The Sunday Times - UK (2022-05-01)

The Sunday Times May 1, 2022 V2 9

BUSINESS

W

ith wages rising, 11 million

job openings in search of

workers, quit rates and job

security high and the

unemployment rate low, it

is clear that bargaining

power has shifted from

bosses to workers. But the

implications of that shift for the labour

market as an institution are less clear.

In the wonderful 1954 musical, The

Pajama Game, the leader of a strike in

the pajama factory announces, “I

figured it out.” The seven-and-a-half-

cents per hour raise the strikers are

demanding “doesn’t buy a hell of a lot ...

but give it to me every hour, 40 hours

every week, and that’s enough for me to

be living like a king.” With “a pencil and

a pad” he figured that in five years, with

overtime, he would have $852.74,

enough to enable him to buy a washing

machine, vacuum cleaner, 40-inch

television set, a year’s supply of petrol,

and carpet the living room. A reasonable

conclusion, since an $852.74 raise would

buy $8,841 (£7,000) in stuff today.

That was then, this is now. With

spending on services rising sharply

relative to spending on stuff, and with

much of the latter provided by imports,

entrants into the workforce are more

likely to write programs than stitch

pajamas. With women making up 47 per

cent of the workforce compared with

37 per cent some 50 years ago, their

needs carry greater weight. With

millions of working-age men

disappearing from the workforce, this is

not your father’s, or Biden’s father’s

labour market.

These changes have consequences for

the labour market. Workers want

adequate pay but, in addition, what is

called a better work-life balance, a term

sufficiently vague to test the

imaginations of corporate bureaucrats.

They do not want to bear the indignities

of crime-ridden public transportation

systems or the frustrations of traffic jams

to return to the office (RTO) after tasting

the joys of work from home (WFH).

Which means that a labour market

that is historically designed to bring the

demand for and the supply of labour

into balance at wage rates that allow

businesses to earn reasonable profits,

and workers to have a decent standard

of living, is no longer fit for purpose.

Despite wage increases, many

workers are eyeing union membership

for the first time in decades. Despite

bidding wages up at a rapid rate,

employers face an exasperating worker

shortage. Unhappiness with labour-

market outcomes reigns supreme.

In part, this is because employers are

now competing with “such stuff that

dreams are made on”. Nearly 5.4 million

applications to form new businesses

were filed last year, 1.9 million more than

in 2019, the year before Covid landed

here from China. That is only one of

several ways in which the supply side of

the labour market is changing at a pace

that the major institutions on the

demand side are having difficulty

accommodating.

In part, the failure of the labour

market to function to greater satisfaction

is due to the fact that many corporations

do not have the systems needed to hire

in a labour market that now includes a

geographically scattered labour force,

which the hiring officer has never met

face-to-face, except at an occasional

alcohol-infused corporate retreat, an

anachronistic description from the days

when there were well-attended

workplaces from which to “retreat”.

Consider the difficulty of determining

who gets promoted and who does not,

who gets a raise and who does not, how

to supervise WFH employees at a time

when quit rates are at a record high, how

to manage recruitment in an era in

which half of job hunters rely on online

listings for openings and information

about prospective employers.

And the even more difficult problem

of figuring out how to meet the

multidimensional demands of a new-age

proletariat. Apple pays its retail

Irwin Stelzer American Account

workforce an above-average starting

wage. According to one of the leaders of

the organising drive in its Atlanta store,

“Apple is a profoundly positive place to

work, but we know that the company

can better live up to their ideals.”

Presumably, the company’s

negotiator will need expert advice on

just how to live up to those ideals. And,

along with his Starbucks counterpart,

from still others to advise him how to

avoid antagonising those companies’

largely liberal and worker-sympathetic

customer bases while turning down

economically unacceptable quality-of-

life demands from a newly emboldened,

more diverse, workforce.

There’s more. Hispanics have

increased from 8.5 per cent of the

workforce in 1990 to a reported 18.0 per

cent in 2020, and black workers from

5.16 per cent to 12.6 per cent. The labour

market, designed to deal primarily with

wage-setting, is now a battlefield on

which government and employers, with

the help of lawyers and economists,

battle to determine whether any groups

are being discriminated against. That

won’t change when bargaining power

inevitably shifts back to employers. Nor

will demand cool for HR managers, who

now number close to 900,000, earning a

median annual salary of $126,320.

