Macroeconomics: UK economy, IB Economics

An example of a interventionist supply-side policy, in the form of jobless 'bootcamps' has been mooted by the government as a way of increasing labour market flexibility - specifically occupational mobility - and overcoming labour shortages in key sectors. 

As ever, though, it's gets you thinking about the nature of markets - of there are skills shortages, shouldn't rising wages be attracting people to work in these sectors. If wages aren't rising in line with market forces, why not? Does this imply that many of these sectors are monopsonies, with employers using their market power to keep wages low? 

The announcement of visa restrictions, and the prospect of lower inward migration isn't universally popular, and here the hospitality and health sectors voice their concerns. They argue that they are already experiencing labour shortages, and that these measure will only make things worse. 

And as for the notion of nominative determinism? I'm afraid I don't see it applies to the current Home Secretary. 

Tomorrow's Guardian's editorial looks at the ongoing labour problems facing the UK economy, not least after the COVID pandemic. Their suggestion is that the government needs to look at specific policies to attract the over-50s back into the workforce. 

Despite the seemingly glib suggestion that over-50s should be capable of delivering takeaways, the reality is that the approach needs to be broader than this because there are many reasons that contribute to people not returning to the workforce as was expected.

This BBC clip highlights the challenges facing the hospitality sector in tackling labour shortages, with different firms finding different solutions to their problems.

It's interesting to see that it's not just a case of offering higher wages - business are having to change their practices, and, in some case it's immigration that's required to fill the skills gap. 

Clear evidence of a tight labour market as Amazon announces yet another pay increase, meaning that starting pay at the company has risen by 10% in the last 7 months, such that workers now get between £11 and £12 per hour. 

Evidence of ongoing labour shortages in the construction sector, with a number of profession now deemed to be shortage occupations - bricklayers, roofers, carpenters, plasterers and so on.

Compared to pre-pandemic levels of activity in the sector, the number of vacancies in the sector is up by 65% compared to the period between January and March 2020, although its even higher in the hospitality sector. 

Why might this be? Could Brexit have played a part, do you think?

This Guardian article highlights the fact that the cost of UK childcare is a factor that has stopped some parents rejoining the labour force. Certainly childcare costs are high, and the CBI has identified that there are 1.7 million adults who are economically inactive and looking after their families or at home. 

That's out of a total number of 9 million people of working age who are economically inactive, so anything that can help get some of these people back into the workforce would help overcome ongoing labour shortages, and, by definition, supply-side problems. 

And here's the data that underpins much of the last article 'scooped'...

More on the decline in the British labour force, and its macroeconomic implications. There has been a near 300,000 increase in the over-50s not working - so how are the government going to coax them back into the labour force. 

Another cost of Brexit features in the Guardian, with the decline in migrant workers highlighted here, particularly in the hospitality sector. However, for all the current pain, is the future more optimistic?

Some believe that being no longer able to rely on cheap labour will force firms to think about boosting productivity by increasing investment, although there's little immediate evidence of this. Secondly, it might be the case that inward migration for low-paid, relatively low productivity jobs is going to be superseded by migrant workers having medium to high skill levels, to the extent that Jonathan Portes, not a renowned Brexit supporter, has come to believe that the net effects of post-Brexit migration policy might be positive.  

Alongside the Autumn Statement, the other theme of the weekend has been the state of the labour market, with many businesses starting to complain about labour shortages, as is evident in looking at how supermarkets have been raising their pay over the course of the year. 

This time it's the head of the Confederation of British Industry, Tony Danker, leading the calls for a change in immigration policy, and you might want to think about this in AD-AS terms.

My Politics tutor used to say that the Conservative Party was an organisation designed to win elections without an ideology and the Labour Party was the exact opposite.

And here's another bit of evidence in support of that case: two members of the Johnson Cabinet which introduced tax rises - notably National Insurance and corporation tax - and restrictions on immigration in the wake of Brexit are now espousing a tax cutting and  increasingly pro-immigration agenda. 

Hypocrisy? 

The news that the UK has a tech talent shortage isn't a surprise - however, you should immediately be able to see the implications of this for the macroeconomy. 

If you think that success in the tech sector is vital to future growth, then you might expect that the UK is going to grow more slowly than its trading partners, as well as having adverse implications for other macroeconomic objectives. Additionally, you might think about this in terms of AD-AS analysis too. 

This article looks at the implications of the government's immigration policy for the hospitality sector, arguing that the rise in salary requirements to get a visa will have significant adverse implications for the sector, further increasing labour shortages and, no doubt, costs.

