As it stands now, the UK is dealing with two supply shocks.
One is a global supply shock when the global economy slowly emerges from its hibernation.
It manifests itself in backed-up Chinese cargo ships in California’s waters, unable to discharge their cargo; thousands of automobiles without microchips; and soaring natural gas costs.
Furthermore, there is a supply shock that is unique to the United Kingdom.
This is due to a lack of European labor and non-tariff impediments to trade with the rest of Europe.
Both of these events have pushed up overall costs. The global shock is now the most important issue, but in other industries, such as pig farming, the UK-specific supply crisis may become more important in the future.
The Prime Minister has woven together a number of serious economic issues to try to explain them all in one big picture: a limited supply of foreign workers will help increase wages for Britons.
Driver shortages, which were rejected just a month ago as having anything to do with post-Brexit policies, are now being accepted as the entire objective of leaving the EU.
Indeed, the shortages at gas stations and on some store shelves are part of a transition to a new high-tech, high-wage economy in the post-Brexit era.
Given the position a year ago, the Prime Minister is correct in arguing that these are issues we may have hoped for.
There are issues with rising demand and demand normalization in the economy.
That wasn’t the case a year ago, when concerns of lockdowns creating misery and mass unemployment were widespread.
However, while we have reported on growing wages in areas where there are shortages, this has yet to be reflected in general earnings data.
Wages Need To Catch Up
Some yearly earnings estimates have risen dramatically, however this is due to statistical distortions caused by lockout and furlough.
The triple lock for pensions was suspended due to the same distortions.
It’s excellent news for individuals with in-demand abilities up to a point.
However, the pay gains are not due to increased productivity. They’re the result of those two major supply disruptions.
As a result of the combination of Covid and Brexit, there are fewer workers.
Also impacting the world are significant post-pandemic logistical difficulties and backlogs, the most visible of which is the microprocessor shortage in the automobile sector.
For the same quantity of output, costs are rising.
The trade-off between inflation and economic growth is deteriorating.
Simply put, if this is correct, pay increases in particular occupations will be eaten up by rising costs throughout the economy.