The economic fallout of social distancing (lay-offs and wage reductions) is being hardest felt by those on lower incomes and without savings, with most at-risk workers in retail, air transport, hotels and restaurants, motor vehicle hire, cleaning, arts and entertainment, and personal services (according to Resolution Foundation)

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Week of 16 March 2020

The economic fallout of social distancing (lay-offs and wage reductions) is being hardest felt by those on lower incomes and without savings, with most at-risk workers in retail, air transport, hotels and restaurants, motor vehicle hire, cleaning, arts and entertainment, and personal services (according to Resolution Foundation)

In a study released this week (focused on the UK), think-tank Resolution Foundation finds that:

  • The social distancing put in place to respond to COVID-19 is impacting some sectors more severely (retail, air transport, hotels and restaurants, motor vehicle hire, cleaning, arts and entertainment, and personal services) than others
  • In the face of uncertainty about how long these economic impacts will continue, firms are much more likely to lay off staff
  • Workers on lower incomes within most-at-risk sectors are extremely unlikely to be able to work from home and will be the most exposed to the risk of losing all or part of their pay
  • These workers also lack the financial buffers – the necessary savings – to cope with hits on their income, since they are more likely than average to have no savings
Source: Resolution Foundation, Doing what it takes: Protecting firms and families from the economic impact of coronavirus (19 March 2020)

Resolution Foundation recommends three measures to the UK government:

  1. Boosting sick pay
  2. Helping struggling firms with their wage costs and
  3. Strengthening the social security safety net for those who fall out of employment

Denmark, France, Germany, Ireland and Sweden are all countries that have recently put in place significant measures to help workers remain attached to firms in the face of a temporary loss of revenue.

UPDATE: In the UK Government 20 March briefing, UK Chancellor of the Exchequer Rishi Sunak asked companies to stand by its workers and announced a new Coronavirus Job Retention Scheme that will help pay wages for the first time in UK history (80 % of salary of workers, up to £2,500 per month). “It means that workers across the company can retain their jobs, even if their bosses can’t afford to pay them.”

“A few weeks ago, the dominant view was that the main economic impact of this crisis was the temporary absence of sick workers alongside disruption to sales and supply chains. The economic implications of (fully justified) steps to intensify social distancing, not least the move to close schools, are likely to far outweigh those from forced work absence due to sickness or self-isolation. We are on course for job losses to be significant, with the initial sudden stop to economic activity being concentrated in the jobs-rich parts of our economy, like non-food retail and hospitality.”
Resolution Foundation, Doing what it takes: Protecting firms and families from the economic impact of coronavirus (19 March 2020)
“The key risk facing the economy is a downward spiral of job losses, corporate liquidations and ever lower consumption hurting the ability of the economy’s supply side to rebound when demand and spending recover.”
Martin Beck, Senior Economist, Oxford Economics, Millions of UK jobs at risk owing to virus shutdown (FT, 18 March 2020)