The labor market is “worse than the 1970s” after strikes hit Britain

The normally busy Waterloo Station is almost empty in London on June 21, 2022, as the largest rail strike in more than 30 years hit the United Kingdom.

Ben Stansal Afp | Getty Images

LONDON – The labor market is “worse than the 1970s”, with mass rail strikes in the UK a sign of impending things, according to Nobel Prize-winning economist Christopher Pisarides.

The British RMT Union confirmed on Monday that the planned railway strikes will continue this week, after talks with railway companies failed to reach an agreement on jobs, pay and conditions. About four-fifths of the trains have been canceled, and additional strikes are planned later this month and in July.

Pisarides, a professor of economics at the London School of Economics, told CNBC on Tuesday that labor markets are going through “some of the most difficult times” he has seen.

“This is even worse than in the 1970s, in the sense that we need to make bigger adjustments in the labor markets. “We have new technologies that introduce automation, and in fact union leaders are complaining about job losses, ticket offices – this is due to new technologies,” he said.

Moreover, the world’s economies are facing rising inflation, especially in food and energy, largely due to the war in Ukraine. Pisarides said that “there is no way to avoid the pain of this” and that therefore the British government is facing the challenge of trying to spread this pain throughout the economy.

“There are not many sectors of the economy that have strong unions. We do not have the large nationalized industries we had in the 1970s, when all production was on strike, so it is very difficult to say: “Those of you who have strong alliances will give you full compensation for these external shocks and we will let others take the whole burden, “Pisaridis explained.

Inflation of “domestic production”.

In addition to the external shocks facing the entire world economy, the UK is also dealing with inflation, which Pisarides called “domestically produced”, after the said holiday scheme and other fiscal support programs supported demand throughout the pandemic, but led to public debt to record highs.

Global government debt is expected to jump to a record in 2022 as loans also remain generally elevated.

Pisarides, who won the Nobel Prize in Economics for his work analyzing labor markets, suggests that uncertainty about the extent to which internal and external shocks have led to inflation leads to a mismatch between Bank of England politicians who voted 6-3 to raise interest rates by 25 basis points last week.

“Some members thought we needed to tighten more, others thought the recession was coming, so demand would fall and wages wouldn’t have to go up, so it’s a very difficult time and I’m not surprised to hear these contradictory things. “coming from all over the government, the Bank of England, the workers,” he said.

Inflationary spiral

The main long-term concern, Pisarides said, is the “second-round effects” that are beginning to take shape, with inflation expectations weakening and leading to wage increases, forming a “self-fulfilling prophecy” and an upward spiral of inflation.

“The spiral is not quite there yet, but a pay rise that coincides with or is close to the inflation forecast by the Bank of England will bring us very close to a spiral and we can see it, and if that happens, it will take time. much more time to get rid of inflation, “he said.

“Remember that in the 1970s 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, only the fight against inflation. This is certainly not something we want to see this time, because I hope we have learned our lesson. “

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