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HR in Review is a podcast that brings you interviews with leading HR practitioners, academics and consultants. We cover a host of HR related topics like HR strategy, technology, recruitment, training, diversity, employment law, reward and wellbeing. Guests also share personal experiences and career tips, resulting in a varied and interesting discussion which we hope will provide you with useful and actionable advice, while also being an enjoyable and stimulating listen.
HR in Review is produced by the leading UK HR website www.hrreview.co.uk
Voiceover (00:00:00) - This is in Review, a podcast dedicated to thought leadership, actionable advice and all the latest developments in human resource management.
Bill Banham (00:00:09) - Welcome to this episode of the h.R. In Review podcast. And in this episode we're going to focus on the labor market and trying to predict what the UK and EU economies can expect in the year ahead. Hello, this is your guest host today, Bill Banham. And joining me on this episode is Julius Probst, PhD, European labor economist over at Acast. Hey Julius, welcome to the show today.
Julius Probst (00:00:37) - Hi, Bill. Very glad to be here. Thanks for having me.
Bill Banham (00:00:40) - So beyond the short introduction there, why don't you take a minute or two and tell our listeners all about yourself.
Julius Probst (00:00:47) - And the European labor economists sitting here for us? Sitting here in London is the global leader in programmatic recruiting and is part of of the step stone group I'm part of for a little bit more than half a year now, so still relatively fresh. And before I joined the cast, I was working in a slightly different industry.
Julius Probst (00:01:11) - I was working for a macroeconomic and financial data provider for a few years, and before that I was studying and doing my master in economics and my PhD in economic history at Lund University in Sweden.
Voiceover (00:01:25) - This edition of HR in Review is a special guest episode brought to you in partnership with our friends at the North American based HR Chat Podcast. A podcast focused on interviews with HR talent and tech experts.
Bill Banham (00:01:40) - Okay. Thank you very much. Julius, how is the economy doing right now? There's a lot of doom and gloom in the news, so, you know, you're a good man to ask. There were a lot of recession calls last year in the beginning of this year, of course. Why haven't they happened yet? But perhaps you can share that, too.
Julius Probst (00:02:02) - Yeah. So so here the good news is that the UK economy is currently not in a recession. And you're totally right. At the end of last year, quite a lot of forecasters, quite a lot of economists were predicting a UK recession for this year.
Julius Probst (00:02:20) - The Bank of England was actually quite pessimistic and was expecting a relatively severe downturn and this has not happened yet. And so that's the good news. The bad news is that the UK economy is regardless not performing that well. As as everybody knows. So over the last few quarters, growth was very, very slow, very close to zero. And at the moment right now, the UK economy is barely where it was at the end of 2019, just before the pandemic. So literally over the last two and a half, more than two and a half years now, there has been almost zero growth in the UK economy. So no recession, but basically stagnation. Why were those recession calls last year wrong? Mainly for two reasons. Basically, until right now, the housing market coped better than expected with those interest rate hikes that we've been seeing. So the Bank of England hiked interest rates all the way above 5% from from basically 011 and a half years ago. And the housing market didn't suffer too much yet.
Julius Probst (00:03:32) - And during the pandemic, a big part of the economy was shut down. Part of the service sector was shut down. And during that time, people saved quite a bit of money and that these savings are now reaching the economy. People have started to consume more, they are buying more stuff. And this consumption, based on this excess savings is called. So this this more than savings than usual. This is maintaining consumption at the moment and help support the economy in 2023.
Bill Banham (00:04:04) - What's happening to the vacancies, the job vacancies at the moment. Julius And maybe as part of that, you can also suggest why is the unemployment rate so low, even though there is pretty much zero growth?
Julius Probst (00:04:17) - Yeah. So so let's go back one year ago. Last year in 2022, the UK labour market was extremely tight and we actually saw a record amount of job vacancies in the UK, about 1.3 million and at the time there were more vacancies than the UK labour market than actual total number of unemployed. So for each unemployed person there was a little bit more than one vacancy in the UK labour market.
