Showing posts with label labour markets. Show all posts

Sunday, 27 August 2023

Interesting article about the Irish growth story from FT

Don't forget you can access the FT yourself. Quite a long read but good detail about the importance of different factors that lead to FDI into a country, plus some useful information about a mooted international tax treaty that could be helpful in essays. Be selective in what you carry from this:

Ireland seeks to lure life science investment despite corporate tax rise

Dublin believes that the country’s skill base will attract pharma and medical companies

Jamie Smyth in Dublin

A surge in life sciences investment that helped make Ireland the EU’s top performing economy in the past two years will continue despite a rise in the corporate tax rate to 15 per cent, the country’s investment chief said. Michael Lohan said Ireland was poised to win several big investments from pharmaceutical and medical device companies attracted to the country’s blend of tax incentives, political stability, skilled workforce and EU membership.

“As uncertainty continues around the globe, Ireland’s certainty has become more attractive. People are seeking those islands of tranquillity, and Ireland is one of those,” Lohan, chief executive of the country’s foreign investment authority IDA Ireland, told the Financial Times.

The number of people employed in life sciences in Ireland has surged by 80 per cent to almost 100,000 over the past decade on the back of almost $15bn in capital investment in the sector. Last year a record 301,475 people worked at multinationals, which paid 86 per cent of all corporate taxes received in the country of 5mn people.

Ireland has built its record as being one of the EU’s largest FDI recipients on its attractive headline corporate tax rate of 12.5 per cent, but Lohan is the confident that the rise to 15 per cent in January for all companies that generate $750mn or more in annual revenues is “not making a marked difference in terms of investment decisions”. But as countries such as the US pursue a “reshoring” manufacturing policy and consider tax incentives for pharma companies, analysts and investors warn that the wider OECD-led shake-up of corporate tax rules, as well as housing and energy shortages, could dent Dublin’s ability to attract multinationals.

“The key challenge for Ireland is addressing infrastructure constraints and other bottlenecks such as housing which are raising the costs for foreign investors,” said Conall Mac Coille, economist at Davy, a Dublin stockbroker. A downturn in the technology sector that is spurring job losses at Meta, X (formerly Twitter) and Accenture, all of which have operations in Ireland, has added to concerns about its competitiveness.

A second tranche of tax reforms called Pillar One, which are being overseen by the Paris-based OECD, would result in a portion of taxable profits generated by large multinationals being reassigned from Ireland to other markets. The change reflects how modern businesses can make profits in foreign markets without necessarily having a physical presence there.

Brad Setser, a senior fellow at the Council on Foreign Relations in Washington, said that the Pillar One reforms, and uncertainty over whether the US and other countries will implement the agreement, were the main threats to Ireland.

The OECD is hoping that the measure can come into force in 2025 but a failure by Washington to sign up to a global agreement, which looks likely as many Republicans in Congress remain opposed to it, could create trade tensions and complicate FDI decisions for US multinationals, Setser said.

For now, most investors are playing down the risks, suggesting that access to skills and support services in Ireland are more important than tax reforms. Mac Coille also noted that Ireland would maintain a corporate tax advantage over its rivals, including the UK, which in April raised its rate from 19 to 25 per cent. European OECD countries levy an average corporate rate of 21.5 per cent, according to the Tax Foundation think-tank.

Ireland-based life science companies have tripled R&D spending, as they undertake higher value activities including manufacturing of complex biologic medicines. Since December the pace of investment has picked up, with Eli Lilly, Pfizer and AstraZeneca ploughing more than $2bn into manufacturing plants in Ireland, which is one of the world’s largest exporters of medicines.

Japanese drugmaker Takeda made its first investment in Ireland a quarter of a century ago when corporate tax was 10 per cent. It now employs 1,000 people and last year opened the country’s first cell therapy manufacturing plant. “People and talent are key. The academic institutions are really important,” said Shane Ryan, general manager Ireland at Takeda.

Ireland has the highest level of per capita Stem (science, technology, engineering and maths) graduates in the EU, according to Ireland’s government statistics office. Ireland’s EU membership is another factor because it provides access to a broader European workforce, said Ryan, adding that Takeda employs 43 nationalities across its four Irish sites.