It will be a sad day were this ever to affect the Woking branch of Pizza Express.

The government's obsession with immigration both legal and illegal is front and centre this week, and today's announcement that the government is looking to reduce legal migration by 300,000 by raising the minimum salary that overseas workers are required to earn before being able to apply for a family visa is going to raised to £38,700.

And yet, the government thinks that people working in the care sector are going to want to continue coming to the UK to work in sectors like the care industry. even if it means not bringing their families. I'm struggling to see it myself, and also struggling to see the queues of UK nationals desperate to work in shortage sectors such as this. 

So, what are the implications for the economy's productive capacity and, by definition, the LRAS?

Interesting, isn't it, to see the via rules being eased for certain types of so-called Shortage Occupations, with various different types of construction worker and fishermen being seen as in short supply. 

Of course, the government is still trying to square this with its political pledges to reduce immigration levels, but at least it's seen economic sense in increasing the economy's productive capacity, boosting aggregate supply. 

The former Environment Secretary, George Eustice, is calling for a reciprocal visa scheme to allow under 35s across Europe to get two-year visas to work anywhere in the EU, and in doing so, he's effectively admitting that there's a need for EU workers. Common sense at last. 

Anything that increases the labour supply, and will allow some labour shortages to be overcome in undeniably a good thing. 

Does the UK, specifically, have an inflation problem? It's a question that I posed earlier today, and now the BBC have produced a handy article looking at three specific factors: food prices, wholesale energy prices, worker shortages and wage rises. 

In the first case, it does seem as though the UK is especially affected, not least because of the market structure of the sector. In the second, the UK is more exposed to fluctuations in wholesale gas prices than comparable nations. In the third, the UK has seen a more marked fall in the size of its working population, and larger worker shortages than elsewhere. But is there anything that might be responsible for any of these factors? 

Another insightful Phillip Inman piece suggesting that we're going to experience some pain if the economy is too recover. The conundrum is straightforward: if sectors of industry are complaining about labour shortages, then there's a simply solution. Pay more, or improve working conditions.

If they can't afford either approach, then they need to shrink their businesses. And that's the brutal reality. It's actually a remarkably free market article for the Observer, and reflects that one of the longer-term factors holding back the UK economy is the continued existence of so-called zombie firms post-2008, that have survived the financial crisis and subsequently coronavirus only because successive bailout packages have kept them afloat. 

The very real impact of more people opting for economic inactivity has implications for the economy as a whole as well as firms in specific locations. In this case, this Guardian piece looks at the area around Kidderminster, and notes there's been a sizeable leap in the number of people who have taken early retirement, and at the same time local firms are struggling to recruit workers. 

After the IMF growth forecast suggests the UK will be the weakest performing G7 nation in 2023, Paul Johnson suggests a combination of unique circumstances have played a part - labour shortages, Brexit and rising mortgage costs.

I'm still amazed that we are allowing the media to get away without coupling up labour shortages and Brexit, when I think it's seemingly self-evident that the two are linked. 

The issue of post-Covid, and post-Brexit, labour shortages is one that currently plagues the UK economy with a rise in the number of economically inactive workers and fewer migrants.

However, the latest research appears to suggest that one of the reasons for this is the simple fact that firms themselves are viewing workers over 50 as less productive and thus not hiring them. 

Could it be that it's not the supply of workers alone that's responsible for ongoing labout shortages?

The leader of the Opposition is addressing the CBI today and is going to argue that business needs to look beyond immigration to solve labour shortages, by investing, both in capital and education and training to upskill domestic workers.

It will be interesting to see how this is received - I suspect that the response will be lukewarm, if only because certain sectors of industry will say that British workers simply aren't as capable as migrant workers. 

Lord Wolfson, a prominent member of the Leave campaign, has called for more foreign workers to tackle labour shortages. Cakeism of the first order? 

One presumes he also wants access to the single market, frictionless trade, and yet the ability of the UK to import goods without tariffs from overseas, and then re-export them, again without tariffs, to the EU. 

However, his underlying point is a sound one - it is already immediately apparent that the decline in net immigration is in part responsible for labour shortages in various sectors, and this has adverse supply-side implications. 

But how do we select who to let in? A points-based system? Or perhaps a panel of Daily Mail readers to determine whether given immigrants might be "nice neighbours" or not? 

Michael Ryan is notoriously a man known for speaking his mind - and here he clearly illustrates one of the most nonsensical aspects of Brexit - the inability of firms to recruit workers and the damage that this has caused the aviation sector. 

Extrapolate from this - it's also damaging many other sectors of UK industry.