December 7, 2022

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The job market is 'worse than the 1970s' as it hit the UK

The job market is ‘worse than the 1970s’ as it hit the UK

Usually crowded Waterloo station is nearly empty in London on June 21, 2022 as the UK’s biggest rail strike in more than 30 years hits.

Ben Stansall | Afp | Getty Images

LONDON – The labor market is “worse than the 1970s,” as massive rail strikes in the United Kingdom offered a sign of things to come, according to Nobel Prize-winning economist Christopher Pisaridis.

The British RMT Federation confirmed on Monday The planned rail strikes will continue this week after talks with rail companies failed to reach agreement on jobs, wages and terms. About four-fifths of the trains have been canceled, with more strikes planned for later this month and in July.

Pissarides, 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’s seen.

“It’s worse than the 1970s, in the sense that we need to make bigger adjustments in labor markets. We have new technologies that are automating, and in fact, union leaders are complaining about job losses, and from ticket offices – that’s a duty to the new technologies.”

Furthermore, economies around the world are facing rising inflation, particularly when it comes to food and energy, due in large part to the war in Ukraine.

Pissarides, a Nobel laureate in economics for his work analyzing labor markets, said there is “no way we can avoid the pain from this,” but that it must be distributed throughout the economy.

“There are not many sectors of the economy that have strong unions. We do not have large nationalized industries as in the 1970s when the whole manufacturing was on strike, and this makes it very difficult to say: Those of you who have strong unions, we will give you compensation,” Pissarides explained. We are completely out of these external shocks, and we let others bear all the burden.”

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spiral of inflation

Besides external shocks to the entire global economy, the UK is also dealing with what Pissarides called “homemade” inflation, after a government holiday scheme and other financial support programs bolstered demand throughout the pandemic, but pushed public debt to record heights.

Global government debt is expected to reach a record high in 2022 Borrowing remains broadly high.

One of the main long-term concerns, Pissarides said, is the “second-round effects” of inflation that are starting to take shape. He said that inflation expectations are starting to fade and lead to higher wages, which constitutes a “self-fulfilling prophecy” and an upward spiral of inflation.

“The vortex is not quite there yet, but giving wage increases that match or are close to the inflation that the Bank of England expects will bring us very close to a vortex, and we may see it, and if it does, it will take longer to de-inflate.”

“Remember that in the ’70s, it took at least 10 years to get inflation going and it was very difficult in the end, it was Thatcher’s policy that caused a lot of unemployment just fighting inflation. And that’s definitely not something we want to see this time because we hope we’ll have We learned our lesson.”