job are working less than they did before Covid. The average full-time worker did a 36.4-hour week between May and July this year, the most recent figure official data is available for, compared to 36.9 hours in the final three months before the pandemic struck.

The BIS warned that a lack of willingness to work hard risked fuelling inflation as companies are being forced to pay higher wages to attract employees and keep their businesses fully staffed.

The report said it was “particularly important” to keep interest rates high in countries that have tight jobs markets and high wage growth.

It suggests that British borrowers may be in for extended misery, as wages are still growing close to record levels and unemployment may be as low as 3.5pc.

The BIS research is the clearest warning yet that the pandemic spending spree may have done lasting damage to economies and fuelled the inflation crisis.

Surveys suggest that people want to work fewer hours than previously, according to the BIS. Employees are also taking more sick leave, it noted.

There has also been a notable rise in early retirement since the pandemic. Mr Shin said: “Those people really have not come back as much as we may have expected.”

Tony Wilson, director of the Institute for Employment Studies, said it was “very likely” that the furlough scheme had encouraged early or partial retirement.

He said this was unsurprising given how “broad-based” and “passive” the scheme was, with all types of jobs being eligible without any quid pro quo.

Mr Wilson said: “We’re looking at much higher rates of furlough, particularly by the end [of the scheme], amongst people over 50. That was also the group where we saw higher exits from work.”

He added: “I think undoubtedly people took furlough and used it to partially fund early retirement, downshift or career changes. That was a consequence of the design of the furlough scheme.”

Jeremy Hunt and Rishi Sunak have been trying to encourage more people back to work for more than a year, warning that a sharp rise in the number of people out of the labour force is holding back growth. However, efforts to date have so far yielded little.

The labour market is also being held back by more employees phoning in sick, with absences for ill-health rising to the highest level since 2004 last year.

The US gave $1.5 trillion (£1.2 trillion) to its citizens through three rounds of stimulus checks of as much as $1,400 each and additional unemployment benefits during the pandemic.

Canada spent $290bn (£230bn) on direct support for Canadians and businesses through wage subsidies, sick pay and access to employment insurance.

A Treasury spokesman said: “Without furlough, millions of people would have lost their jobs. We had to act quickly to prevent catastrophic increases in unemployment.

“Now we’re focused on action to get around 200,000 more people into work, delivering the skills that businesses need and the largest boost to potential growth on record.”

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