[email protected]

Irwin Stelzer is a business adviser

Union organisers

at Apple know that

it can better live

up to their ideals

Once, debt at 40%

of GDP was seen as

a safe level. It’s a

different era now

T

here was a time when it was

impossible to get away from

Covid-19 — it dominated the

news agenda for nearly two

years. One day we will be able

to tell our grandchildren that

we were there when Professor

Chris Whitty said: “Next slide,

please.” The pandemic, of course, had a

huge human cost, which continues.

The latest estimates from the Office

for National Statistics are that there have

been 174,413 deaths involving Covid

since March 2020 in England and Wales,

and 133,623 “excess” deaths. For the

latest reporting week, to April 15, there

were 1,003 deaths involving Covid, in

644 of which it was the underlying

cause. Other figures, from the

government’s coronavirus dashboard —

now of less interest because mass testing

has ended — suggest 2,297 UK deaths

within 28 days of a positive test in the

latest seven days.

As well as the human cost, there has

been a significant economic cost. You

might think that is all behind us. Now

that the unemployment rate is slightly

below pre-pandemic levels, at just

3.8 per cent, and gross domestic product

has recovered to where it was on the eve

of the pandemic, it would be easy to

conclude that we have quickly returned

to normal. But there are still nearly

600,000 fewer people in work than

there were, and some of the other

economic effects are enduring.

That includes the impact on the

public finances, and this is a good time

to be looking at that. A few days ago,

official figures covering the 2021-22 fiscal

year were published. They showed that,

while the budget deficit came down

sharply compared with 2020-21, when

most of the damage to the public

finances was done, it was both above

official forecasts and historically high.

The deficit fell from £317.6 billion in

2020-21 to £151.8 billion in 2021-22, thus

dropping from the highest to the third

highest on record (the second highest

was during the financial crisis). For once

the official forecaster, the Office for

Budget Responsibility (OBR), was too

optimistic, the deficit coming in a hefty

£24 billion above the forecast it made

only last month, though the gap should

narrow as later data comes in.

The latest figures also provide a

running score for the effect of the

pandemic, and the economic measures

brought in to counter it, on government

debt. At the end of March, roughly the

end of the 2021-22 fiscal year, public

sector net debt was more than

£2.3 trillion and equivalent to 96.2 per

cent of gross domestic product.

Two years earlier, at the end of March

2020, the debt was nearly £1.8 trillion, or

82.8 per cent of GDP. I could have gone

back a little earlier, given that the

economy was already succumbing to

Covid during March 2020, and we were

already in the first lockdown, but the

significant debt increases only came

after that.

Both sets of numbers are large and the

later ones are considerably larger than

those earlier. Government debt at the

end of March this year was £551 billion

bigger than two years earlier. Relative to

GDP, it rose from just over 80 per cent to

knocking on the door of 100 per cent.

Most of this increase in debt was due

to the pandemic — both the effects of a

profound economic shock to public

expenditure and tax revenues, and the

cost of the measures introduced by the

chancellor in response to that shock.

There was also, embarrassingly for the

Treasury, as the guardian of the public

purse, widespread waste and fraud.

Purchases of unusable personal

protective equipment and tales of

suitcases of money at airports

containing bounce back loans do not

suggest a tightly run ship.

The debt in cash terms would have

gone up anyway, but not by nearly as

much. In February 2020, the consensus

among economists was that public

borrowing — the deficit —would be

between £50 billion and £55 billion in

both 2020-21 and 2021-22. The debt

would have risen by £100 billion or so

even if there had been no pandemic.

almost double its level a year earlier. The

OBR, which got this one pretty much

right, predicts a further rise to

£83 billion this year, 2022-23.

Most of the increase reflects the

impact of higher inflation on index-

linked gilts, on which the return is tied to

the retail price index. And, while the

money does not have to be paid out until

the bonds mature, it still reflects the cost

of servicing government debt. This

year’s even higher bill is also largely an

inflation effect, though also embodies

higher interest rates.

The inflation effect will subside if

inflation drops back, as the official

forecasters expect it to do. But the public

finances remain vulnerable to higher

borrowing costs and new economic

shocks. It is not that long ago, under

Gordon Brown’s 1997-2007

chancellorship, that 40 per cent of GDP

was thought to be the safe level of

government debt and was embodied in

Labour’s fiscal rules. In very many

respects, we are now in a different era.

