In the economic battle against COVID-19, there was hope we might all “be home for Christmas;” a hope that wage subsidies, a v-shaped bounce, a team of five million and “kindness” would suffice. But that hope is fading fast. If we are going to be home by Christmas, as Treasury outlines in their Pre-election Economic and Fiscal Update (PREFU), it’s more likely to be Christmas 2024 than 2020.

In the PREFU, Treasury time and time again refer to the risks of economic “scarring.” This terminology means that the recovery process could become beset with serious issues that inhibit long term growth. It communicates some of the heart behind what economists call  “hysteresis,” a process by which long lasting economic harm can occur to firms and individuals even as result of a relatively short negative economic shock.

Sometimes it’s just that business investment falls, as profits fall leading to less growth.

These wounds arise from many sources. Some come from the skills and income loss from periods of unemployment. A downturn can also mean workers are less able to move up the career ladder into better paid and more productive work. Some of it arises because of a loss of productive capacity by firms as knowledge spillovers slow down. Some of it occurs because people are less likely to take a risk on starting new firms or are slower to pivot their firm towards what the economy needs. Sometimes it’s just that business investment falls, as profits fall leading to less growth.

The overall impact is a human cost that is high and often concentrated on certain groups. Unfortunately if previous research is accurate it’s often young people in the early stage of their career, school leavers and people in part time work (often women) or the self-employed who bear the brunt of the scarring, and continue to be affected for years afterwards.

Both major parties are saying the answer lies in hiring subsidies and infrastructure projects. These policies will help those who are most at risk of long-term unemployment but these projects are not always a perfect fit to those most at risk. The government must be intentional in its focus on those most likely to suffer persistent negative scarring. We need to think creatively about how firms might engage with job seekers, be they recent graduate or women re-entering the labour market looking for part time work.

it’s often young people in the early stage of their career, school leavers and people in part time work (often women) or the self-employed who bear the brunt of the scarring

One concrete policy could be to make paid internships or study scholarships for employees a claimable business expense. A student or someone vying for an internship, gets a paid internship or a person could receive a payment from a firm to study in an area the business needs. The business is supported to do this by being able to claim part or most of the expense against its tax bill.

In both cases, firms and potential workers start their paid relationship earlier and careers are established. Interns get paid and gain experience. Firms can take a risk on training someone without bearing the full cost. The coming months and years are a time for creativity, and a focus on those most at risk.