Julius Probst (00:04:49) - And so last year the labour market was extremely tight. Recruiters had extreme difficulty to fill positions. It was a relatively hot labour market that has normalised now a little bit. So. So vacancies over the last 6 to 8 months have fallen by more than 300,000. They have come down from 1.3 million to a little over 1 million right now. That is still above pre-pandemic levels, but it is a significant slowdown already. And my expectation is that this will continue to these vacancy numbers will continue to decline more because the economy is is relatively slowing and demand for for labour is going down. Why is the unemployment rate so low if we had so little growth? And that is something we have been seeing in other countries as well. It happened first to Japan more than a decade ago. Already it's happening to Germany right now. It's countries, advanced economies, and Japan and Germany are to some extent the most affected by this, are having very adverse demographic developments. So the population growth has slowed down significantly. And the working population in countries like Japan and and Germany is already shrinking.
Julius Probst (00:06:16) - And that means, of course, that your entire the growth rate for the economy as a whole can be quite low. And with a shrinking labour force, unemployment rates will will remain low even if you have zero growth simply because there is kind of like a general labour shortage and that to some extent that will be and is happening to the in the UK economy as well.
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Bill Banham (00:06:57) - Just a follow up question on the falling number of job vacancies in the UK. Julius. I wonder how many of those jobs have been being replaced by AI. Do you have any do you have any stats around that? Is it a case that some of these vacancies are no longer there because the robots have taken over?
Julius Probst (00:07:16) - Yes, that's everybody is talking about AI. Right now, there is a big hype about AI at the moment.
Julius Probst (00:07:26) - I would say it could be the case for some jobs, but it will not be the case for most of the jobs. And right now the vacancies are really falling because the demand for for workers is falling and the economy is really not doing that well. Generally, when you look at technologies in the past over the last 100 years, it will take quite a lot of time for technologies to significantly affect the labour, the economy and the labour market. And that I will not be an exception. So so we are seeing in big tech hubs in large cities with a big tech sector. So there could be London, it could be Toronto, could be US cities like San Francisco, New York, et cetera. We are seeing more job postings for workers with where AI skills are required, but at the moment I don't think you need to worry about a lot of work as being replaced by AI that that will take a longer period of time for for it to happen and it won't happen in just a few weeks or a few months.
Julius Probst (00:08:41) - And generally I would say unemployment rates have been declining for many years now in in countries like Germany and the US. So this this fear of technological unemployment is a little bit overstated and people really shouldn't worry that much. So at the moment, we are seeing that there are rather missing workers and if AI and productivity gains are happening, then technology can help help that problem of of of of of missing workers and hard labour market. But I don't think too many people will be replaced by that technology in the short run.
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Bill Banham (00:09:35) - Unlike the falling populations of Japan and Germany, of course, the population will actually continue to rise. It will rise from it was around 67,000,000in 2020 to it's projected to get to about 74 million by 2060. So it's it's different to those countries like Japan, Germany, Italy being another example, South Korea being another one.
Bill Banham (00:09:56) - Um, how is how has Brexit wonder affected the labour markets and the economy? Is the record net migration the UK had last year compensating for missing workers? Where are those workers coming from now if it's not from the EU? Tell us more.
Julius Probst (00:10:12) - Yeah, that's a very good question. So it is true that last year the UK saw a record inflow of of people coming to the UK around 660,000. So that that was a record. Um, keep in mind though, that during the two first two years of the pandemic, 2020, 2021, migration was actually significantly depressed, right? So some of this was just like catching up to the to the two years before. And also keep in mind that with Brexit, the composition of workers, the composition of people who are arriving in the UK has completely changed. So before the Brexit referendum, obviously the UK had a positive inflow of people coming from the EU. Since 2019, the net inflow from the EU was negative, so there are more people from the EU leaving the UK than than coming to the UK.
