Supply chains are the least of it – labour markets signal change

It seems such a long time since our governments (well the left-wing ones anyway) were steering us deftly through the pandemic?

Sure – there were a few glitches – ‘transitory’ inflation for one.  But there was a catch-all explanation – supply chain disruption. And normal service would be resumed shortly.

But like most comfortable explanations, there seems to be a little more to it than that.

Evidence is emerging which suggests that the Covid event – and the government response both during and after – may have had a more profound impact on expectations and behaviour.

This would be no surprise to economists who believe incentives matter; perhaps more perplexing to those who believe that love is all you need.

So we find the Financial Times asking why Britain’s over-50s are rushing out of the labour market:

“Older workers have been leaving the UK workforce because they are choosing to retire early, not because of ill health, according to new analysis that could force a reappraisal of the challenges facing the economy.”

According to one policymaker they quote, changes in labour market participation were “emerging as the key economic legacy of Covid in the UK” and would slow growth.

But it looks like it might take a while to get clarity.  Another good quote in the article:

“Fundamentally, people are leaving work for retirement at a greater rate than they used to. At the same time, people already out of the labour force seem to be sicker and saying they are out of work because of that.” 

Which leaves unexplored the wider but related questions of the impact of post-Covid changes in working patterns on productivity, and the health impacts on productivity for those still working.

Experience tells you that the private sector is generally much faster and more flexible in recognising and rewarding productivity changes.

Whereas the public sector – particularly in sectors where output is not that transparent – is more likely to carry non-performance.

But this is a difficult idea to get across in a post-Covid world.

It’s certainly not got much traction with public sector workers and their unions.

Britain’s nurses have just finished balloting for what is billed as their first-ever strike.  The similarly inexperienced head teachers are following closely behind.   

Which is managing to draw attention away from the usual suspects – like the rail workers who have been on a rolling programme of public inconvenience since the summer time.

Tight labour markets provide some justification for wage claims – for some workers.

But also for flexible labour markets, pay for performance, more charging market prices and deregulation in product markets.  All the things that went into the too-hard basket during the years that government could apparently do everything.

Because it seems increasingly likely that the government has run out of money to try the old trick of buying-off the public sector, without any meaningful changes in the workplace.

And therefore, like governments everywhere, it will need to come up with a new interpretation of ‘we’re all in this together’ – one somewhat more closely aligned with individual value in the labour market.  

It smacks a little of what temporary PM Liz Truss was groping for.

But there will need to be a better explanation of the problem and the contribution of bad policy over the last decade, lest voters rush to downgrade new PM Rishi Sunak’s own individual value in the labour market.

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