Tag: lockdown

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Assessing policies to tackle coronavirus: the use of cost–benefit analysis

It is commonplace to use cost–benefit analysis (CBA) in assessing public policies, such as whether to build a new hospital, road or rail line. Various attempts in the past few months have been made to use CBA in assessing policies to reduce the spread of the coronavirus. These have involved weighing up the costs and benefits of national or local lockdowns or other containment measures. But, as with other areas where CBA is used, there are serious problems of measuring costs and benefits and assessing risks. This is particularly problematic where human life is involved and where a value has to be attached to a life saved or lost.

Take the case of whether the government should have imposed a lockdown: an important question if there were to be a second wave and the government was considering introducing a second lockdown. The first step in a CBA is to identify the benefits and costs of the policy.

Identifying the benefits and costs of the lockdown

The benefits of the lockdown include lives saved and a reduction in suffering, not only for those who otherwise would have caught the virus but also for their family and friends. It also includes lives saved from other diseases whose treatment would have been put (even more) on hold if the pandemic had been allowed to rage and more people were hospitalised with the virus. In material terms, there is the benefit of saving in healthcare and medicines and the saving of labour resources. Then there are the environmental gains from less traffic and polluting activities.

On the cost side, there is the decline in output from businesses being shut and people being furloughed or not being able to find work. There is also a cost from schools being closed and children’s education being compromised. Then there is the personal cost to people of being confined to home, a cost that could be great for those in cramped living conditions or in abusive relationships. Over the longer term, there is a cost from people becoming deskilled and firms not investing – so-called scarring effects. Here there are the direct effects and the multiplier effects on the rest of the economy.

Estimating uncertain outcomes

It is difficult enough identifying all the costs and benefits, but many occur in the future and here there is the problem of estimating the probability of their occurrence and their likely magnitude. Just how many lives will be saved from the policy and just how much will the economy be affected? Epidemiological and economic models can help, but there is a huge degree of uncertainty over predictions made about the spread of the disease and the economic effects, especially over the longer term.

One estimate of the number of lives saved was made by Miles et al. in the NIESR paper linked below. A figure of 440 000 was calculated by subtracting the 60 000 actual excess deaths over the period of the lockdown from a figure of 500 000 lives lost which, according to predictions, would have been the consequence of no lockdown. However, the authors acknowledge that this is likely to be a considerable overestimate because:

It does not account for changes in behaviour that would have occurred without the government lockdown; it does not count future higher deaths from side effects of the lockdown (extra cancer deaths for example); and it does not allow for the fact that some of those ‘saved’ deaths may just have been postponed because when restrictions are eased, and in the absence of a vaccine or of widespread immunity, deaths may pick up again.

Some help in estimating likely outcomes from locking down or not locking down the economy can be gained by comparing countries which have taken different approaches. The final article below compares the approaches in the UK and Sweden. Sweden had much lighter control measures than the UK and did not impose a lockdown. Using comparisons of the two approaches, the authors estimate that some 20 000 lives were saved by the lockdown – considerably less than the 440 000 estimate.

Estimating the value of a human life

To assess whether the saving of 20 000 lives was ‘worth it’, a value would have to be put on a life saved. Although putting a monetary value on a human life may be repugnant to many people, such calculations are made whenever a project is assessed which either saves or costs lives. As we say in the 10th edition of Economics (page 381):

Some people argue ‘You can’t put a price on a human life: life is priceless.’ But just what are they saying here? Are they saying that life has an infinite value? If so, the project must be carried out whatever the costs, and even if other benefits are zero! Clearly, when evaluating lives saved from the project, a value less than infinity must be given.
 
Other people might argue that human life cannot be treated like other costs and benefits and put into mathematical calculations. But what are these people saying? That the question of lives saved should be excluded from the cost–benefit study? If so, the implication is that life has a zero value! Again this is clearly not the case.

In practice there are two approaches used to measuring the value of a human life.

The first uses the value of a statistical life (VSL). This is based on the amount extra the average person would need to be paid to work in a job where there is a known probability of losing their life. So if people on average needed to be paid an extra £10 000 to work in a job with a 1% chance of losing their life, they would be valuing a life at £1 000 000 (£10 000/0.01). To avoid the obvious problem of young people’s lives being valued the same as old people’s ones, even though a 20 year-old on average will live much longer than a 70 year-old, a more common measure is the value of a statistical life year (VSLY).

A problem with VSL or VSLY measures is that they only take into account the quantity of years of life lost or saved, not the quality.