Takeda is one of several life sciences companies which collaborate with Ireland’s National Institute for Bioprocessing Research and Training (Nibrt), an academic centre that provides training and research aimed at expanding the biopharma manufacturing industry. Almost 5,000 people train at the centre every year, including staff from the FDA and other global regulators.

Matt Moran, director of BioPharmaChem Ireland, an industry group, said that Nibrt highlighted the benefits of close collaboration between pro-enterprise Irish governments, academia and industry. “Compliance and regulation is very good. Many of these plants are approved by the US Food and Drug Administration,” Moran said.

Initial Irish investments by Pfizer and Bristol Myers Squibb more than a half century ago encouraged other multinationals to follow, he said. Ireland is now a manufacturing centre for some of the world’s top-selling drugs, including Merck’s cancer therapy Keytruda and Pfizer’s Covid-19 vaccine.

Moran said that competition for life sciences investment from the US was becoming more intense following a US push to “reshore” manufacturing, a key plank of President Joe Biden’s economic programme. “Ireland was a bit of a no-brainer [for new investment]. Now companies look at US states as well — so we just need to be better,” Moran said.

The pharmaceutical industry is focusing on the resilience of supply chains following recent disruptions caused by the pandemic and a spate of drug shortages linked to manufacturing problems in India and the US. The IDA said this trend was benefiting Ireland, which manufactures everything from drug ingredients to tablets and more complex biological medicines.

Dublin’s decision to keep its borders open and facilitate exports of life-saving drugs while competitors erected trade barriers during the coronavirus pandemic helped the IDA win two life science investments initially destined for the US and China, the agency said. “We have benefited from the more conservative approach to managing the supply chain,” said Rory Mullen, head of biopharma and food at the IDA. “Covid has changed that decision-making process.”

Additional reporting by Emma Agyemang

Sunday, 9 July 2023

Labour markets, Amazon and cost of living - all in a Prime package:

Sunday Times 9th July

Amazon has introduced robots to its factories, raising fears of job losses

Amazon warehouse operatives and delivery drivers up and down the country are this week gearing up for Amazon Prime Day, the discount bonanza that marks one of the busiest days in the online giant’s calendar.

As their colleagues prepare for action, however, hundreds of workers at Amazon’s warehouse in Coventry are downing tools.

The GMB trade union claims that from Tuesday up to 880 workers will strike for three days in protest at what they deem to be inadequate pay rises. That would mark the biggest walkout yet in almost a year of disruption at the warehouse. The unrest can be traced back to last August, when Amazon doled out a non-negotiable 50p an hour pay rise — announced to little fanfare on giant screens hung in the warehouses. The below-inflation increase came after a pandemic-era boom in sales that catapulted net profit to a record $33.4 billion (£26 billion).

The workers who helped deliver that were expecting much more — especially since they swiftly found themselves at the sharp end of the cost of living crisis.

“It was like, ‘Great news, everyone! Here is a 50p pay rise!’ It just sparked everyone off,” said Nick Henderson, 46, who has worked at the Coventry facility for more than four years and will be on the picket line this week. “Amazon were making record profits — they could easily have paid us more.”

The GMB is demanding that Amazon pay workers £15 an hour — up from the current starting rate of between £11 and £12 an hour. Henderson, who works most days loading boxes on to the back of a truck, where temperatures can soar above 30C in the summer, said that the underwhelming pay rises fuelled long-standing disgruntlement over physically arduous work and demanding productivity targets.

In Coventry, Amazon has installed robotic arms which move crates around at a speed that humans can’t match. One insider said the only reason they had not been installed on both floors of the warehouse was because it would require Amazon to reinforce the upper floor.

“The robots have increased productivity four, five or six-fold – probably more. They don’t need breaks or go to the toilet. As a human being, there is no way you can compete with that,” said one warehouse worker.

At Coventry, workers scan items for ten hours a day with two 30-minute breaks, one of which is unpaid. Supervisors constantly monitor productivity and are alerted when a worker hasn’t scanned an item for five minutes. The least productive workers are marked up for an “adapt”, in effect a soft warning. Workers themselves have no way of seeing how productively they are working relative to colleagues. These adapts can be handed out simply for returning a minute or two late from a break, according to workers.

