Labor market ‘worse than 1970s due to UK strikes’

A normally busy Waterloo Station is nearly empty in London on 21 June 2022 as the biggest railway strike in over 30 years hits the UK.

Ben Stansall | Afp | Getty Images

LONDON – The job market is “worse than the 1970s,” with massive rail strikes in the UK a sign of things to come, according to Nobel laureate economist Christopher Pissarides.

British RMT Union confirmed Monday that the planned railway strikes will continue this week after talks with the train companies failed to agree on jobs, wages and conditions. About four-fifths of the trains are being cancelled, with more strikes planned later this month and into July.

Pissarides, a 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 has seen.

“It’s even worse than it was in the 1970s, in that we have to make greater adjustments in the labor markets. We have new technologies that bring automation and in fact the union leaders are complaining about job losses, about counters – that’s because of the new technologies,” he said.

In addition, economies around the world are experiencing rising inflation, especially when it comes to food and energy, largely as a result of the war in Ukraine.

Pissarides, who won the Nobel Prize in economics for his work analyzing labor markets, said that “we cannot avoid the pain of that,” but that it should be spread across the economy.

“There aren’t many sectors of the economy with strong unions. We don’t have big nationalized industries like we had in the 1970s when the whole production went on strike, and so it’s very hard to say, ‘Those of you who have strong unions, we are going to give you full compensation for these external shocks, and let the others bear all the burdens,” explains Pissarides.

inflation spiral

In addition to the external shocks facing the entire global economy, the UK is also experiencing what Pissarides called “domestic-produced” inflation, after the government’s furlough scheme and other fiscal support programs boosted demand during the pandemic, but public debt hit record highs.

Global government debt is expected to rise to a record high in 2022 as borrowing also remains largely high.

Pissarides said a major long-term concern has been the “second-round effects” of inflation that are beginning to take shape. He said inflation expectations were anchoring, leading to wage hikes, a “self-fulfilling prophecy” and an upward spiral for inflation.

“The spiral isn’t quite there yet, but if we give wage increases that match or nearly match the inflation that the Bank of England is forecasting, we’re going to get very close to a spiral, and we could see it, and if it does It will take much longer to get rid of inflation,” he said.

“Remember that in the 70s it took at least 10 years to get inflation and it was really hard in the end, it was the Thatcher policies that caused so much unemployment just to fight inflation. That’s certainly not something that we want to see this time, because hopefully we learned our lesson.”

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