ADVERTISEMENT

Britain’s Labor Market Paradox Threatens to Choke Its Economy

Here are numbers that sum up the immediate challenge for the U.K. economy.

Britain’s Labor Market Paradox Threatens to Choke Its Economy
An office worker at a desk in the offices of Arcadis NV in London, U.K. (Photographer: Jason Alden/Bloomberg)

Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Two numbers might sum up the immediate challenge for the U.K. economy: 1 million job vacancies and almost 2 million people who have lost their job during the pandemic, left the workforce or are on furlough.

The government and Bank of England are lauding the strength of the labor market as evidence of a dynamic recovery from the pandemic-induced recession. Employment openings are at a record and wages are rising. 

Yet hundreds of thousands of employees are preparing for life after state support over the next six weeks when the government wage program ends on Sept. 30, with little to suggest they can fill the gaping hole in a workforce that’s aging and has been hit by an exodus. 

Figures published on Monday showed the national staff shortage is 14 times the normal level and has choked growth to its lowest rate since the depths of lockdown in February. The problem lies in the discrepancy between vacant positions in key industries such as haulage, construction and food processing -- which relied a lot on European Union citizens -- and those with the highest level of furloughed workers.

“The labor mismatch should sort itself out, it’s a question of how long it takes,” said Cathal Kennedy, European economist at RBC Europe. “Brexit will have to take a toll here at some point. It’s bound to limit the ability of the labor supply to respond to changes in demand going forward.”

Britain’s Labor Market Paradox Threatens to Choke Its Economy

There were between 700,000 and 1.2 million workers still on furlough in late July, according to Office for National Statistics data. Meanwhile, another 490,000 people have already left the labor market since the fourth quarter of 2019 and are categorized as “inactive.” The number of unemployed has risen by 310,000 over the same period.

Seven in 10 businesses finding it more difficult this year to fill vacancies said it was due to a lack of suitable applicants, according to a survey conducted by the ONS in early August.

The shortage of truck drivers in particular is wreaking havoc, increasing delivery times and worsening supply bottle necks. Industry bodies have called for temporary visas for drivers from the EU. The government last week rejected that plea, saying the focus should be on training new drivers.

That’s easier said than done, said Suzi Ludlow, who lost her job in October last year. Sixty-seven years old, she spent 14 years working as a legal secretary for the RSPCA charity and was initially put on furlough. “There’s a lot of driving jobs available, there’s a lot of caring jobs available too,” she said. “But if you’ve come out of an admin job, that’s pretty daunting to be honest.”

Britain’s Labor Market Paradox Threatens to Choke Its Economy

Politicians and policy makers remain confident of a smooth readjustment when the 18-month-old program of state support ends in September. That said, Bank of England Governor Andrew Bailey said this month that the “labor market challenge” in the U.K. had already shifted from “avoiding a steep rise in unemployment” to “ensuring a flow of labor into jobs.”

Others are predicting a bumpy road, which may expose the current strength in the labor market as a statistical mirage, with the unemployment rate kept artificially low by the number of inactive workers.

Until now, the near 70 billion-pound ($96 billion) furlough plan has helped millions avoid unemployment and has been credited with preventing a disastrous spike in joblessness during the pandemic. The jobless rate currently stands at 4.7%, well short of the double digits predicted by the government’s economic watchdog last year.

For the idled employees still being paid the majority of their wages, the concern is their jobs simply won’t exist to go back to. Those worries could already be crystallizing. U.K. employment law means companies planning a large number of cuts need to give at least 45 days’ notice, with smaller rounds still needing 30 days. 

“There’s a sizable minority of people who are vulnerable,” said Matt Whittaker, chief executive officer of the Pro Bono Economics charity. “And the risk is we get caught up in the optimism and the good news.”

©2021 Bloomberg L.P.