Julius Probst (00:11:21) - And so the UK replaced all of these people with, with, with immigrants coming from non EU countries. Right? So that would be Asia. Africa, et cetera. And so the composition of people and the composition of workers has changed because the persons who are arriving right now, a lot of them are students, a lot of them are skilled workers. They are unskilled worker visas. They might be working in in tech or in finance or maybe doctors or whatever you have. But obviously these skilled workers, they are not a replacement for people who previously were coming from Eastern Europe, Poland, Eastern Europe, who are doing manual work, truck drivers, um, people working in agriculture people, people working in the food and hospitality sector, people working in trucking. And these are the workers that are missing right now in these sectors and these kind of more blue collar occupations. Right? And because of the missing workers in those sectors, actually also that has affected the inflation rate and is driving up wages and prices in those key service sectors because, yeah, workers are missing in that sector right now because of Brexit.
Voiceover (00:12:45) - If you have any comments on the HR in Review podcast, would like to suggest a topic or speaker or provide other feedback. You can contact us using the email podcast at hrreview. co.uk. We look forward to hearing from you.
Bill Banham (00:13:01) - Okay, so the UK has been called the sick man of Europe. Not a great title to to have. What are the key structural problems that are holding back the UK economy at the moment?
Julius Probst (00:13:13) - Yeah. So I would say the biggest problem by far is the housing market. And there's a lot of data about this that house prices compared to incomes are just extremely elevated in the UK, far more elevated if you look at prices to income ratio is far more elevated than in other advanced economies. Obviously London is playing a big role in that. Bigger London metropolitan areas now 14 million people and and house prices in London are pretty insane compared to the salaries. Unfortunately, rent prices have also been driven up and and are outpacing wage growth actually for the most part. And the fundamental reason for this is that the UK has actually not built enough housing over the last 2 or 3 decades and that is a big, very big structural problem and it hasn't built enough housing in the in the big cities.
Julius Probst (00:14:21) - There could be London, it could be Birmingham, Manchester, etcetera, where kind of like I don't want to say good jobs, but higher paying jobs are. But in the end, if you if somebody from from from if somebody moves to London and and that would lead to for his wage to to increase by 20% moves from like a small city or the countryside to London. He sees significant wage growth but then his rent the rent he has to pay is 30 or 40% higher than in the end. This calculation of moving to to London or one of the other cities doesn't doesn't work anymore. And so this is a big structural problem that is affecting the entire economy and it is also affecting the labour market and it is preventing people from moving to where the higher paying jobs are.
Bill Banham (00:15:14) - Okay, So what's the what's the outlook for the rest of the year? And as far into 2024 as you you're willing to go then? And as part of that, is the Bank of England risking a recession?
Julius Probst (00:15:25) - Yeah, that's a good question.
Julius Probst (00:15:26) - So the outlook for the next 1 or 2 years is mediocre. So so forecasters are foreseeing that the UK economy will continue to to stagnate and have relatively low growth rates for for in this year and also next year. The the one risk that that the UK economy is facing and it is somewhat substantial is that in either inflation or wage growth or potentially both will remain relatively high wage growth, that wage growth will remain to elevated and inflation will remain sticky and too high compared to the Bank of England's 2% inflation target. Right. So we are still at the moment at about 8% inflation, nominal wage. Wages are growing at 7%. Both of these numbers are far too high for the Bank of England and they will hike interest rates more if they don't see those numbers coming down very soon. And they will also risk a recession eventually because they need to, to get back to their 2% inflation target eventually. And so if you have very, very high interest rates, that will obviously depress the economy and it might also lead to a larger correction in the housing market, which would also have negative effects for the economy.
Bill Banham (00:16:51) - And can you just briefly put that into context? Where does the UK compare to the other G7 countries?
