Forward Focus for the Local Labour Market

Stagflation: Forward Focus for the Local Labour Market ​​​

Dorset Economy Blog | Professor Nigel Jump | 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 consensus that there may be a 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.

The latest figures show 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, compared with a lot of UK history.  The latest inactivity rate was 21.5% and average real earnings fell 2.7% from the year before.  There is early evidence that these ratios reflect some return into the workforce by mature workers (who withdrew during the pandemic) as inflation soars and real earnings suffer. There may also be signs of an easing of hiring as the recession bites.  The “current story”, given by local workers and bosses, voices a sparsity of key staff and intense cost pressures.  These patterns, however, may be starting to shift.

Beyond this near term, the question, then, is how our region can learn from previous recessions, anticipate recovery, and get ahead of the next ‘upturn’.

  1. History suggests there is a lag between output trends and employment.  Often, unemployment starts to increase a while after a recession is first felt.  Then, it increases for some time and continues to rise well after the low point for output is passed and the recovery has begun.  Unemployment turns around only after the recovery becomes secure and stagflation eases.  In essence, many firms do not adjust hiring and firing until they are confident a turning point has occurred.  The most successful businesses, however, will try to get ahead of this sequence by identifying needs for recovery before their rivals and starting to hire and train in anticipation of a rebound.


  1. A complicating factor this time is high inflation, which tends to delay the cyclical recovery further because the ‘good times’ are harder to predict. Again, inflation may respond with a lag to underlying cyclical developments, continuing the price adjustment and the desire to bear down on costs beyond the immediate need.


  1. Another complicating factor is cross-border flows of trade and workers, reflecting the recent, adverse structural changes in world flows of goods, services, components, resources and labour.  This may cause more shortages and bottlenecks in supply chains which can also delay measures to boost the recovery.

The next question is how to identify areas of recovery and growth.

  1. Sectors grow in response to rising demand but that can be influenced heavily by supply shifts.  Can we identify which industries will display the technological and other innovations that will drive higher growth through better productivity in the late 2020s?  Can we identify AI, green advances and other ‘new’ products and services that will enable local firms to anticipate the labour needs of the future?


  1. Markets change in response to movements in price, tastes and incomes.  Do we have the entrepreneurs and the competitiveness that will drive growth and productivity in the next upturn because they foresee such trends ahead of the ‘herd’?  Do we anticipate both local resilience and international factors that will set the pattern of skills needs going forward?


  1. Spatial areas thrive in response to strong infrastructure and co-operative sharing and development of attitude as well as knowledge.  Have we the business communities to drive growth and productivity locally?  Have we the right combination of private and public leadership to promote local investment in skills and innovation: an ability to co-operate in order to compete?

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.  As well as one for short-term defensiveness, 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.  This means identifying and starting to put in place the necessary investment in capacity, technology and skills that 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 co-operate 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 STEM-influenced 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.

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