Rail strikes and labor shortages are hurting UK economy

The United Kingdom has a jobs problem. There just aren’t enough workers to keep its economy moving forward, and many employees are growing angry about inflation taking a large bite out of their paychecks.

The problem escalated Tuesday as thousands of rail workers went on strike over demands for better pay and working conditions — the biggest walkout on the railways in 30 years — bringing large parts of the network to a halt. More strikes are set for Thursday and Saturday.

A separate strike by workers on London Underground also halted tube services.

The railway strikes could continue for months, the National Union of Rail, Maritime and Transport Workers has said, and teachers, nurses and other workers could walk out as their pay falls behind soaring rates of inflation, now forecast to peak above 11% later this year. Unison, a union representing 1.3 million public sector workers, said last week that it was “strike-ready.”

This month’s rail strikes alone could cost the tourism, leisure and theater industries more than £1 billion ($1.2 billion), Kate Nicholls, CEO of trade body UK Hospitality, told Times Radio last week.

Maggie Simpson, director of the Rail Freight Group, told CNN Business that she expects between 30% and 40% less freight will move by train over the course of the week, with critical products, including fuel and supermarket products, prioritized for delivery. She said she was “really worried” about a loss of confidence among businesses that had been increasingly looking to the railways to ship their goods.

A summer of strikes would deal a hefty blow to an economy that has slipped into reverse. But activity was already being held back in industries such as aviation, hospitality and social care because of a record number of vacancies — 1.3 million at the last official count.

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

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

Yawning worker gaps across industries have limited businesses’ capacity to grow and is causing some companies to cut back services. Last week, Gatwick, an airport south of London, said it would cut its summer schedule by up to 13% over July and August because it could not find enough workers.

The airline industry slashed jobs during the pandemic as demand for travel nosedived, and has struggled to hire and train enough workers to cope with a strong rebound in passenger numbers over recent months.

EasyJet (ESYJY), a budget airline, said on Monday that it would reduce its summer schedule to about 90% of 2019 levels due, in part, to the disruption at Gatwick.

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

Sarkar said that she “desperately” needs to hire two people to work full time in her kitchen, and blames the twin impact of Brexit and the pandemic for keeping workers away.

A lack of staff has forced her to turn away customers, so much so that Sarkar expects her revenues this year to be 40% lower than in 2021.

“All the eastern European people, all the people that we had, who worked for the hospitality industry, have disappeared [during the pandemic], leaving this huge, big gaping hole,” she said.

The ‘missing million’

The UK labor shortfall is uniquely stark among the world’s biggest rich economies.

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

The OECD also forecasts that 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 store in Birmingham, UK.

The Learning and Work Institute, a think tank, calculates that about one million Britons are “missing” from the workforce. Its CEO, Stephen Evans, told CNN Business that the country “weathered the storm relatively well in terms of employment early on in the pandemic thanks to the furlough scheme and other support.”

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

Evans said that the bulk of that million is explained by workers aged over 50 and those with long-term health problems giving up work. About one third can be attributed to low population growth — including lower net migration — and about one fifth by young people staying longer in full time education.

While UK unemployment has returned to its pre-pandemic level, standing at 3.8%, that measure only captures the numbers of people actively seeking work. Government policy has tended to focus on lowering this figure, Evans said, but should now reorient to reengage those who have checked out of work completely.

Why comparable economies haven’t seen the same exodus of workers is not 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 looks like a pretty structural change in participation,” he said.

Wilson speculated that the UK’s pension freedoms — workers are able to draw on retirement savings starting at age 55 — could be a factor.

The Institute for Fiscal Studies found that workers aged 50 to 69 taking retirement was the main driver behind a rise in economic inactivity, contributing two-thirds to the increase over the past two years.

Particularly concerning is the rising number of people leaving the labour force due to sickness, Wilson said. Whatever the reason, the trend shows little sign of improving.

“It’s pretty grim really,” he said.

Brexit is biting

The United Kingdom used to have a ready pool of workers on its doorstep, but it is now much harder for European workers to get through the door.

“Higher labour market migration from Europe has helped to smooth [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 “catastrophic double whammy” for his business.

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

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

Since January 2021, all EU nationals seeking work must pass through the same points-based immigration process as other nationalities. About 211,000 fewer EU nationals were working in the UK between January and March compared to the same period in 2020, while the number of non-EU workers rose by 182,000, according to official statistics.

The elderly care sector, which has long suffered from staffing shortages, has been particularly hard hit.

Dr Sanjeev Kanoria, cofounder and owner of Advinia Health Care, one of the country’s biggest care home providers, told CNN Business that the pandemic obscured the “true impact” of Brexit on his industry.

Kanoria, who employs about 3,000 people across 37 homes, said he has at least 10% of positions unfilled at any given moment.

This year, he expects to pay recruitment agencies around £10 million ($12 million) to find both permanent and temporary staff — more than three times what he would usually spend.

People from eastern Europe traditionally made up about one fifth of his staffing pool.

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

A government spokesperson told CNN Business that it has “made significant improvements to [its] employer sponsorship scheme, including reducing the time it takes to recruit overseas.”

“This being said, employers should look to the domestic labour market rather than rely on labour from abroad through making investments in the UK through training, wage increases and career options,” the spokesperson said.

Cost-of-living crisis

Soaring prices are also keeping Britons away from jobs in lower-paid sectors.

Nadra Ahmed, executive chairman for the National Care Association, which represents about 800 care home providers, told CNN Business that the high cost of fuel is “beginning to bite” for carers that travel for work.

“The cost-of-living crisis is beginning having an impact and people are having to look at other roles where they might get better pay,” Ahmed said.

The average hourly wage for a private care worker was £9 ($11) for the 2020-21 financial year, according to charity Skills for Care.

Despite rising wages, average pay across the economy fell 2.2% year-on-year between February and April when adjusted for inflation. 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 hold down further inflation. The central bank has hiked rates five times since December in a bid to tame prices.

Thaw said it was difficult to recruit in a “buyer’s market” for jobseekers. He is trying, unsuccessfully, to find a new sous chef after one he hired left before even starting. At the same time, his input costs have gone up.

“It’s just basically hampering any sort of growth that we can hope for,” he said. (Courtesy CNN)