Gerwyn Davies, Senior Policy Adviser at the CIPD, outlines how the labour market is evolving as a result of the pandemic.

The latest Office for National Statistics (ONS) labour market statistics highlight a dramatic fall in the number of EU-born citizens in employment. The figures revealed that the stock of EU-born workers in the UK fell by 495,000 between January–March and July–September 2020. This represents a fall of more than 20% and erases more than five years of employment growth among this group.

In addition, the number of non-EU-born workers in employment has seen a more modest fall of 227,000; which is offset by an actual increase in the number of UK-born workers in employment (+221,000). This raises two questions; why is the fall happening and what can we do to minimise labour and skills shortages when the economy recovers?

There are two key factors driving this decline.  The first is the high concentration of EU nationals that are employed in occupations and sectors worst-hit by the pandemic. We know that workers in accommodation and food services, retail and those in manual and elementary occupations are more likely to have been furloughed since the onset of the pandemic. Looking at the fall in more detail, it is no surprise that it is particularly marked among EU8 and EU2, nationals who have a particularly high representation in these sectors.

The second reason is that most Europeans in the UK now have settled status. They are therefore at ease to work or seek work in their home countries now that they have secured their status in the UK. After all, the pandemic has forced us all to reflect on life decisions, and it seems that many Europeans are at least flirting with the idea of returning to their homes for good. It remains an open question as to how many EU citizens will return to the UK and when.

This trend won’t concern employers too much in the short-term while recruitment activity remains weak. However, the worry is that a sizeable proportion of EU citizens won’t return to the UK now that they have secured their status, which is likely to contribute to  recruitment difficulties in the medium-term. The good news is that this should force employers to make full use of available UK workers, especially those recently made redundant with relevant skills and up to date experience. This may partly explain why we have seen the UK labour pool grow since the onset of the pandemic.

However, with the rate of incoming EU workers due to remain subdued for the foreseeable future due to the ending of free movement (from January 2021) and the pandemic, the bad news is that we could be storing up problems for the future.  The CIPD is therefore calling for an urgent and substantial injection of skills investment, to help enable more UK jobseekers to fill some of the vacancies that the reduction in supply will create when the economy recovers. As the Bank of England recently warned, UK employers are not currently able to make the most of the potential to match jobs with jobseekers.  This is because there is a mismatch between the skills of those looking for jobs and the skills firms require, particularly in parts of the economy that continue to grow.

To help tackle these challenges, we’re calling on the Government to provide an additional investment of £1bn to support the development of sector-based skills and employability training. This investment could also provide support modelled on the successful US WorkAdvance scheme, and significantly boost the Government’s National Retraining Scheme. The latest migration data also strengthens the case to reform the apprenticeship levy so it can be used to fund other forms of accredited training and skills development. Our research shows employers would use a more flexible training levy to provide training for staff being redeployed and for those working reduced hours while on furlough, as well as to provide training to people who have been selected for redundancy to equip them with the skills needed to find work.  Employers should also be playing their part by putting in place a workforce planning strategy that is based on the current and projected make-up of the workforce.

This could ultimately be a wake-up call for employers and government to invest in the future of the domestic workforce.  Such an approach is vital both to help maintain labour supply and to improve the employment prospects of jobseekers, especially young people.