Catch up on economics articles you may have missed from September and October 2020. This month we look at household savings during the Covid-19 pandemic, and whether the furlough scheme is discriminatory.
Saving during Covid-19
In this blog, economist David Smith analyses the implications of the sharp rise in household savings during the pandemic and concludes that there is pent up demand for services such as recreation, culture, travel, hotels and eating out.
Smith analyses the savings ratio, which is the proportion of disposable income that is saved rather than spent. He states this rose from 8% in the final quarter of 2019 to 29% in the second quarter of 2020.
Smith puts forward two main reasons for the increase. First, savings may have been “involuntary”, as the closure of non-essential shops and services limited opportunities to spend. Second, he noted a “precautionary” effect, whereby people increased savings in the face of uncertainty about, for example, future job prospects.
Smith argued that the balance between the two was important. For example, involuntary savings might be spent as restrictions on shops and services reduced, providing a boost to the economy and jobs. On the other hand, precautionary savings are likely to be retained and will not benefit the economy in the same way.
Smith then presents evidence that most of the increase in savings was involuntary. He noted that in the last period of major uncertainty, the financial crisis, the savings ratio only rose to 12%.
He then considers whether this “reservoir” of money has been spent since the end of lockdown. He argues that while spending in some categories, such as food and DIY, has seen a sharp rebound, other areas, including clothing, transport, recreation, culture, hotels and restaurants has not. Smith therefore concludes that much of the involuntary savings have been “carried over” and may be available to benefit these sectors as they open up, as long as businesses in these industries have survived.
Read the full article: David Smith, ‘The nation of unexpected savers has money to burn’ Economics UK, 4 October 2020
In this article, academic Rose Cook analyses the UK’s coronavirus job protection (‘furlough’) schemes and argues that they have features which discriminate against women.
She notes that women are over-represented in the sectors most likely to use the schemes, such as hospitality and retail. In addition, she states that women in these industries were more likely to be on temporary or casual contracts. She notes that while support is accessible to those on non-permanent contracts, employers can decide who to put on the schemes and who to retain after they end. Cook then quotes studies of previous job support schemes, which suggest that workers with less secure contracts are less likely to be retained once the support ends than permanent, full-time workers.
In addition, she argues that the specific design of the new UK scheme makes it cheaper for employers to employ one person full-time rather than two people part-time. She backs this assertion up with reference to work by the Resolution Foundation. Again, she says this will jeopardise the less secure jobs that are more likely to be held by women.
Cook also notes that under the job support scheme implemented in March 2020, workers could receive less than the minimum wage. This could occur if they were previously paid at minimum wage levels, and then received the Government support of 80% of wages with no top-up from their employer. She says this could lead to “dangerously low levels of income” for lower-paid workers, the majority of whom are women. She calls for a higher level of support, as a percentage of income, for lower-paid workers, or a guarantee of receiving the minimum wage.
Finally, Cook reports evidence that employers are considering caring responsibilities when deciding on job cuts or making furlough decisions. She says, in these situations, mothers are “far more likely” to have lost their job permanently. She calls for such discrimination to be outlawed.
Read the full article: Rose Cook, Gender discrimination in job protection schemes The Conversation, 29 September 2020