After recruiting 700 members at Coventry, the GMB bid for formal recognition at the facility in May, believing that it had passed the 51 per cent mandatory threshold. However, the union claims Amazon thwarted its efforts by flooding the Coventry warehouse with new workers, in effect diluting their voting power.

Insiders at the warehouse say that in the weeks after GMB’s bid for recognition, there was a steady stream of new recruits shown around each day — a ritual known as “day zero”. These were predominantly international students studying at nearby Nottingham, Warwick and Coventry universities.

“We regularly recruit new team members, across the country and across the year . . . this year is no different,” said a spokesman. Amazon has increased minimum rates of pay by 10 per cent within the past year.

Still, Amazon’s actions in America, where workers at its warehouse on Staten Island, New York, organised successfully last year, underline the company’s determination to keep unions out of its business. Amazon unsuccessfully sought to overturn the unionisation and spent $14 million last year on anti-union consultants.

Last summer, it was contending with an unprecedented wave of impromptu walkouts at warehouses in Coventry, Bristol, Swindon and Tilbury Docks. While the GMB has had significant success at Coventry, it has made little headway elsewhere. The union is currently balloting 100 workers for strike action at Amazon’s distribution centre in Rugeley in the West Midlands. The results will be known on Friday.

If Amazon can see off unions during the worst squeeze on living standards for a generation, collective bargaining may never catch on, especially with the looming threat of automation hanging over workers.

The economic slowdown and changing shopping habits pose other threats to job security, too. Amazon’s UK sales fell 5.6 per cent to $30.1 billion last year. The online giant announced in January that three of its 30-plus UK warehouses would close, although two new ones will be opened in the coming years.

Despite these challenges, Amazon’s Prime membership scheme has been a huge success. Subscribers pay £8.99 per month for free next-day delivery, as well as access to Amazon’s TV and music streaming services.

Analysts from Mintel estimate that Amazon has 20 million Prime subscribers in the UK. GlobalData, another research firm, reckons that 68 per cent of all UK consumers have access to a Prime account, even if it is not held in their name.

On Prime Day, which runs over Tuesday and Wednesday this week, subscribers are showered with discounts on everything from ear buds to power tools and air fryers.

While Amazon anticipates this week’s strikes will not have any impact on Prime Day deliveries — because the Coventry warehouse only receives goods from suppliers and distributes them to other Amazon facilities — it will certainly disrupt work at Coventry. Amazon has called the police to previous strikes, claiming that non-striking workers were prevented from clocking in on time, and individuals were behaving in an intimidating fashion.

The GMB insists that the strikes are peaceful — and entirely justified. “People are doing 60 hours a week to make sure they can feed their family,” said Henderson.

“The guy I was working with today logs on to the Uber Eats app to do deliveries in the evening just so that he can put food on the table. It’s not right. We will keep doing this for as long as it takes.”

Thursday, 16 March 2023

Let's take a look at jobs and wages:

Comment

JULIET SAMUEL

Now is the time to change our economic model

The budget may not reverse our shrinking workforce but higher wages could just be the spur firms need to innovate

Juliet Samuel

Wednesday March 15 2023, 5.05pm, The Times

It was billed as the “back to work” budget. Jeremy Hunt promised to solve one of the most pressing problems holding back growth: “labour supply”.

There is a good reason why Hunt is worried about Britain’s shortage of workers. Wages are on the rise as employers struggle to fill a million vacancies. All else equal, wage rises exacerbate inflation, prompting consumers to bid up the cost of everything, which in turn raises pressure to increase wages. What results is the dreaded wage-price spiral, last seen in the 1970s.

So the government is right to worry about inflation, which erodes living standards and savings. But is it right to think the solution is to expand the workforce to strangle wage growth? I’m not so sure.

The conventional view is that rising wages caused by labour shortages are a very bad thing. Workers are one of the main costs employers face (the others being capital and raw materials). If these costs go up, the argument goes, innovation is harder and productivity suffers.

Economists point to the 1970s and successful modern economies to argue that keeping a lid on wage rises — as Germany or China have done encourages investment so wages can rise sustainably. “Good” wage rises, they’ll tell you, come only after you’ve put in the hard work of efficiency improvements.

