A normally busy Waterloo Station is almost empty in London on June 21, 2022, as the largest railway strike in over 30 years hits the UK.
Ben Stansall | Afp | Getty pictures
LONDON – The labor market is “worse than the 1970s,” with massive rail strikes in Britain signaling things to come, according to Nobel Prize-winning economist Christopher Pissarides.
Britain̵[ads1]7;s RMT Union confirmed on Monday that planned railway strikes will continue this week after talks with train companies failed to reach agreement on jobs, wages and conditions. About four-fifths of the trains have been canceled, with further strikes planned later this month and in July.
Pissarides, a Regius professor of economics at the London School of Economics, told CNBC on Tuesday that the labor market is going through “some of the most difficult periods” he has seen.
“It’s even worse than the 1970s, in the sense that we have to make major adjustments in the labor markets. We have new technology that is initiating automation, and in fact union leaders are complaining about job losses, over ticket offices – it’s because of the new technologies, “he said.
In addition, economies around the world are facing sky-high inflation, especially when it comes to food and energy, largely due to the war in Ukraine.
Pissarides, who won the Nobel Prize in Economics for his work in analyzing the labor markets, said that there is no way we can avoid the pain from it, 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 like we had in the 70’s when the whole industry went on strike, and therefore it makes it very difficult to say: ‘Those of you who have strong unions, we will give you full compensation for these external shocks, and let the others bear the entire burden, “Pissarides explained.
Along with the external shocks facing the entire global economy, Britain is also dealing with what Pissarides called “domestically produced” inflation, after the government’s leave scheme and other fiscal support programs backed up demand throughout the pandemic but drove public debt to record highs.
Global government debt is expected to rise to a record in 2022, as borrowing also remains largely high.
Pissarides said a key concern in the long run is the “second-round effects” of inflation starting to take shape. He said that inflation expectations were anchored and led to wage increases, forming a “self-fulfilling prophecy” and an upward spiral for inflation.
“The spiral is not quite there yet, but giving wage increases that match or are close to matching inflation as the Bank of England predicts will bring us very close to a spiral, and we can see that, and if it does, it’s going to to take much longer to get rid of inflation, “he said.
“Remember that in the 70’s it took at least 10 years to get inflation, and it was very tough in the end, it was the Thatcher policy that caused so much unemployment just to fight inflation. It is certainly not something we want to see this time because we have hopefully learned the lesson. “