There is a major jobs crisis looming

For 'Big Short moment', head to 5min 07sec https://www.youtube.com/watch?v=MesrrYyuoa4

I had one of those Big Short moments last night at a socially distanced dinner hosted by a friend who runs a small restaurant in London. 

He plans to reopen on July 4th with new Covid measures in place such as reduced capacity and rotating dining slots. The largely loss-making set-up will supplement a delivery and DIY meal kit side hustle which they hope will be popular. 

Regardless, when they open their doors they will be forced to lay off 60% of their workforce, he says, with many others in the hospitality industry considering similar moves. 

Coming off life support

It hit me that the effect of re-opening businesses will be like taking them off life support and throwing them into the lion's den in the shape of one of the most fragile economic environments we've seen in generations.

There are currently more than 9 million workers furloughed, but many of those could be without jobs when the government eventually turns off the tap. 

Polling of British businesses shows the figure could be as high as 25 per cent which is 2.275 million people by my calculations. 

Add that to the 2.8 million job centre claimants (up 126% since the start of lockdown) and you find that we may be staring down the barrel at a major jobs crisis.

Death spiral 

While we may find that big businesses will be able to weather the crisis for a short while, the big risk lies in the potential of a death spiral. 

As Larry Elliott wrote here, if the government botches the next phase of the economy's recovery there is a risk of a massive rise in unemployment that could create a bottom-up economic crisis that will be compounded by the mountain of debt we are accumulating. 

Put simply, a reduction in overall demand will lead to bust companies who no longer need supplies. That will lead to a reduction in government incomes which will subsequently lead to a drop in the country's credit rating, ultimately leading to a government at the mercy of unwilling lenders. 

Bad times.