If this model is universally true, it’s bad news for the world, not just the UK. Across the OECD, the share of the population that is working age has been falling since 2011. These market economies are also having fewer and fewer babies, so this trend will accelerate. High levels of immigration have not offset either trend despite generating political backlashes that make more immigration a hard sell.

The UK has an additional problem not seen in most other countries: a cohort who simply stopped working during Covid and haven’t come back. Hunt unveiled a plethora of measures designed to lure these people back into the workforce: removing the pension savings cap, changing the disability system so the disabled do not lose benefits if they work, toughening benefit requirements for the non-disabled and offering free childcare for babies (from next year). These measures will address “the two biggest barriers that stop business growing: investment incentives and labour supply”, he said.

In truth, although these measures may help to slow the workforce shrinkage, they will not reverse a trend decades in the making. In financial circles, it is easy to find pessimists who believe wage inflation is the new norm and that taxes on the working-age population will inexorably rise to meet the growing needs of the elderly.

What if this analysis has it all backwards, though? Wage inflation, rather than being a harbinger of decline, could just as easily be the incentive businesses finally need to invest in labour-saving technology. For years, our economy has been saddled with a long tail of firms that have failed to adopt basic productivity improvements, from new housebuilding techniques to bookkeeping software or automated seed-sowing devices. Many of these improvements do not require huge outlays or unimaginable new advances in technology. So why haven’t they happened? The likeliest explanation is surely that, with wages stagnant and the demographic cliff-edge yet to hit, companies simply have not bothered to upgrade their equipment or lay on training to improve workforce productivity.

Now, after a decade of ignoring the inevitable workforce crunch, employers have a pressing need they cannot fill in the usual way. This is a very different backdrop to the wage inflation of the 1970s, which forms the basis of the modern economist’s dread of high pay. Back then, the industries leading the charge to put up salaries were state-run and beholden to overwhelming union power. The working-age population was growing strongly and Britain was saddled with a whole backlog of useless capital stock, which had not been written down to its proper value. It could not have been innovated into profitability, even if the government had been the right vehicle to do it.

The situation now is different. The workforce is shrinking and will continue to do so even if the budget has its intended effect. This is happening in rival economies too. And the demand for new technology and workers who can deploy it is high, whether it’s heat pump installers, administrators or engineers.

What’s more, until the last year or so, the fear haunting many Davos panels and business-school essays was that automation would lead to mass unemployment. The solicitous intellectuals fretted: what were all those laid-off workers going to do?

Now, automation looks like the solution to our woes and high wages the trigger to spur investment in it. Those jobs that cannot be automated, such as social care, can soak up the workers whose jobs have been replaced by more efficient technology. There may be a mismatch between the skills required in our economy and the skills available, but that is not the same thing as a high wage problem. It is an education problem rather than a labour shortage.

Instead of asking how we bring wages down and fill the worker shortage, we should ask how we unleash the economy to fix this problem. If energy costs, poor access to training, shoddy infrastructure and planning regulations get in the way, the process of innovation could easily get stuck, replicating the barriers to progress that fed the 1970s wage-price inflation spiral. But that is not an inevitable.

In the mid 18th century, English and French glassmakers engaged in a competitive fight for market dominance. Delaunay Deslandes, the director of a French firm, thought his position secure because the English “could never make [glass] that would enter into competition with ours for the price. Our Frenchmen eat soup with a little butter and vegetables . . . Your Englishmen eat meat and a great deal of it and they drink beer continually.” English labour, in short, was just too expensive.

Deslandes was wrong. England’s high labour costs and cheap energy (coal) created the perfect incentive structure for innovation. Within a decade or so, English glassmaking was operating at a sixth of the cost of the French, despite paying workers more. What seemed to be our Achilles heel instead formed part of the formula for success. There is no reason why it should not be the case again today. If this government is serious about changing Britain’s economic model, now is its chance.

Wednesday, 21 December 2022

How to find workers in the pool of economically inactive

Where to find new recruits

MANY COMPANIES ARE RUNNING TRAINING PROGRAMMES TO TEACH SKILLS SUCH AS COMMUNICATION AND TEAMWORK

It’s time for firms to tap into a wider talent pool to alleviate staff shortages

Imaginative small and medium-sized businesses are overcoming labour shortages by tapping into a far broader pool of talent than their peers – recruiting from groups ranging from ex-offenders to the long-term unemployed.

