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Closer to the edge

Earlier this year when the establishment media was running fear stories about excess savings, the opening up of the economy was predicted to result in a massive consumer boom.  It didn’t happen.  Rather, as happened in the summer of 2020, people emerged from house arrest in need of a haircut, some new – mostly larger – clothing, and a thirst for a pint of beer down the pub.  Once these desires had been sated, most returned to their homes and continued with lockdown spending habits that have now become ingrained.  Not least because, while a small minority at the top may have accumulated £125bn in savings since the first lockdown, the majority of us had been running up even more debt.  The people with savings were hanging onto them while the crisis continued.  Everyone else was unable to consume anyway.  And so, after a brief rally in July, growth fell in August.  Today the UK economy is officially still 0.8 percent smaller than at the start of the pandemic.

There may well be worse to come.  With the end of the various government support schemes, redundancies have shot up once more.  According to the BBC:

“The number of businesses that failed in England and Wales last month was the largest since the Covid pandemic began.  Company insolvencies in September totalled 1,446, increasing from 1,349 in August and 56% higher than the same month last year, data from the Insolvency Service shows…

“The Bank of England earlier this month said one third of small businesses in the UK are classed as ‘highly indebted’, where their debt levels are more than 10 times their cash balances.”

The growing supply-side shock, and especially the explosion in the price of gas (and consequently in the UK, the price of electricity) and the remorseless rise in the cost of oil, have left businesses struggling with higher costs even as consumer demand is wavering.  Mirroring trends around the world, the UK’s biggest port – Felixstowe – is congested and unable to unload ships in the just-in-time manner that prevailed prior to the pandemic.  This has led to shortages across the economy and is likely to cause even higher prices for items that are in demand.

Perhaps because of government claims that they are creating a high-skilled/high-paid economy, the shortages have been portrayed as a good thing; at least for the long term.  The apparent shortage of HGV lorry drivers, for example, has forced employers to increase pay and to promise improvements in conditions.  But this comes at a cost, and retailers are warning that consumers will have to get used to higher prices.

This has given rise to the fear of an inflationary wage-price spiral similar to the early 1970s.  Not least because vacancies in some sectors of the economy are well above pre-pandemic levels.  The fear is that workers can now demand higher pay and that the cost will inevitably be passed on as higher prices.  One consequence is that the Bank of England is hinting at an early interest rate rise to dampen consumer spending.  Or, to put it another way, the central bank looks set to repeat the error that it made the last time energy prices spiked up ahead of the 2008 crash.  Except that this time around the crisis will be much bigger.  And institutions which were too big to fail 14 years ago have become too big to save today.

A closer look at the supposed explosion in job vacancies provides a clue to the deeper features of a crisis which is only just beginning.  The first thing to note is that vacancies are far from even across the economy.  As a recent paper from the Institute for Fiscal Studies explains:

“Overall job vacancies now slightly exceed their pre-pandemic levels. However, because the mix of occupations being advertised is not the same as it was before the pandemic, we estimate that new job opportunities remain more than 10% below pre-pandemic levels for a quarter of the workforce (or 8.1 million people)…

“For people in search of new jobs, vacancies are only half of the story: the number of other people looking for such vacancies also matters for how easy it is to find a job. We estimate that competition for new jobs among unemployed former road transport drivers is well below pre-pandemic levels. Job competition in a handful of other fields, including waiters and bar staff, also looks low compared with pre-pandemic. This is consistent with high-profile media reports about worker shortages in these sectors.”

Remarkably, while official figures break vacancies down according to sector, they fail to give any regional breakdown.  The reason this is important is that many jobs have been centralised in the big cities where – at least prior to the pandemic – labour was abundant and cheap.  Aris Roussinos at UnHerd gives the example of the meat industry:

“For decades, in search of efficiency, supermarkets have centralised the processing of meat in gigantic mega-abattoirs, forcing small regional abattoirs to close and crowding out local farmers. The working environment in these places is so appalling and exploitative, and the pay so low, that they can only be staffed by immigrants from poorer regions of the world. As a result, more than two thirds of Britain’s meat processing labour force is made up of migrants, making the nation’s food supply dependent on the free flow of foreign labour, and on the nationwide distribution of live animals and processed meat to a tiny number of centralised hubs.

“This is an entirely unsustainable as well as immoral state of affairs. As the commentator Richard North, an expert on the meat industry, observes, the number of abattoirs in Britain has shrunk ‘from 3,326 units in the 1960s to a mere 156 in 2020”, with the result that “the meat industry structure in the UK is already so concentrated as to be unsustainable’. As soon as the system meets a shock, as it has now, it is unable to cope..”

