Arthur Turrell, Bradley Speigner, James Thurgood, Jyldyz Djumalieva and David Copple
Recently, economists have been discussing, on the one hand, how artificial intelligence (AI) powered by machine learning might increase unemployment, and, on the other, how AI might create new jobs. Either way, the future of work is set to change. We show in recent research how unsupervised machine learning, driven by data, can capture changes in the type of work demanded.
Firms are increasingly investing in automation, substituting capital for labour, as workers become more scarce and costly. We are seeing multiple examples, from automation in food processing to increasingly-common self-service tills. This push for productivity growth is one of the key themes from our meetings with businesses in the past year, which we think suggests a reversal of a decade-long trend.
The Phillips Curve (PC) is an old concept in economics, but it is a durable one. The simple idea behind the PC is that the lower the rate of unemployment, the faster wages will grow. If the PC has changed over time, that can have important implications for monetary policymakers. Analysis of regional UK data suggests that the PC has shifted down over time, but has not necessarily become flatter. Higher levels of educational attainment are likely to have contributed to this shift.
Many things have being trending down globally over the recent decades: real interest rates, productivity, world trade, you name it! And it’s generally acknowledged that these falls are problematic for policymakers. However, there is one downward trend which has been welcomed with open arms…
The dramatic fall in the price of oil has had a marked effect on headline inflation across the world. In contrast, measures of core inflation (ex. food & energy) have been more stable suggesting, that once the base effects from oil drop out, headline rates of inflation should bounce back. However, while inflation rates around the world will mechanically pick up in the near-term, it is not clear that global labour markets are strong enough to drive inflation fully back to target.
Is falling unemployment masking a broader deterioration in UK labour market performance? The ease with which a typical job seeker lands a job is a crucial indicator of the health of the labour market, which cannot be fully inferred from just a casual glance at the headline unemployment rate. It is true that unemployment has declined quite rapidly recently. But this is because job openings have been unusually abundant while the labour market’s capacity to match individual workers to available jobs quickly has actually worsened. This capacity is referred to as matching efficiency, and it started falling in the UK even before the 2008 recession.
One of the puzzles arising from the economic recovery has been the difficulty of squaring sharp falls in unemployment with – at least until recently – only slow growth in average earnings. The common interpretation is that there’s still more slack than “normal” in the labour market. However, in this post, we argue that there has been a more marked labour market tightening so that there is now slightly less slack than “normal”. That suggests that earnings growth has been suppressed by factors other than labour market slack – leaving a risk that wage inflation will pick up sharply if and when those factors wash out.
Pay and productivity growth over the past couple of years have remained weak despite a rapid fall in unemployment and robust GDP growth. But these aggregate measures in the UK reflect the sum of a diverse range of individuals in the workforce. Changes in the mix of that workforce, therefore, can affect pay and productivity growth. Based on analysis of the determinants of individual workers’ wages, I estimate that changes in the mix of the workforce may account for about 1pp of the recent weakness in annual average pay growth relative to normal. Continue reading “Skills matter: The changing workforce and the effects on pay and productivity”→