Are we heading back in time to the 1970s/80s economically and what are the implications for the job market if we are?

Chris Lipscomb BA, MSc(Hons), FCIPD, COO Blue Pencil

According to the news, we are now heading into a recession. Inflation is rising fast with tales of impending doom regarding the food supply chain due to the war in Ukraine and other global pressures. The number of users of food banks has allegedly shot up from 40,000 in 2010 to over 1,500,000 now and rising (data from the Trussel Trust). These and other stories are unnerving for anyone who has navigated through the 1970s/80 and experienced the hardships and pressures on the job market then.

However, there are some clear differentiators between the situation we face now and the 1970s/80s. Interest rates for one are very significantly lower now than they have been in the past. In 1979 interest rates reached the dizzying level of 17% and even ten years later in 1989 the rate was still at 15%. As it is now, the Bank of England recently voted to raise the interest rate from 0.75% to 1%. Whilst rates will invariably rise further and may get close to 3% by the end of the year, this is still a long way from the type of rates seen in the 70s and 80s. This is just as well given that levels of individual household debt are considerably higher now and few of us would be able to survive financially if the interest rates rose back to the historical highs they were then.

There is also one other significant difference. The 70s and 80s were characterised by high unemployment with an unemployment rate in the early 80s hovering above 10% (e.g. 11.9% April 1984 - ONS Data). Now the unemployment rate is 3.7% and vacancy levels are at record highs (1,247,000 vacancies as at Dec 2021 ONS data). If you talk to employers, they are struggling to find staff across all sectors which is itself leading to wage inflation. However, unlike the 70s and 80s where people were fighting to survive rising household costs with limited chances of finding work if unemployed, the reverse now appears to be true.

There is something else relating to the labour market overall in the UK that the media has generally been slow to reference. The combination of the pandemic and Brexit has actually reduced the size of the UK labour force. In other words, there are fewer people now active in the job market than there were as this quote from HRD online (29 March 2022) illustrates:

“The number of people on payrolls or looking for work is 750,000 lower than it would have been, had the rising trend over 2010-2019 continued.“

In short, households will undoubtedly be affected by the significant rise in prices generally e.g.  utilities and basic foodstuffs but if people wish to find work or improve their career prospects, then there are no shortage of opportunities at the moment. How long this situation will last is questionable as companies face a squeeze on profitability due to higher wage costs and prices generally, but we are unlikely to experience high unemployment again as there is already a shortage in the labour market.

We are therefore unlikely to find ourselves in the same type of economic malaise that gripped the country in the 70s and 80s. The buoyant job market will hit choppy waters and there may well be a pruning of jobs in the public sector to reduce the burden on the state. However, providing everyone is flexible, we are probably just likely to hit a period of treading water that will be far removed from the carnage of earlier decades.

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