A search of the vacancies on the Reed recruitment agency website provides an indication of the geographical variation in demand for labour.  By far the largest number of vacancies are in London – 75,460.  Manchester comes in second – 17,565 – with Birmingham not far behind – 14,330.  In contrast, Liverpool has just 8,023 vacancies listed; Cardiff 3,457; and Hull 1,748.  This regional inequality can also be seen in a recent report in The Sun.  According to the report, based on data from the Recruitment & Employment Confederation’s Jobs Recovery Tracker, Central London has an order of magnitude more vacancies than anywhere else in the UK.  At the time of the report, there were 232,000 vacancies in the City of Westminster alone.  Camden and the City of London was tenth on the list with 28,300 vacancies.  Manchester and Leeds were the only places in the north of England to appear in the top ten, with counties in the southeast posting the bulk of the non-London vacancies.

At its simplest then, the vacancies story is mostly about jobs being located in a different place to the workforce.  And while we might call for people to move to where the work is, this may be easier said than done.  Not least because the cost of having a job in London and the southeast may be greater than the job is worth.  Particularly at the bottom end of the job market.

Some of the unevenness may be a consequence of the lockdown shift to online learning.  Many of the low-paid and part-time jobs in catering and hospitality would ordinarily be filled by students trying to make ends meet as they go through university.  But for most of the last two years, a large number have stayed at their parents’ home and completed their courses over the internet.  Similarly, after graduating some 50 percent of students remain in the city where they studied; often taking entry-level jobs on relatively low salaries in order to get a foot on the employment ladder.

A bigger issue though, is the loss of migrant workers – mostly from the European Union.  As I pointed out in February:

“Particularly worrying is the big exodus of European workers who chose to see out the pandemic at home rather than in the overcrowded housing conditions of London.  Add post-Brexit working restrictions to the mix and it is likely that most of these workers will not be coming back.  And since their ranks include key NHS and council workers, together with skilled manual workers like plumbers and electricians, who cannot be easily replaced by British workers, things may soon begin to fall apart.”

Deeper still is a problem which London shares with New York – both, not coincidentally, major world financial centres.  Both cities were shrinking long before the pandemic arrived.  Although the lockdowns have accelerated the process of depopulation.  But this issue is more than just migrant workers going home, it is about the detrimental impact that proximity to financial sector wealth has on the cost of having a job:

“A large part of the essential servicing of London has been provided by relatively low-paid (by London standards) overseas workers, UK-born workers living in the few affordable enclaves within the city, and workers commuting in from neighbouring towns.  These are the army of ‘essential workers’ given prominence by the pandemic; without which any city will grind to a halt.  But even before the pandemic, the cost of working in London was already too high [compared to] the additional wages on offer.  Simply running a car in order to commute, for example, can add more than £10,000 to the annual cost of living when fuel, parking, maintenance, tax and insurance are taken into account.  So many workers are no worse off settling for lower-paid employment closer to home.  The only thing keeping them in London was the greater potential to prosper in the longer-term… a potential that has lost value steadily since the 2008 crash.

“Once again, the pandemic – and the official response to it – has accelerated trends that were already happening… in this case, the drift of workers away from the city…”

The increasing price of energy and fuel can only add to this problem as most ordinary workers will be priced out of commuting.  And it might be that instead of the “levelling up” that the government claims to be pursuing, what we are actually witnessing is the beginning of a widespread levelling down.

We have, then, two stories playing out for the moment.  On the one hand we have the state-establishment media happy story about wages increasing and plenty of jobs to go around.  This, no doubt, encouraged the Chancellor to withdraw the various support packages, cut benefits and increase taxes.  It is why the Prime Minister seems convinced that now is the time to add supposedly “green” levies onto already back-breaking energy prices. It is also why various financial sector lobbyists are calling for an early rise in interest rates. 

But across the economy beyond the affluent districts of London and the southeast there is an entirely different story to be told.  A story of workers who have not had a pay rise in 14 years, of people who have turned to debt to make ends meet, and a story of people who will likely not be able to make ends meet now that energy and fuel prices have spiked.

The danger here is that as governments, businesses and central banks overestimate people’s ability to absorb the raft of new costs that are hitting them, they look set to trigger a crisis far greater either than 2008 or, indeed, the stagflation of the 1970s.  And back then there were enough planetary resources to permit further economic growth.  That is not the case today.  Europe’s gas shortage, for example, is because Europe no longer has sufficient gas to meet demand.  Europe is similarly short of oil.  And there is no law which says that Europe must get first pick of the rest of the world’s hydrocarbons.  Indeed, as is the case today, demand in the USA, China and India is going to determine a large part of the price that European businesses and consumers will have to pay for energy in future.  Our demand may be falling, but their demand may still keep prices higher than we can afford.

I wonder if hyperstagflation is a real word yet!

As you made it to the end…

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