Stagflation: Forward focus for the local labour market

By Professor Nigel Jump, professor of regional economic development, Bournemouth University

Recent months have been dominated by issues about the supply of goods and services and their impact on stagflation (low growth and high inflation). Fairly full employment has assuaged the generally ‘soft’ economy. With a predicted deep and prolonged recession this year, employment may be less robust. In early 2023, with consumer confidence lower than ever, attention may begin to switch to the labour market, reflecting:

1) the impact of strikes, vacancies and inactivity; and

2) the pressures of skills mismatches, education and training gaps and migrant worker shortfalls. There was an employment rate of 75.6% in the period August to October 2022. The unemployment rate was 3.7%. These two measures are still relatively high and low respectively. The inactivity rate was 21.5% and average real earnings fell 2.7% from the year before. There is early evidence that there is some return into the workforce by mature workers and signs hiring is easing as the recession bites. Local workers and bosses tell of a sparsity of key staff and intense cost pressures. These patterns, however, may be starting to shift.

So, how can our region can learn from previous recessions, anticipate recovery, and get ahead of the next ‘upturn’?

History suggests there is a lag between output trends and employment. Often, unemployment starts to increase after a recession is first felt, increasing until well after the low point for output and recovery has begun. Many firms do not adjust hiring and firing until they are confident a turning point has occurred, but successful businesses identify the needs for recovery before their rivals and starting to hire and train in anticipation of a rebound.

High inflation tends to delay the cyclical recovery further because the ‘good times’ are harder to predict, so price adjustment and the desire to bear down on costs beyond the immediate need is sustained.

Another complicating factor is the recent, adverse structural changes in world flows of goods, services, components, resources and labour, causing shortages and bottlenecks in supply chains. Recovery and growth

The FT recently asked if the pendulum of economic success is swinging back from capital to labour. The real point is that future, successful and sustainable growth will be based on the collaboration of capital AND labour. 2023 will be a year for bosses, workers, and their advisers, such as partners in education and training, and local government and business support, to begin to plan for an eventual recovery. Identifying and starting to put in place the necessary investment in capacity, technology and skills can supply the emerging sectors, markets and places that will boost competitiveness in the years ahead.

Ultimately, the local labour market can only justify higher wages and salaries if there is scope for productivity-led growth in profits and, thereby, tax revenues. That requires a workforce that can raise and/or enhance its skills base through academic, experiential and other forms of training and development.

Ideally, workers, businesses and training and learning institutions (from schools to HE) will cooperate to

1) generate evidence-based ideas about where, when and how the future demand for skills will grow, (including anticipation of both new jobs and changing jobs, especially in STEMinfluenced greener jobs and the greening of ‘all’ jobs); and

2) turn those ideas into real progress in workforce development (supplying the right sectors, markets and places for future growth, prosperity and well-being)

The economic performers, who know or can foresee their future needs in terms of technologies, markets and workers, will be best placed to make profitable investment plans: the ‘meat on the bones’ for a forward focused labour framework, such as that outlined here. www.bournemouth.ac.uk