Julius Probst (00:16:57) - Yeah. So so compared to other economies, the UK has seen almost as I said, almost zero growth since the end of 2019. The only other country that is doing as poorly right now, other big economies, Germany, they are also facing various headwinds. Industrial production is stagnating. They're missing skilled workers. Other countries have been doing much better. So so Canada and the US have been growing by more than than 4%, the US even more over the last couple of years. Um, since the end of 2019 and going forward at the moment the forecast for the UK for like this year and next year is maybe around half a percent of real GDP growth, whereas I could easily see the US doing or running at twice as twice twice as much. Yeah.
Bill Banham (00:17:58) - Okay. Thank you. The next couple of questions, want to ask you a few questions that we ask of all of our guests, okay? And we include them within the interviews.
Bill Banham (00:18:07) - We also then do clever things with them and create clip shows and montages and all sorts. So the first of those two questions is if you could pass on one crucial lesson that you've learned in your career. Julius In one minute or less, what would be your top tip for pros and leaders? Go.
Julius Probst (00:18:26) - So obviously I'm a little bit biased, but the last two years, macroeconomic news dominated and influenced also every single sector. So. So most sectors have not been immune from like these broader economic trends. And so the one recommendation I would have and that doesn't by any means mean that you have to have to become an economic expert. But I would recommend following some people who inform the broader public about just about what's going on in the economy and economic news and avoid those who only speak in jargon. Follow somebody who's kind of like explaining what's going on in like simple and clear terms.
Bill Banham (00:19:08) - Okay, Very good. Thank you. And what's the single biggest change you think will happen in HR and leadership over the next 5 to 10 years?
Julius Probst (00:19:17) - Yeah.
Julius Probst (00:19:17) - As I said, the the hype about AI at the moment is is very big. And I think in the short run this technology might not provide as, as as as much as some people claim. But in the long run, I think artificial intelligence is definitely a technology that will affect probably the economy as a whole. Affect will affect potentially quite a lot of workers and also people in h.r. And so people in air will just have to familiarize themselves with with ai as a technology as well. And just like thinking about that from kind of like a job seeker perspective and from a recruiter perspective, I mean I was on that side a year ago and I was looking for a couple of jobs. And if you think about, for example, um, cover letters, that is something that, that ChatGPT can write. Now, within two minutes ChatGPT can write a cover letter for somebody. So the marginal cost of writing a cover letter has come down significantly. And so maybe recruiters want to think about is it really necessary for for this job that there will be 20, 30 people who will apply for a job and they everybody is still writing a cover letter? Does that make sense?
Bill Banham (00:20:38) - Very good.
Bill Banham (00:20:39) - We are coming towards the end of this chat. A couple more things to highlight. First is Julius is going to be a speaker at the upcoming Disrupt Cambridge event that's happening on October 24th, Tuesday, October 24th at the office kind of near Cambridge North Station. So if you're in that area, please do check it out, get your ticket through Eventbrite or register through LinkedIn and and join us for that. It should be good fun. There'll be lots of speakers all talking for five minutes each, 20 slides, 15 seconds per slide, pretty rapid fire stuff. So Julius, I'm looking forward to meeting you in person there. Um, how can folks learn more about you and connect with you?
Julius Probst (00:21:24) - Yeah, well, first of all, thanks, Bill, for having me today. This was fun. So people can follow me on LinkedIn. I'm posting a lot of charts about the economy and the labor market there. And definitely check out recruiter nomics.com, which is our blog where I write a lot about the UK and also European labor markets in general.
Bill Banham (00:21:48) - Very good. Well that just leads me to say for today, Julius, thank you very much for being my guest.
Voiceover (00:21:51) - The HR in Review podcast is brought to you by hrreview.co.uk. HRreview is a website dedicated to human resources and related professionals. News items are posted daily together with analysis, looking in-depth at topical air issues. You can sign up for a range of specialist newsletters at hrreview.co.uk. Sign up and follow us on Twitter at hreview or join us on LinkedIn and Facebook. Thank you for listening.