It’s an approach that reconciles recruitment problems with the record numbers of “economically inactive” people in the UK. There are now 2.5 million people aged between 16 and 64 not working, a fifth more than three years ago. That includes people who are ill, but even so a rich vein of talent is going untapped.

“It is always a challenge to recruit good people and that is not getting any easier,” says Rosie Brown, co-CEO of Cook, the food retailer. Her company runs a scheme known as RAW – Ready and Working – that targets people who want to work, but have had trouble finding a job. “It’s not a lack of desire or ability to work for people,” Brown explains. “It’s confidence and lack of opportunity.”

Cook works with local partners to identify candidates for RAW, who then take part in a two-week intensive training programme. This is focused on teaching soft skills such as communication and teamwork, and just getting people comfortable with what work will involve.

At the end of the two weeks, trainees get an interview for a position at the company; those who are successful are then mentored during their first few months at Cook, often by someone who has taken part in RAW in the past.

Cook’s recruits include former prisoners, people who have suffered serious mental-health difficulties and those who come from households where no-one has worked in several generations. “Our experience is that we get great colleagues who are fantastically loyal,” says Brown. “There is a perception that our approach comes with risk, but we have had very few problems.”

A POPULAR MODEL

It’s a model that other companies are also having lots of success with. Employers such as Greggs, Compass Group and Timpsons all recruit in a similar fashion and report healthy levels of hiring and retention. While there may be additional upfront costs to supporting new staff in this way, many employers report significantly reduced turnover rates with such schemes. Staff appreciate the opportunity and tend to stay for longer.

A wide range of charities and organisations offer practical advice and support to employers thinking about exploring this recruitment approach, at both a national and local level. Employers may need to be more imaginative about working practices: recruits may be more likely to need flexible working models, for example, and will almost certainly need more training and support than those joining the company from another employer. However, the payback for making that investment is a far broader and deeper talent pool than other employers have access to, a great opportunity at a time when so many employers are finding it almost impossible to hire the staff they need. “RAW has opened up a whole new group of potential employees for us,” says Cook’s Rosie Brown.

This is also a way for firms to embrace social purpose (the notion that it is possible for businesses to have a positive impact on society). Research suggests Britons increasingly want to work for employers whose values they share. Setting out your stall as an employer focused on social benefit and creating opportunity for all could expand your potential workforce in this way too.

Tuesday, 7 December 2021

Phillips Curve re-asserts itself... good analysis of current circumstances

The end of cheap European labour has let the inflation genie out of the bottle

Today's price spikes are just a taste of what is to come as Britain reverts to the economic models of the past

JEREMY WARNER27 November 2021 • 12:00pm
The article (with the charts) can be found here.

Remember the “Phillips curve”, the idea that the tighter the labour market becomes, the more it pushes up wages, and therefore inflation?

It used to be the lodestar of interest rate-setters everywhere; the lower the rate of unemployment, the higher the likely rate of inflation, and vice versa.

For much of the post-war period, the Phillips curve was as good a guide as any on the likely path of inflation, and was therefore at the heart of much central bank thinking on the appropriate monetary policy stance.

But then came globalisation, the mass movement of goods, and later of mass migration of labour too.

With enlargement of the European Union after 2004, a steady trickle of migrant workers fast turned into a flood, though both the politicians and the official statistics refused at first to acknowledge it. On the ground, however, it was impossible to ignore.

Migrant workers from the accession states of Eastern Europe rushed to take advantage of Britain’s relatively open and flexible labour markets.

As a result, labour supply was no longer fixed. As Lord King, former Governor of the Bank of England, put it in the Institute of International Monetary Research’s annual lecture last week, “the output gap, the difference between aggregate demand and potential supply, became less and less relevant to monetary policy because demand was generating its own supply of labour”.

By the by, the Phillips curve became flatter and flatter, eventually making itself all but irrelevant to interest rate policy.

