Rail strikes and labor shortages hurt UK economy

The problem escalated on Tuesday as thousands of railroad workers walked on Strike over demands for better wages and working conditions – the biggest strike at Deutsche Bahn in 30 years – paralyze large parts of the network. More strikes are scheduled for Thursday and Saturday.

A separate strike by London Underground workers also halted Tube service.

The rail strikes could last for months, the National Union of Rail, Maritime and Transport Workers said, and teachers, nurses and other workers could leave if their wages lag behind rising inflation rates, which are now expected to rise above 11% later this year. Unison, a union representing 1.3 million public sector workers, said last week it was “ready to strike”.

Rail Freight Group director Maggie Simpson told CNN Business that she expects between 30% and 40% less freight to be hauled by train over the course of the week, with critical products, including fuel and supermarket produce, prioritized for delivery will. She said she was “really worried” about a loss of confidence in companies, which are increasingly relying on rail to ship their goods.

A summer of strikes would deal a severe blow to an economy that has been turned on its head. However, in sectors such as aviation, hospitality and social services, activity has already been held back by a record number of vacancies – 1.3 million by the last official count.

Mandira Sarkar, owner of Mandira’s Kitchen, a food delivery and catering company in south-west England, describes the labor shortage as a “slow death” for her six-year business.

“It was a complete nightmare… [we’re] literally on our knees as we just can’t find the staff,” she told CNN Business.

Gaping labor shortages across all industries have constrained companies’ capacity for growth, and are causing some companies cut services. Last week, Gatwick, an airport south of London, said it would cut its summer schedule by up to 13% compared to July and August because it could not find enough workers.

The airline industry has shed jobs during the pandemic as demand for travel plummeted, and has struggled to recruit and train enough workers to cope with a sharp rise in passenger numbers in recent months.
easyjet (ESYJY)a low-cost airline, said on Monday it would reduce its summer schedule to about 90% of 2019 levels, partly due to the disruption at Gatwick.

But it’s not just a hangover from the pandemic. Brexit has ended the free movement of labor between the UK and Europe, making it much harder for UK employers to tap a huge source of labour.

Sarkar said she is “desperate” to hire two people to work full-time in her kitchen, blaming the dual impact of Brexit and the pandemic for keeping workers away.

A shortage of staff has forced them to turn away customers, so much so that Sarkar expects their earnings to be 40% lower this year than they will be in 2021.

“All the Eastern European people, all the people that we had that worked for the hospitality industry, are gone [during the pandemic]and left this huge, big, gaping hole,” she said.

The “Missing Million”

Labor shortages in the UK are unique among the world’s largest rich economies.

According to the Organization for Economic Co-operation and Development, the United Kingdom was the only country in the “Group of Seven” where the share of working-age people in the labor force fell between 2020 and 2021.

The OECD also predicts that the The UK economy will stagnate in 2023 – further setting it apart from the G7 economies, all of which are expected to grow.

A recruitment sign in the window of a shop in Birmingham, UK.

The Learning and Work Institute, a think tank, estimates that around a million Britons are “missing” from the workforce. Its CEO, Stephen Evans, CNN Business told CNN that the country ” weathered the employment storm at the start of the pandemic relatively well, thanks to the furlough program and other support.”

“But since then we’ve seen this drift out of the job market,” he added.

Evans said most of that million is accounted for by workers over 50 and people with long-term health problems who are quitting Work. About a third is due to low population growth – including lower net migration – and about a fifth to longer full-time education among young people.

While unemployment in the UK has returned to pre-pandemic levels at 3.8%, this metric only captures the number of people actively looking for work. Government policy has tended to focus on bringing that number down, Evans said, but should now be refocused to re-engage those who have gone out of work altogether.

Why comparable economies haven’t experienced the same exodus of workers isn’t yet clear, Tony Wilson, director at the Institute for Employment Studies, told CNN Business.

“[The UK is] one of the very, very few countries in the world that has seen what appears to be quite a structural shift in participation,” he said.

Wilson speculated that Britain’s pension freedoms – workers aged 55 and over can draw on pensions – could be a factor.

The Institute for Fiscal Studies found that retirement among workers aged 50 to 69 was the main reason for an increase in inactivity, contributing two-thirds of the increase over the past two years.

Of particular concern is the increasing number of people leaving the labor market due to illness, Wilson said. Whatever the reason, the trend shows little sign of improvement.

“It’s really quite grim,” he said.

Brexit is biting

The UK used to have a pool of labor on its doorstep, but it’s now much harder for European workers to get through the door.

“The higher labor market migration from Europe has contributed to the smoothing [worker shortages] in the past…that doesn’t exist now,” Wilson said.

Ed Thaw, director of Leroy, a London restaurant with a Michelin star, describes Brexit and the pandemic as a “disastrous double whammy” for his business.

He told CNN Business that hiring from the neighboring continent is no longer a realistic option.

“That European pool really seems to have disappeared,” he said.

Since January 2021, all EU citizens looking for work must go through the same points-based immigration process as other nationalities. Compared to the same period in 2020, around 211,000 fewer EU citizens worked in the UK between January and March, while the number of non-EU workers increased by 182,000, according to official statistics.

The elderly care industry, which has long been suffering from staff shortages, is particularly affected.

dr Sanjeev Kanoria, co-founder and owner of Advinia Health Care, one of the country’s largest care home providers, told CNN Business that the pandemic has masked the “true impact” of Brexit on his industry.

Kanoria, which employs about 3,000 people in 37 households, said it had at least 10% vacancies at any given time.

This year he expects to pay recruiters around £10m ($12m). to find both permanent and temporary staff – more than three times what he would normally spend.

Traditionally, people from Eastern Europe made up about a fifth of its workforce.

“That’s really shrunk, that’s down to almost 0% now… we just don’t have anyone who’s from Europe anymore,” he said.

A government spokesman told CNN Business that it has “made significant improvements [its] Employer sponsorship program, including reducing the time it takes to recruit abroad.”

“Against this backdrop, employers should look to the domestic labor market, rather than relying on overseas workers, by investing in the UK through training, wage increases and career opportunities,” the spokesman said.

Cost of Living Crisis

Rising prices are too Keeping Brits out of jobs in low-wage sectors.

Nadra Ahmed, executive chair of the National Care Association, which represents about 800 care home providers, told CNN Business that high fuel costs for caregivers who travel to work are “starting to bite.”

“The cost of living crisis is starting to have an impact and people need to look for other roles where they may be better paid,” Ahmed said.

According to the Skills for Care charity, the average hourly wage for a private caregiver was £9 ($11) in the 2020-21 financial year.

Despite rising wages, average wages across the economy fell by an inflation-adjusted 2.2% yoy between February and April. That’s the biggest drop in more than a decade, according to the ONS.

The Bank of England has warned workers against demanding higher wages to curb further inflation. The central bank has hiked interest rates five times since December in a bid to tame prices.

Thaw said it’s difficult to recruit job seekers in a “buyer’s market.” He tries unsuccessfully to find a new sous-chef after one he hired leaves before he even started. At the same time, its input costs have increased.

“It’s basically impeding any kind of growth that we can hope for,” he said.