Labour Markets - Assessing the UK Jobs Furlough Scheme

In this short video we look at the impact of the Jobs Furlough Scheme in the UK introduced during the pandemic.

The Job Retention (Furlough) Scheme applied from 1st March 2020 and ended on 30th September 2021.

The scheme provided grants (wage subsidies) to employers so they could retain and continue to pay staff during coronavirus related lockdowns, by furloughing employees at up to 80% of their wages.

Justifications for the Furlough Scheme

• Wage subsidy prevented a return to mass unemployment. The jobless rate climbed to 6% of the labour force in 2020 despite a 9.4% drop in real GDP
• Maintained commercial viability of many thousands of small businesses
• Short term fiscal cost prevented even heavier medium-term costs for the government
• Lower paid jobs were more likely to be furloughed. Jobs paid between £5,000 and £10,000 were most likely to be furloughed (8%).
• Jobs paid over £45,000 least likely to be furloughed, only a 2% take-up rate

Criticisms of the Furlough Scheme

• High fiscal cost – 11.7 million employee jobs were furloughed through the scheme, at an estimated cost of £70 billion.
• Potential for fraud. Some businesses fraudulently claimed benefits when people were still working
• Risk of resource misallocation – some economists argued that furlough schemes preserve, at a very high cost, jobs that are not coming back post-pandemic, preventing workers from being reallocated to growing sectors.
• Whilst unemployment was controlled - soon after the economy started to recover, severe labour shortages became apparent & remain an issue