PS

Towards the end of 2020, I gave a talk —

online, naturally — to an association of

businesses whose role was to supply

independent garages. The mood was

very glum, not just because of Covid but

because their business had been hard hit

by the government’s decision to extend

by six months the MoT tests on vehicles

that had a test due between March 30

and July 31 that year.

The six-month grace period made

sense in view of the disruption to garage

services, and the fact that people were

driving less when restricted on how

much they could travel — except when it

was to Barnard Castle. But it made things

very difficult for that part of the motor

trade, independent garages

predominantly servicing older vehicles,

for which the annual MoT and oil-change

service is their lifeblood.

I thought of this the other day when

news emerged of ideas being tossed

around the cabinet table for easing the

cost-of-living burden, one of which was

to extend the interval for MoTs from 12

to 24 months.

Two years is the interval in many

other countries, though tests are often

tougher, and there is no doubt that cars

have become more reliable in the 60 or

so years since the annual MoT test was

introduced.

I know people like me are meant to

take sides, but I genuinely have a mixed

view on this one. On the one hand, it will

clearly be dangerous if more people are

driving around on bald tyres or with

dodgy brakes, or churning out more

toxic emissions than they should be.

Independent garages will lose business,

and for some that will be critical.

On the other, many drivers are

required to fork out £54.85 for a test they

do not really need and, given that

garages are pretty good at finding things

that need to be done, to pay for repairs

to parts they did not know they had.

One thing is clear. Whatever the

merits of these and other fairly weak

ideas that were being discussed around

the cabinet table, they are not a solution

to the cost-of-living crisis.

[email protected]

That leaves about £450 billion as the

cost of the pandemic to the public

finances, in terms of the addition to

government debt. It is a significant sum.

It is not as much as in a war, to which the

pandemic has sometimes been

compared. The Second World War

increased government debt from 137 per

cent to 252 per cent of GDP, roughly

equivalent in today’s prices to an

increase from £3.3 trillion to £6.1 trillion.

There were, however, clear routes to

reducing the debt burden after the war —

through demobilisation, lower defence

spending and economic growth. The

debt fell from 252 per cent of GDP to just

22 per cent over the next 45 years. Now

there are no such mechanisms. We face a

future of unfavourable demographics

and, it seems, low growth.

It is, of course, too soon to close the

books on the pandemic. There will be

costs for a number of years in clearing

the NHS backlog, which is the main

reason for the national insurance hike.

There will also be costs in the catch-up

for pupils, though much less has so far

been allocated to that.

In the meantime, there is one of the

chancellor’s big fears — that a

combination of high debt and rising

borrowing costs will mean a soaring debt

interest bill. It was one reason why, in his

spring statement in March, he chose not

to splash the cash, even at significant

personal political cost.

A standout number from the latest

official figures was that debt interest rose

to a record £69.9 billion in 2021-22,

Central government debt interest

£100bn

Public sector debt

300% of GDP

GOVERNMENT DEBT IS AT A 60YEAR HIGH ...

... AND DEBT INTEREST IS RISING FAST

Source: ONS

Sources: ONS, OBR

60

0

80

20

40

1920 1940 1960 1980 2000

201617

200

100

0

201718 201819 201920 202021 202 12 2 202 223

Forecast

GreatDepressionWW2

David Smith Economic Outlook

Labour market is

not fit for purpose

£450bn and counting – the

cost in debt of the pandemic

HSBC itself has been in Hong Kong since

the aftermath of the Opium Wars.

Trading through local difficulties is

second nature and, if anything, gives the

bank its edge.

That’s just one reason why Ping An’s

agitation to break up the giant bank

makes less sense than you’d first think.

It’s true, HSBC does infuriatingly miss

financial targets, and has been

stubbornly bureaucratic. But smashing

the thing up is not the answer. The bulk

of its core wholesale banking customers

choose HSBC because it can facilitate

trade between and around East and

West. Split one from t’other and you

would cause an instant migration to the

US global giants Citi and JPMorgan.

One reason Asia-focused Standard

Chartered is valued so much lower than

HSBC on the London Stock Exchange is

that StanChart does not offer the

Western part of the trade jigsaw.

