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UK sees record rise in workers on payroll in May


A recent BBC article reports that the UK has seen a record rise in workers on payroll in May with an increase of 197,000 working full time as opposed to April.


This drastic increase in payrolled workers is one sign that the UK labour market is recovering from the long and turbulent period which was the COVID-19 pandemic and lockdown periods.


It is without a doubt that the COVID-19 lockdowns have had negative impacts on the UK labour market. These government lockdown measures have particularly hurt the UK economy as the restriction on people’s movement, which was understandably done to mitigate the public health impacts of COVID-19, have had adverse effects on spending within the UK economy.


This does not mean that the lockdowns have been terrible for the UK as a whole, it is essential for the government to balance lockdowns and lifting restrictions to maximise their potential as lockdown measures cause short term pain, through reductions in GDP, and long term gain due to improved public health and reduced spread of COVID-19.


This decreased GDP growth is attributed to lockdown, prevents consumers from accessing non-essential establishments and significantly dries up demand for these specific goods and services.


Not only does this have adverse effects on confidence, but a reduction in demand for these industries causes cyclical unemployment as workers lose their jobs as firms within the industry have to cut costs due to their lower profits.


Although the majority of these workers have been furloughed, a decision which does retain 80% of their incomes, the likely shock being furloughed yields a reduction in confidence and high uncertainty means that individuals on Furlough as well as those still employed save more as their marginal propensity to save rises because people simply do not know if they will retain employment.


Because of this, aggregate demand within the UK economy falls as consumer spending decreases, this can also lead to a further reduction in aggregate demand as a negative multiplier effect occurs as decreased business investment, due to decreased profits, also impacts government spending as the government receives less tax from VAT as businesses sell fewer goods and services.


And this reduction in aggregate demand decreases economic growth.


However, now that the UK government is lifting the brakes and is releasing the UK economy from lockdown, these non-essential services have seen a boost in demand which raises the price and leads to producers being incentivised and signalled to increase their factors of production.


Because of this, firms have been looking to employ workers once again, or, are also introducing Furloughed staff back to their workforce which has led to a decrease in unemployment within the UK economy from 4.8% to 4.7% as well as a decrease in the number of workers Furloughed to 3.4 million.


One effect of this on the UK economy is a likely boost in growth as aggregate demand is seeing an increase once again as newly employed workers, or workers entering the workforce back from Furlough, who are now much more confident due to the vaccine rollout, spend their lockdown savings on luxury goods and services thus boosting aggregate demand and growing the UK economy.


And this boost in activity is particularly good for the UK government as an increase in employment due to rising consumer spending means that the UK government does not have to spend as much on automatic stabilisers such as Job Seekers Allowance as well as the Furlough scheme which will enable the UK government to allocate much more resources towards paying back the severe debt of the pandemic which sits at £2.14 trillion.


At the same time, increased economic growth means the government will see a rise in tax revenue as consumer spending brings in VAT revenue and business trading and higher profits bring in corporation tax revenue, all of which can also be used towards paying back the debt and helping the government slowly but surely close its budget deficit.

 

Written by Hubert Kucharski



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