A second measure rectifies this problem. This is the ‘quality of life adjusted year (QALY)’. This involves giving a value to a year of full health and then reducing it according to how much people’s quality of life is reduced by illness, injury or poverty. The problem with this measure is the moral one that a sick or disabled person’s life is being valued less than the life of a healthy person. But it is usual to make such adjustments when considering medical intervention with limited resources.

One adjustment often made to QALYs or VSLYs is to discount years, so that one year gained would be given the full value and each subsequent year would be discounted by a certain percentage from the previous year – say, 3%. This would give a lower weighting to years in the distant future than years in the near future and hence would reduce the gap in predicted gains from a policy between young and old people.

Conclusion

Given the uncertainties surrounding the measurement of the number of lives saved and the difficulties of assigning a value to them, it is not surprising that the conclusions of a cost–benefit analysis of a lockdown will be contentious. And we have yet to see what the long-term effects on the economy will be. But, at least a cost–benefit analysis of the lockdown can help to inform discussion and help to drive future policy decisions about tackling a second wave, whether internationally, nationally or locally.

Articles

Questions

  1. What are the arguments for and against putting a monetary value on a life saved?
  2. Are QALYs the best way of measuring lives saved from a policy such as a lockdown?
  3. If the outcomes of a lockdown are highly uncertain, does this strengthen or weaken the case for a lockdown? Explain.
  4. What specific problems are there in estimating the number of lives saved by a lockdown?
  5. How might the age distribution of people dying from Covid-19 affect the calculation of the cost of these deaths (or the benefits or avoiding them)?
  6. How might you estimate the costs to people who suffer long-term health effects from having had Covid-19?
  7. What are the arguments for and against using discounting in estimating future QALYs?
  8. The Department of Transport currently uses a figure of £1 958 303 (in 2018 prices) for the value of a life saved from a road safety project. Find out how this is figure derived and comment on it. See Box 12.5 in Economics 10th edition and Accident and casualty costs, Tables RAS60001 and RA60003, (Department of Transport, 2019).
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A Keynesian route to recovery in output and employment?

Boris Johnson gave a speech on 30 June outlining his government’s approach to recovery from the sharpest recession on record. With the slogan ‘Build, build, build’, he said that infrastructure projects were the key to stimulating the economy. Infrastructure spending is a classic Keynesian response to recession as it stimulates aggregate demand allowing slack to be taken up, while also boosting aggregate supply, thereby allowing recovery in output while increasing potential national income.

A new ‘New deal’

He likened his approach to that of President Franklin D Roosevelt’s New Deal. This was a huge stimulus between 1933 and 1939 in an attempt to lift the US economy out of the Great Depression. There was a massive programme of government spending on construction projects, such as hospitals, schools, roads, bridges and dams, including the Hoover Dam and completing the 113-mile Overseas Highway connecting mainland Florida to the Florida Keys. Altogether, there were 34 599 projects, many large-scale. In addition, support was provided for people on low incomes, the unemployed, the elderly and farmers. Money supply was expanded, made possible by leaving the Gold Standard in 1934.

There was some debate as to whether the New Deal could be classed as ‘Keynesian’. Officially, the administration was concerned to achieve a balanced budget. However, it had a separate ’emergency budget’, from which New Deal spending was financed. According to estimates by the Federal Reserve Bank of St Louis, the total extra spending amounted to nearly 40% of US GDP as it was in 1929.

By comparison with the New Deal, the proposals of the Johnson government are extremely modest. Mostly it amounts to bringing forward spending already committed. The total of £5 billion is just 0.2% of current UK GDP.

Focusing on jobs

A recent report published by the Resolution Foundation, titled ‘The Full Monty‘, argues that as the Job Retention Scheme, under which people have been furloughed on 80% pay, is withdrawn, so unemployment is set to rise dramatically. The claimant count has already risen from 1.2m to 2.8m between March and May with the furlough scheme in place.

Policy should thus focus on job creation, especially in those sectors likely to experience the largest rise in unemployment. Such sectors include non-food retail, hospitality (pubs, restaurants, hotels, etc.), public transport, the arts, entertainment and leisure and a range of industries servicing these sectors. What is more, many of the people working in these sectors are young and low paid. Many will find it difficult to move to jobs elsewhere – partly because of a lack of qualifications and partly because of a lack of alternative jobs. The rising unemployment will raise inequality.

The Resolution Foundation report argues that policy should be focused specifically on job creation.

