It found that long-term furlough has become a widespread consequence of the pandemic.

Almost two million workers were unemployed or fully furloughed in January – and had been for at least six months.

The think tank’s report Long Covid in the labour market – supported by the Health Foundation – examines the state of the labour market during the current lockdown, the impact of the crisis so far, and workers’ prospects for the months ahead.

The report found that the number of workers on the Coronavirus Job Retention Scheme (CJRS) has risen to about 4.5 million during the current lockdown – half the 9 million peak during the first lockdown.

Long-term furlough

However, the cumulative impact of a crisis that has lasted almost a year is causing the biggest challenges in the labour market. While all recessions cause a rise in long-term unemployment, the pandemic poses new challenges in the form of long-term furlough.

The report found that about 700,000 workers had been unemployed for at least six months in January, while a further 500,000 workers had been fully furloughed for the same amount of time.

Because some people have moved between unemployment and full furlough in recent months, the total number who were unemployed or fully furloughed in January, and had been so for at least six months, was 1.9 million.

The Resolution Foundation says that while those on long-term furlough have had far greater financial support, and have an easier route back into work (through their current employer), than those who have lost their jobs, they face many of the same challenges in terms of a loss of skills and missing out on earnings growth.

Job prospects

About 8% of workers currently employed either expect to lose their jobs in the next three months, or have been told that they would be made redundant. This figure rises to 21% among those who have been furloughed for at least six months of the crisis.

The foundation says chancellor Rishi Sunak should respond to the risk of long Covid in the labour market by setting out plans for phasing out furlough that are sensitive to public health restrictions and the sectoral nature of the crisis.

The report calls for the full CJRS to remain in place for several months after public health restrictions have been lifted to give firms time to bring staff back, and remain in place for longer in sectors still subject to legal restrictions, such as hospitality and leisure.

It says the furlough scheme should then be phased out by gradually, increasing the minimum hours required of workers in order for support to be provided.

The Resolution Foundation also says the chancellor needs to ensure support for the long-term unemployed is delivered by extending the Kickstart Scheme into next year.

Finally, it is also calling for Sunak to encourage wider job creation by introducing a wage subsidy scheme targeted at maximising employment in hard-hit sectors, or raising the National Insurance threshold on new starters, and investing directly in new jobs in areas such as social care.

The upcoming budget

Nye Cominetti, senior economist at the Resolution Foundation, said: “Ten months into the crisis, almost two million people have now been affected by long Covid in the labour market, having not worked for at least six months.

“And while the UK’s economic prospects are finally looking up, job insecurity remains high, particularly among those who have spent long periods not working, or who are currently furloughed.

“The Chancellor must use his budget to set out his own roadmap for phasing out the furlough scheme gradually and in a way that acknowledges where the risks of rising unemployment are highest – in sectors like hospitality.

“This would keep a lid on rising unemployment and encourage firms to bring back existing workers, while tax breaks on hiring could help more people to move jobs too.”