Academic Literature

COVID-19 Downturn in UK – What can previous recessions tell us ?

Understanding what we can and cannot learn from previous recessions is important for the current downturn- there are some similarities, but also some marked distinctions. The starkest difference is the occurrence of a discrete, immediate lockdown of some sectors. This contrasts with the archetypical recession in which economic activity slows down continuously, as firms shut down in response to steady negative shocks and individuals lose their jobs. However, some common trends persist; for example, younger individuals and those on the lower end of the wage distribution are hit harder.

This policy brief draws on recent, high-quality, representative survey data, primarily Understanding Society: UK Household Longitudinal Survey (UKHLS), and the UK Labour Force Survey (LFS). The data ranges from 1975 to June 2020. In particular, the UKHLS Covid- 19 survey waves that we will use for assessing the impact of the current crisis, have sampled around 15,000 UK individuals in each of the three waves between April and June 2020, both online and using telephone interviews. We have generally found historical UKHLS results to be highly comparable with the LFS.


• The labour market effects of the Covid-19 crisis measured as of June 2020 are compared with the three most recent UK recessions: the early 1980s, the early 1990s, and the downturn induced by the global financial crisis in the 2000s.
• We design a ‘realistic’ employment rate measure (based on individuals working a positive number of hours) that shows a decrease in employment between February and June of more than 15 percentage points, in sharp contrast with stable official unemployment. With hours worked only at 80 percent of the level from February 2020, the picture is bleak – the UK economy is on track to suffer its biggest unemployment shock since at least the 1980s recession.
• Despite their different impacts across industries, the Covid-19 crisis and the three most recent UK recessions share the common feature of a disproportionate impact on the most vulnerable (the poorest, the youngest, the least educated, and ethnic minorities).
• As of June 2020, the youngest group (18-24) are 14.3 percentage points more likely than average to be furloughed or suffer a cut of at least 50 percent in hours worked (compared to February). Analogous figures for those with only GCSEs qualifications and for black workers are 8.5 and 7.8 percentage points respectively.
• Previous recessions brought significant long-term damage (such as lower future employment, wage penalties) to those most affected and those just entering the UK workforce. The adverse effect on full-time education leavers might be exacerbated in this crisis, due to school and university closures.

What can previous recessions tell us about the COVID-19 downturn?


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