Monday 13 August 2018

Is reduced labour supply a bad thing?

I have read a lot of late, some hidden, some more obvious like this, about the sharp drop of immigrants applying for job in the last year or so.

Up to 100,000 people fewer have come to the UK over the past year. This is undoubtedly having an effect at the very bottom of the work pyramid, but also higher up. At the bottom, it means agricultural workers, shop assitants and amazon packers are all able to see a small upturn in the wages they can demand.

Meanwhile, even as the BBC said, applications are a mere 20 per position rather than 25. To me this does not show much of a crisis. I have also been more aware of late of the situation in the USA. There, unemployment is at 3% and there is a starting to be a real war for talent rather than the high falutin' discussions about such a thing that are present in the Harvard Business Review.

Higher wages, means higher costs of production which could lead to higher prices overall and inflation. How a little bit of inflation is bad when the entire private and public economy is in a huge debt position escapes me a little - but you do have to be careful with the inflation genie.

For me the main issue will be how time plays out on the situation. Take the housing market, a big constraint is lack of supply, but the construction industry is at full tilt and is hurting the most from lack of supply and higher labour costs. So a labour shortage here will also reduce the supply of houses in the short and medium term. But reducing 100,000 people a year coming to the UK also lowers demand for housing in the long-term. It could balance out over time, but it could also mean a price squeeze on housing and rents in the short-term and balance in the longer term. Impossible really to predict.

Still, whoever voted Brexit for higher wages already has their reward.


DJK said...

This is a good thing. A shortage of labour just might raise productivity by forcing employers to invest in training and additional capital equipment. I tend to the view that the flatlining of productivity is due to the open door immigration policy we've had since 1997.

As for the building trade, Google the statistics of how much more productive Japanese house builders are than American or British.

Raedwald said...

Working in the UK 2/3 yrs ago at €1.40 to the £ was attractive to east Europeans - but €1.12 today with London rents up about 5% over the same period, far less attractive to both Polish brickies and nurses. They'd need to earn at least 25% more than in 2016 just to stand still. A 5% wage increase isn't going to get them back.

Nope, only a post-Brexit rebound for our grossly undervalued £ will charge the magnet, or failing that the crash and burn of the Euro will have the same effect. Chances are better than evens for both.

Weekend figures suggest UK house price bubble will bust and prices overall will fall 12% - double that in London, I guess. That will take a bit of the heat out of the rental market.

So I think things will correct themselves in the next year or two. Plus much more off-site construction, the decline of wet trades etc will catch up as on-site costs rise; more of our houses will be made in Thai factories.

Charlie said...

London house prices are already down somewhere around that 12% from peak in some areas.

Housing-related dinner party (/kids' birthday party) chat in my leafy bit of north London has already turned from how much people made on their house this year to how far prices will fall. Some people I know who were Corbyn fans a year ago are now sh*tting themselves that he'll get in and enact policies that make the housing market sh*t itself.

I'm the only person with young kids in my peer group still renting; I'm now viewed as being lucky that I'll be able to pick up a "bargain" rather than foolish for not "investing" a year or two ago.

That tells me that London resi has a lot further to fall.

Steven_L said...

That tells me that London resi has a lot further to fall.

Fred Harrison reckons there'll be recession next year, falling London house prices are just the precursor.

Anonymous said...

Who on earth would want to live in North London ?

Imagine the neighbours...

Electro-Kevin said...

Charlie - You have my sympathy... kid's birthday parties... UGH ! And a new round of ABBA music to go with it. The Cher version.

'Music for all ages' watching mums getting pissed on Prossecco while the kids run riot.

Yes. You could be sitting pretty.

Anonymous said...

our grossly undervalued £

If it is such a bargain, what has happened to the efficiencies/discipline of the market?

Or should the comment be in the other article "Silly season in full swing"

There will be a lot of EU workers with a pension invested in £ that hope you are right, otherwise it will be worthless when they come to pick it up.

Charlie said...

Anonymous said... "Who on earth would want to live in North London ?"

Most of southern and eastern Europe, half of Africa and two or three Caribbean islands, it feels like.

Plus one or two Brits.

Charlie said...

Electro-Kevin said... "You have my sympathy... kid's birthday parties... UGH"

Indeed. We're not having one for our soon-to-be-one-year-old. The ones I've been to were either loads of stress for the hosts, or turned into an excuse for a piss-up and bugger the kids. We're going on holiday instead :-)

I try not to get involved in conversations about housing with the NCT/playgroup crowd, to be honest. My views are considered contrarian at best, lunatic at worst. It does make me laugh how other local new parents who made purchases last year viewed me as foolish to wait and see what happened post-EUref, but now fortunate, rather than sensible.

K said...

The left has spent the last 10 years protesting about unemployment, low wages, zero hour contracts, etc. and now that negotiating power is shifting to workers it's a bad thing because it's caused by Brexit?

It's like all these articles over the last week about how the falling pound will make holidays more expensive. Do they really think the average Brit goes away for the summer?

Electro-Kevin said...

Charlie - Get down the auctions now and learn the ropes for next year.

CityUnslicker said...

EK - but at the bottom, not on the way down.

Steven_L said...

And then when you do buy a house, have your southern dinner party friends on that don't have a mortgage and you paid with cash, and that you made the cash spread betting on the US stock market, but you wanted to keep it quiet as your a bit superstitious about boasting about these things. Then remind them you don't have a mortgage a few more times just for good measure.