An uneven recovery explains simultaneous labour surpluses and shortages
Ever since the Bank of England introduced its famous “fan chart”, many of us have become fans of such graphics. The reason I love the Bank of England type fan charts is that they essentially show a probability distribution, not simply point estimates or discrete scenarios. It’s the same reason why I go on about my colleagues’ work on the COVID-19 epidemic: I think it is infinitely more useful to know what the probabilities are for different outcomes (e.g., when the pandemic might “end”) than to have people make predictions of specific dates. [See the March 26, 2021 entry here.]
Well, today’s #dataisbeautiful “fan chart” is not really the traditional, probabilistic one, but still brings to mind one of those old-fashioned, hand-held fans people might use, say, at the opera. What the chart shows is, for 8 sector groupings, what their output (measured by gross value added) was in Q2 2021, relative to Q4 2019. Each coloured line indicates an EU country, and its width shows total employment in 2019. So, for example, the thick yellow lines are Germany, which has the largest workforce in general, and especially in manufacturing. The purple lines, in turn, are Spain, which has a particularly large number of people working in the hospitality sector.
I think the chart brings out particularly well the bifurcation of the economy due to COVID-19, and even helps explain some of the unusual labour market dynamics. Two large sector groups — distribution (which includes wholesale, retail, tranport, and storage) and hospitality (which includes hotels, restaurants, and bars); and business services (which includes both professional services, such as accountancy, and administrative services, such as headhunters) — are down on 2019 in most EU countries. But another two large sector groups — manufacturing and public services — already had higher output in the 2nd quarter of 2021 than in the last quarter of 2019.
As a result of the divergent trends in different sectors, the EU, too, is experiencing a simultaneous surplus and shortage of workers. In other words, many people are still unemployed (8% in the 1st quarter of 2021) or furloughed (the total size of the workforce is still smaller than in the fourth quarter 2019); while vacancies in many sectors (especially ICT and manufacturing) are significantly higher than they were before the pandemic. These phenomena lend support to my earlier hypothesis (backed up by UK data) that worker’s mobility across sector boundaries is surprisingly limited. A similar conclusion seems to have been drawn by the IFS, in its recent, excellent report about job opportunities.
So, what is the remedy? Well, as you would expect, I’m going to say “skills”. I’m an optimist and think that most peope can do most jobs if they are trained to do so. Of course, they need an element of motivation, and some suitable traits, but those are — in my view — unlikely to be major constraints when we consider the diversity of both people and jobs out there. I believe “there is something for everyone”, even in the post-pandemic, highly-automated future. The bigger constraints (as explained well, for example, in this CBI report) are around the overall systems for adult training. [Note: I’m aware this is a massive simplification, but it’s nearly midnight, so… I’ll let is slide.]