Trade is the most significant part of

the HSBC model, but a break up would

also hit its retail customer numbers.

Many are an international bunch, who

put up with humdrum service because

they travel a lot and like a global bank.

Another canard is that the Asian part

of a broken-up HSBC would be more

lightly regulated and less heavily

capitalised than it is currently under the

Bank of England. The truth is that Hong

Kong regulators aren’t so different from

Threadneedle Street. And as for China,

one of the finance ministry’s biggest

concerns is how thinly capitalised its

banks are — perhaps to the tune of

$200 billion-$400 billion. Regulators

there are hardly likely to give an easy

ride to a newly created “HSBC Asia”,

with operations in India, Australia and

other countries they little understand.

Added to which, the cost and

disruption of HSBC doing the splits

would be immense, just at a time when

global banks should be capitalising on an

increase in central bank interest rates.

Ping An, with its likeable boss Peter

Ma, is perfectly within its rights to call

for a debate on HSBC’s future. There are

arguments to be had about how to

improve what has been a perennial

underperformer. But the simplistic idea

of a break up would destroy as much

value as it creates.

Oliver Shah is away

elderly relatives. But many have

dropped out of work simply because

they can afford to. A generation of low

interest rates means they have accrued

unprecedented wealth in their

properties and investments.

Again, the prospect of higher interest

rates and recession could jolt them out

of their sense of ease. Declines in

technology sector shares have begun to

bite into pension portfolios this year.

Property prices are starting to cool, too.

The generation that delights in

T

hey call them the Missing

Million. Britain’s workforce has

some 1.1 million fewer toilers

than before Covid. Broadly

speaking, during the pandemic,

a third of the million retired, a

third fled back to their home

countries, and a third were

younger workers who dropped out for a

career break.

The result can be seen in pubs and

restaurants across the country this busy

bank holiday weekend, with many either

closed altogether due to staff shortages

or operating a limited service.

Office for National Statistics data

shows that nearly all sectors are affected

by labour shortages. In each of

transport, mining, finance, energy,

education and media, more than 50,000

vacancies are being advertised.

Healthcare and hospitality have more

than 150,000 roles needing to be filled.

The resulting inability of companies

to satisfy demand for goods and services

is one reason Britain is set for the slowest

economic growth in the G7 this year.

The question is, how long will it last?

Some experts argue this Great

Resignation is the future: that younger

workers will never again be as hungry to

forge forth on the career paths, while

their “OK Boomer” parents will

disappear from the workplace for good.

I’m not so sure of either.

Those in their twenties and thirties

who quit working as a lifestyle choice do

so because they have never experienced

the terror of a monster recession and

mass unemployment. All they have

known is readily available work and — in

recent years — the prospect of a healthy

pay rise every time they swap jobs.

When recession does come — as

seems likely pretty soon — that relaxed

attitude will change. We may not see an

unemployment crisis as in previous

downturns, but jobs will disappear.

Those who can afford it may shelter

from the storm by returning to

education, but most will run in the

direction of whatever work there is, and

stay there when they find it.

And what of the 700,000 or so in their

50s and 60s who’ve joined the missing

million? Long-term health issues seem to

be a significant factor here, stemming

from Covid or the need to care for

Job vacancies, January to March 2022

216,000

170,000

164,000

131,000

94,000

88,000

73,000

73,000

Health and social work

Car trade

Hospitality

Science and tech

Manufacturing

Support services/admin

IT and comms

Education

reminding the young of the days when

mortgages were at 14 per cent will feel a

twinge of the old fear again and put off

their retirement.

With any luck, a long overdue reset of

property prices could mean more

younger people getting on the housing

ladder. A hefty mortgage to worry about

is the surest way to stop them dropping

out of the rat race.

Breaking up is hard to do for HSBC

As China flexes its muscles against the

West, it’s easy to declare that

corporations cannot straddle both

London and Beijing.

Take HSBC: when it complies with the

demands of authorities in China that the

West doesn’t like, the board gets

brickbats in London and Washington.

When it complies with western

regulators in ways China disapproves of,

it gets spanked in Beijing.

China’s ambivalent stance over Russia

only makes the tensions worse. But that

does not make it impossible to balance

the two. British companies have

diplomatically juggled ties in difficult

countries since the days of the Empire.

Jim Armitage

Say farewell to the Great Resignation.

Recession will make work attractive