With Brexit, however, the narrative has changed again. According to Office for National Statistics data published last week, 94,000 more EU nationals left the UK last year than arrived, the first time net migration from the EU has been negative since the turn of the century.

SOURCE: ONS

In all, some 147,000 Europeans are estimated to have left the UK last year.

How much of that is down to Brexit, and is therefore likely to prove permanent, and how much the pandemic, which may be more temporary as those with rights of residency return, is not yet clear. But it certainly helps explain today’s acute labour shortages across multiple different sectors as the economy recovers from its Covid shock.

Meanwhile, the pandemic appears to have persuaded many older workers to retire early, by either giving up work entirely or at least substantially reducing their working hours.

What’s been dubbed in the US “the great retirement” has also been a notable feature of the UK labour market, further eroding the pool of economically active workers.

Again using the latest ONS data, the ranks of the economically inactive were 364,000 higher in the July to September quarter than immediately before the pandemic. That’s partly down to more young people choosing full time education over work. But the other notable feature is older workers, particularly of the self employed variety, throwing in the towel early.

Juxtaposed against an apparently shrinking workforce is a growing number of job openings.

Vacancies in August to October rose to a new record of 1,172,000, an increase of 388,000 on the pre-pandemic level, with 15 of the 18 industry sectors showing record highs.

SOURCE: ONS

I don’t know where the Bank of England gets the idea that inflation-busting wage increases are confined to a relatively limited number of sectors. That’s certainly not what you hear anecdotally. To the consternation of employers, workers will sometimes quit mid-shift, such is the opportunity of higher pay elsewhere.

Growth in average pay was 5.8pc in the July to September quarter, and higher still at 6.6pc in the private sector. Even stripping out the base and compositional distortions inflicted by the pandemic, wages are still rising at a fair old clip. In July, the ONS estimated that the underlying rate of growth was between 3.2pc and 4.4pc.

In any case, it is becoming ever harder for the Bank of England and its counterparts in other advanced economies to sustain the argument that current inflationary pressures are “transitory” and will soon abate.

It is certainly right to argue, as Andrew Bailey, Governor of the Bank of England does, that there is not a lot monetary policy can do about higher global energy prices and other forms of imported inflation.

Yet if a tight labour market gives workers the bargaining power to bid up wages to match, imported inflation will soon turn into the domestically generated variety, and possibly lead to the sort of wage/price spiral that bedevilled policy makers in the 1970s.

Outside the public sector and some of the utilities, the union power that fed such spirals back then has gone. But who needs the power of the union when there is a shortage of labour to bid up wages instead?

Acute labour shortages after the Black Death in the 14th century caused just such a great inflation; nobody would compare today’s pandemic to that catastrophe, which wiped out a third of Europe’s population, but you get the point.

Now of course, if the “Nu” coronavirus variant turns out to be quite as gruesome as some epidemiologists fear it might be, then all bets are off.

A vaccine-resistant Covid strain is everyone’s worst nightmare; demand in the economy would plummet anew, and we’d be back to where we were last year before vaccines began to make Covid a manageable disease.

In such circumstances, renewed inflation would be the least of our worries. Already financial markets are beginning to price just such an outturn.

But let’s assume that the Nu strain is just a passing fright; as it is, the pandemic has inflicted fundamental change on economies, or rather it has greatly accelerated a number of pre-existing trends into a series of transformational ruptures.

Home working is one such shift. The “great retirement” may also have brought forward that moment of demographic change referred to by Charles Goodhart and Manoj Pradhan in their book, The Great Demographic Reversal.

This argues that as more baby boomers retire, the proportion of active workers in the economy will shrink, substantially increasing their bargaining power. Wages and inflation will rise accordingly.

Demographic forces of this type are running alongside a number of other transformational changes that will require a significant reallocation of resource within Western economies - deglobalisation and the accompanying push for greater economic self sufficiency, decoupling from China, the political pressures for much higher public spending, and the huge investment and restructuring needed to meet climate change targets. All these things are almost bound to be inflationary.

Some of today’s spike in prices may indeed by “transitory”, but they are also just a foretaste of what is to come as we transition from a disinflationary age driven by globalisation and the mass movement of labour back towards the more closed and inflationary economic models of the past. Welcome back to the Phillips curve.

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