Policy makers should act now to minimise outflows from the hard-hit sectors – a wage subsidy scheme or a National Insurance cut in those sectors would reduce labour costs and discourage redundancies. Alongside this, the Government must pursue radical action to create jobs across the country, such as in social care and housing retrofitting, and ramp up support for the unemployed.

Dealing with hyteresis

The economy is set to recover somewhat as the lockdown is eased, but it is not expected to return to the situation before the pandemic. Many jobs will be lost permanently unless government support continues.

Even then, many firms will have closed and others will have reassessed how many workers they need to employ and whether less labour-intensive methods would be more profitable. They may take the opportunity to consider whether technology, such as AI, can replace labour; or they may prefer to employ cheap telecommuters from India or the Philippines rather than workers coming into the office.

Policies to stimulate recovery will need to take these hysteresis effects into account if unemployment is to fall back to pre-Covid rates.

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Questions

  1. What are the arguments for and against substantial increased government expenditure on infrastructure projects?
  2. Should the UK government spend more or less on such projects than the amount already pledged? Justify your answer.
  3. What are the arguments for and against directing all extra government expenditure towards green projects?
  4. Look through the Resolution Foundation report and summarise the findings of each of its sections.
  5. What are the arguments for and against directing all extra government expenditure towards those sectors where there is the highest rate of job losses?
  6. What form could policies to protect employment take?
  7. How should the success of policies to generate employment be measured?
  8. What form does hysteresis play on the post-Covid-19 labour market? What four shocks mean that employment will not simply return to the pre-Covid situation?
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The global economic outlook: getting bleaker

Three international agencies, the IMF, the European Commission and the OECD, all publish six-monthly forecasts for a range of countries. As each agency’s forecasts have been published this year, so the forecasts for economic growth and other macroeconomic indicators, such as unemployment, have got more dire.

The IMF was the first to report. Its World Economic Outlook, published on 14 April, forecast that in the UK real GDP would fall by 6.5% in 2020 and rise by 4% in 2021 (not enough to restore GDP to 2019 levels); in the USA it would fall by 5.9% this year and rise by 4.7% next year; in the eurozone it would fall by 7.5% this year and rise by 4.7% next.

The European Commission was next to report. Its AMECO database was published on 6 May. This forecast that UK real GDP would fall by 8.3% this year and rise by 6% next; in the USA it would fall by 6.5% this year and rise by 4.9% next; in the eurozone it would fall by 7.7% this year and rise by 6.3% next.

The latest to report was the OECD on 10 June. The OECD Economic Outlook was the most gloomy. In fact, it produced two sets of forecasts.

The first, more optimistic one (but still more gloomy than the forecasts of the other two agencies) was based on the assumption that lockdowns would continue to be lifted and that there would be no second outbreak later in the year. This ‘single-hit scenario’ forecast that UK real GDP would fall by 11.5% this year and rise by 9% next (a similar picture to France and Italy); in the USA it would fall by 7.3% this year and rise by 4.1% next; in the eurozone it would fall by 9.1% this year and rise by 6.5% next.

The second set of OECD forecasts was based on the assumption that there would be a second wave of the virus and that lockdowns would have to be reinstated. Under this ‘double-hit scenario’, the UK’s GDP is forecast to fall by 14.0% this year and rise by 5.0 per cent next; in the USA it would fall by 8.5% this year and rise by 1.9% next; in the eurozone it would fall by 11.5% this year and rise by 3.5% next.


The first chart shows the four sets of forecasts (including two from the OECD) for a range of countries. The first four bars for each country are the forecasts for 2020; the other four bars for each country are for 2021. (Click here for a PowerPoint of the chart.)


The second chart shows unemployment rates from 2006. The figures for 2020 and 2021 are OECD forecasts based on the double-hit assumption. You can clearly see the dramatic rise in unemployment in all the countries in 2020. In some cases it is forecast that there will be a further rise in 2021. (Click here for a PowerPoint of the chart.)

As the OECD states:

In both scenarios, the recovery, after an initial, rapid resumption of activity, will take a long time to bring output back to pre-pandemic levels, and the crisis will leave long-lasting scars – a fall in living standards, high unemployment and weak investment. Job losses in the most affected sectors, such as tourism, hospitality and entertainment, will particularly hit low-skilled, young, and informal workers.

But why have the forecasts got gloomier? There are both demand- and supply-side reasons.

