Job market ‘worse than 1970s’ after UK strikes

A usually busy Waterloo station is nearly empty in London on June 21, 2022, as the biggest rail strike in over 30 years hits the UK.

Ben Stansal | Afp | fake images

LONDON – The labor market is “worse than it was in the 1970s”, with massive rail strikes in the UK offering a sign of things to come, according to Nobel Prize-winning economist Christopher Pissarides.

Britain’s RMT Union confirmed on Monday that planned rail strikes will continue this week after talks with rail companies failed to reach an agreement on jobs, wages and conditions. About four-fifths of the trains have been cancelled, with more strikes planned later this month and in July.

Pissarides, the Regius professor of economics at the London School of Economics, told CNBC on Tuesday that labor markets are going through “some of the toughest periods” he has seen.

“It’s even worse than the 1970s, in the sense that we need to make bigger adjustments in labor markets. We have new technologies that bring automation, and in fact union leaders are complaining about job losses, the box office, that’s because of new technology,” he said.

In addition, economies around the world are facing skyrocketing inflation, especially when it comes to food and energy, largely due to the war in Ukraine. Pissarides said “there’s no way we can avoid the pain of that” and that the British government therefore faces the challenge of trying to spread that pain across the economy.

“There are not many sectors of the economy that have strong unions. We don’t have large nationalized industries like we had in the ’70s when all manufacturing was on strike, and so that makes it very difficult to say, ‘Those of you who have strong unions, we will give you full compensation for these clashes. outsiders and we’ll let the others carry the whole load,'” Pissarides explained.

Inflation of ‘domestic manufacture’

Along with the external shocks facing the entire global economy, the UK is also grappling with what Pissarides called “internally manufactured” inflation, after the government’s furlough scheme and other fiscal support programs boosted demand during the pandemic. , but pushed public debt to all-time highs.

World government debt is expected to skyrocket to a record high in 2022 since indebtedness also remains high in general terms.

Pissarides, who won the Nobel Prize in economics for his work analyzing labor markets, suggested that uncertainty about the extent to which internal and external shocks were driving inflation was driving the divergence between Bank of England politicians, who voted 6-3 in favor of a 25 basis point increase in interest rates In the past week.

“Some members thought we should tighten up more, others thought the recession is coming anyway so demand would fall and wages would not have to rise so it’s a very difficult time and I’m not surprised we hear these things. contradictions coming from different parts”. from the government, from the Bank of England, from the workers,” he said.

inflation spiral

A key long-term concern, Pissarides said, was “second-round effects” that are starting to take shape, with inflation expectations decoupled and leading to wage increases, forming a “self-fulfilling prophecy” and an uptrend. spiral for inflation.

“The spiral isn’t quite there yet, but giving wage increases that match or come close to matching the inflation that the Bank of England is forecasting will get us very close to a spiral, and we could see it, and if that happens it’s going to take a lot longer. get rid of inflation,” he said.

“Remember in the ’70s it took at least 10 years to get inflation and in the end it was very difficult, it was Thatcher’s policy that caused so much unemployment just by fighting inflation. That’s certainly not something we want to see this time around because we’ve learned our lesson hopefully.”

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