Aggregate demand has fallen more dramatically than originally anticipated. Lockdowns have lasted longer in many countries than governments had initially thought, with partial lockdowns, which replace them, taking a long time to lift. With less opportunity for people to go out and spend, consumption has fallen and saving has risen. Businesses that have shut, some permanently, have laid off workers or they have been furloughed on reduced incomes. This too has reduced spending. Even when travel restrictions are lifted, many people are reluctant to take holidays at home and abroad and to use public transport for fear of catching the virus. This reluctance has been higher than originally anticipated. Again, spending is lower than before. Even when restaurants, bars and other public venues are reopened, most operate at less than full capacity to allow for social distancing. Uncertainty about the future has discouraged firms from investing, adding to the fall in demand.


On the supply side, there has been considerable damage to capacity, with firms closing and both new and replacement investment being put on hold. Confidence in many sectors has plummeted as shown in the third chart which looks at business and consumer confidence in the EU. (Click here for a PowerPoint of the above chart.) Lack of confidence directly affects investment with both supply- and demand-side consequences.

Achieving a sustained recovery will require deft political and economic judgements by policymakers. What is more, people are increasingly calling for a different type of economy – one where growth is sustainable with less pollution and degradation of the environment and one where growth is more inclusive, where the benefits are shared more equally. As Angel Gurría, OECD Secretary-General, states in his speech launching the latest OECD Economic Outlook:

The aim should not be to go back to normal – normal was what got us where we are now.

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Questions

  1. Why has the UK economy been particularly badly it by the Covid-19 pandemic?
  2. What will determine the size and timing of the ‘bounce back’?
  3. Why will the pandemic have “dire and long-lasting consequences for people, firms and governments”?
  4. Why have many people on low incomes faced harsher consequences than those on higher incomes?
  5. What are the likely environmental impacts of the pandemic and government measures to mitigate the effects?
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Bank of England warns of the severe impact of Covid-19

At its meeting on 6 May, the Bank of England’s Monetary Policy Committee decided to keep Bank Rate at 0.1%. Due to the significant impact of COVID-19 and the measures put in place to try to contain the virus, the MPC voted unanimously to keep Bank Rate the same.

However, it decided not to launch a new stimulus programme, with the committee voting by a majority of 7-2 for the Bank to continue with the current programme of quantitative easing. This involves the purchase of £200 billion of government and sterling non-financial investment-grade corporate bonds, bringing the total stock of bonds held by the Bank to £645 billion.

The Bank forecast that the crisis will put the economy into its deepest recession in 300 years, with output plunging 30 per cent in the first half of the year.

Monetary policy and MPC

Monetary policy is the tool used by the UK’s central bank to influence how much money is in the economy and how much it costs to borrow. The Bank of England’s main monetary policy tools include setting the Bank Rate and quantitative easing (QE). Bank Rate is the interest rate charged to banks when they borrow money from the BoE. QE is the process of creating money digitally to buy corporate and government bonds.

The BoE’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target. Maintaining a low and stable inflation rate is good for the economy and it is the main monetary policy aim. However, the Bank also has to balance this target with the government’s other economic aims of sustaining growth and employment in the economy.

Actions taken by the MPC

It is challenging to respond to severe economic and financial disruption, with the UK economy looking unusually uncertain. Activity has fallen sharply since the beginning of the year and unemployment has risen markedly. The current rate of inflation, measured by the Consumer Price Index (CPI), declined to 1.5% in March and is likely to fall below 1% in the next few months. Household consumption has fallen by around 30% as consumer confidence has declined. Companies’ sales are expected to be around 45% lower than normal and business investment 50% lower.

In the current circumstances, and consistent with the MPC’s remit, monetary policy is aimed at supporting businesses and households through the crisis and limiting any lasting damage to the economy. The Bank has used both main monetary tools to fulfil its mandate and attempt to boost the economy amid the current lockdown. The Bank Rate was reduced to 0.1% in March, the lowest level in the Bank’s 325-year history and the current programme of QE was introduced in March.

What is next?

This extraordinary time has seen the outlook for the all global economies become uncertain. The long-term outcome will depend critically on the evolution of the pandemic, and how governments, households and businesses respond to it. The Bank of England has stated that businesses and households will need to borrow to get through this period and is encouraging banks and building societies to increase their lending. Britain’s banks are warned that if they try to stem losses by restricting lending, they will make the situation worse. The Bank believes that the banks are strong enough to keep lending, which will support the economy and limit losses to themselves.

In the short term, a bleak picture of the UK economy is suggested, with a halving in business investment, a near halving in business sales, a sharp rise in unemployment and households cutting their spending by a third. Despite its forecast that GDP could shrink by 14% for 2020, the Bank of England is forecasting a ‘V’ shaped recovery. In this scenario, the recovery in economic activity, once measures are softened, is predicted to be relatively rapid and inflation rises to around the 2 per cent target. However, this would be after a dip to 0.5% in 2021, before returning to the 2 per cent target the following year.

However, there are some suggestions that the Bank’s forecast for the long-term recovery is too optimistic. Yael Selfin, chief economist at KPMG UK, fears the UK economy could shrink even more sharply than the Bank of England has forecast.

Despite the stark numbers issued by the Bank of England today, additional pressure on the economy is likely. Some social distancing measures are likely to remain in place until we have a vaccine or an effective treatment for the virus, with people also remaining reluctant to socialise and spend. That means recovery is unlikely to start in earnest before sometime next year.

There are also additional factors that could dampen future productivity, such as the impact on supply chains, with ‘just-in-time’ operations potentially being a thing of the past.

There is also the ongoing issue of Brexit. This is a significant downside risk as the probability of a smooth transition to a comprehensive free-trade agreement with the EU in January is relatively small. This will only increase uncertainty for businesses along with the prospect of increased trade frictions next year.

Conclusion

The predictions from the Bank of England are based on many assumptions, one of which is that the economy will only be gradually released from lockdown. Its numbers contain the expectations that consumer and worker behaviour will change significantly, and continue for some time, with forms of voluntary social distancing. On the other hand, Mr Bailey expects the recovery to be much faster than seen with the financial crisis a decade ago. However, again this is based on the assumption that measures put in place from the public health side prevent a second wave of the virus.

It also assumes that the supply-side effects on the economy will be limited in the long run. Many economists disagree, arguing that the ‘scarring effects’ of the lockdown may be substantial. These include lower rates of investment, innovation and start ups and the deskilling effects on labour. They also include the businesses that have gone bankrupt and the dampening effect on consumer and business confidence. Finally, with a large increase in lending to tide firms over the crisis, many will face problems of debt, which will dampen investment.

The Bank of England does recognise these possible scarring effects. Specifically, it warns of the danger of a rise in equilibrium unemployment:

It is possible that the rise in unemployment could prove more persistent than embodied in the scenario, for example if companies are reluctant to hire until they are sure about the robustness of the recovery in demand. It is also possible that any rise in unemployment could lead to an increase in the long‑term equilibrium rate of unemployment. That might happen if the skills of the unemployed do not increase to the same extent as they would if they were working, for example, or even erode over time.

What is certain, however, is that the long-term picture will only become clearer when we start to come out of the crisis. Bailey implied that the Bank is taking a wait-and-see approach for now, waiting on the UK government to shed some light about easing of lockdown measures before taking any further action with regards to QE. The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to take further action as necessary to support the economy and ensure a sustained return of inflation to the 2% target. Paul Dales, chief UK economist at Capital Economics, suggested that the central bank is signalling that ‘more QE is coming, if not in June, then in August’.

Articles

Bank of England publication

Questions

  1. How could the BoE use monetary policy to boost the economy?
  2. Explain how changes in interest rates affect aggregate demand.
  3. Define and explain quantitative easing (QE).
  4. How might QE help to stimulate economic growth?
  5. How is the pursuit of QE likely to affect the price of government bonds? Explain.
  6. Evaluate the extent to which monetary policy is able to stimulate the economy and achieve price stability.
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What the Coronavirus means for the Gig Economy

The recent pandemic has, and will have, serious implications for our economy with some estimating the largest drop in GDP ‘in living memory’. Expenditure from disposable income fell by 60% as social distancing policies were introduced and consumers started reducing their spending.

However, despite the impact being widespread across all sectors of the economy, workers in the gig economy are at a particular financial disadvantage. A report by Fintech firm, Portify, has found that income for self-employed gig workers fell 30% in the first two weeks of April, compared to the pre-crisis average. It is estimated that there will be a loss of £1.5bn through earnings and £6.9bn in economic contributions from gig economy workers.

Chancellor Rishi Sunak announced increased benefits for the self-employed at the daily briefing on March 20th but did not guarantee their wages. This has understandably left those people who are self-employed, e.g. freelancers, with greater uncertainty. According to the Office for National Statistics, there are 5 million self-employed people in the UK, who make up 15% of the labour market.

The government has been cautious over the financial support for the self-employed, because it is more difficult to confirm how much they are earning each month. However, many of the 5 million workers would have been among the first to be impacted by the closures and restrictions caused by the outbreak.

What is the ‘gig economy’?

The gig economy has grown significantly since the last global recession of 2008/9. After a substantial number of people lost their jobs, they turned towards self-employment. A boom in digital platforms, such as Uber and Deliveroo, has sparked a revolution in the world of work, with as many as one in 10 working-age adults now working in the gig economy, up from one in 20 in 2016. According to the Association of Independent Professionals and the Self-Employed (IPSE), prior to the coronavirus outbreak, self-employed people contributed £305bn to the British economy.

A gig economy is where workers are paid for the ‘gigs’ they do, e.g. a parcel delivery or taxi ride. They receive the money for the completed job instead of a regular wage. In the UK it is estimated that 5 million people are employed in this type of capacity. Flexible hours and controlling the amount you work is appealing for many people wanting to manage their home life and other priorities.

In the gig economy, workers are classed as independent contractors. This is also beneficial for employers as they only need to pay their workers when there is work available. Therefore, when demand drops, they don’t have to get rid of staff or have to incur unnecessary staff costs. However, this also has its drawbacks for the worker. They have no protection against unfair dismissal, no right to redundancy payments, and no right to receive the national minimum wage, paid holiday or sickness pay.

Impact of the coronavirus on the gig economy

Anybody experiencing symptoms of the virus have been told to self-isolate.  Employees who are then self-isolating can access statutory sick pay from the first day they are off. However, it is unclear if this applies to gig-economy workers. Unions that represent such workers have raised their concerns over the uncertainty and have demanded that urgent action is needed on working practices, including on sick pay. The United Private Hire Drivers (UPHD) union said:

Without access to worker rights such as minimum wage and sick pay, drivers who are infected may simply not be able to afford to stop working.

Work and Pensions Minister, Justin Tomlinson, has said that gig economy workers can apply for universal credit (which can take five weeks to come through) if they need to self-isolate. However, this is not an option for those who live hand-to-mouth. The government has indicated it wanted to do more for the self-employed but it is operationally difficult. Robert Jenrick, the Communities Secretary, said:

The purpose of our employment mechanism is to help continue the connection between employees and their business so once this is over – and it will be over – those individuals can return to their usual work and that link isn’t broken.

However, six days after the Chancellor’s initial support package was announced, he announced a new self-employed income support scheme, which will cover up to 80% of self-employed workers’ average taxable monthly profits. This taxable grant is to be paid in a lump sum in June and will no doubt provide a vital lifeline for those workers who have seen their income disappear almost overnight.

Those who are eligible will receive a taxable grant amounting to 80% of the average profits from the last three tax years. HMRC will use the total trading profit for the last three tax years and use this to calculate a monthly amount. However, annual profits are taken after expenses and capital allowances, but before pension contributions and charitable donations. Therefore, workers who have made significant investments into their businesses are likely to lose out.

What next?

The Independent Workers Union of Great Britain (IWGB), which represents gig-economy workers, has announced that it is suing the government over its failure to protect the wages and jobs of millions of workers during the pandemic. It has also accused the government of failing to ensure the health and safety of those still employed through proper sick pay. It has also argued that the lack of certainty encourages those potentially infected to continue working so they can still receive a wage.

The current scheme is only planned to cover the next three months. However, it is questionable whether this will be enough, and the government may have to extend the support.

There is also concern around how much of the gig economy (besides delivery and distribution workers) will remain once the restrictions are eased. Ryan Barnett, an IPSE economist predicts the economic impact to be far more severe than the 2008 financial crisis, pointing out that many entertainment industry workers have already had jobs cancelled until the end of 2021. Even when we can re-emerge from the current lockdown, it is likely that many workers will continue to rely on Universal Credit for a prolonged period of time.

Conclusion

There is no doubt that the current situation has had an impact on the daily lives of everyone in the economy. However, the level of uncertainty for those working in the gig economy has been concerning for many of the 5 million people.

The full impact of the crisis will not be known until some time after the lockdown. However, it is what measures are put in place in the short run that will have an impact and provide a greater level of certainty for the self-employed. It is important that the government understands the importance of supporting self-employment throughout the crisis, as the self-employed will likely play a key role in the economic activity and recovery that will follow.

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Questions

  1. Explain why many economies have seen an increase in the gig economy over the last decade.
  2. What are the advantages and disadvantages of a gig economy?
  3. How does the gig economy impact on the flexibility of the labour market in the UK?