Strikes are bad for the UK economy? Go figure

It makes sense that the widespread walk-outs should have a negative effect. But don’t look for evidence in GDP (pic: Bloomberg)

FEB 1 is shaping up to be the worst single day for the rolling strikes that began in June and have become a regular feature of this British winter. With teachers, civil servants and train staff set to protest at the same time, the action ought to be having a discernibly negative effect on the UK economy. Unfortunately, economics is rather failing us here: This type of labour withdrawal from public sector services — which emerges situationally and has few regular patterns — is not a simple thing to measure. Certainly not in real-time.

Indeed, the latest GDP data for November took economists rather by surprise, rising 0.1% on the month instead of an expected decline. Hospitality spending due to the World Cup was the most pertinent positive factor, but surprisingly, any negative knock-on effect from a series of railway strikes has not really shown up — so far anyway. It is also possible the UK may avoid a technical recession — defined as two consecutive quarters of negative growth — because the last quarter of 2022 may show very modest growth. Not much more than a statistical wobble above flat-lining and lower depths.

That isn’t likely to change. Bloomberg UK senior economist Dan Hanson does not expect a noticeable impact on growth from these strikes.

It’s a head-scratcher. According to the Office for National Statistics, some 467,000 working days were lost in November alone — and a total of 1.6 million in 2022, the most since 1990.

This year is shaping up to be worse. We certainly feel poorer for it all, but with the rail sector comprising just 0.3% of GDP, it is not show- ing up in the data in a way that we can justifiably point a finger at it.

Network Rail estimates lost ticket revenue to date from the strikes at £400 million (RM2.13 billion), but it is very tricky to measure what might well be a permanent loss of future revenue as commuters alter their behaviour. Passenger numbers are still only about 80% of pre-pan- demic levels. The Royal Mail also will struggle to recover business from the postal worker strikes.

UKHospitality reckons there was £2.5 billion of lost trade due to the rail strikes. The picture will be worse in city centres but that will be counterbalanced in areas where commuters live.

The Centre for Economic and Business Research estimates a £1.4 billion direct cost in lost working days over the past eight months. That seems suspiciously low, but compared to the UK’s £2.5 trillion annual GDP, the verifiable effects so far are basically a rounding error.

Although UK GDP calculations factor in health and education, it is a relatively new process and far from a science. Those delayed surgeries and cancelled lessons will take place someday, we hope. Public sector workers will also receive some compensation from their unions in lieu of lost earnings from strike days. It is about £50 per day for the National Health Service (NHS) staff. But there should also be a wider loss of income effect from patients: There are 2.6 million working-age people who are currently on sick leave. An estimated 30,000 procedures were postponed due to the nursing strikes in December. Since the pandemic, the NHS is treating fewer cases, despite an increase in both staff numbers and its overall budget. Little wonder the UK lags all other major economies in bouncing back from the pandemic.

I had a conversation this week with the hardworking owner of the cafe on Platform 5 at Guildford train station. He complained of an entire month’s loss of earnings so far from the rail strikes. It is evident there is a real opportunity cost to the stoppage. There will also be loss of revenue for his suppliers. But many commuters have also figured out how to work from home, thanks to the practical lessons of the pandemic.

The economic measurement dilemma is that we are largely all working round the situation. It’s difficult to put an exact number on loss of confidence, inconvenience, diminished quality of life, hurt feelings, missed opportunities and changing behaviour. The trains still run on the non-strike days, after a fashion, and the loss of the Guildford cafe-owner’s sales is probably largely made up by similar purchases elsewhere.

Economic activity is displaced rather than lost altogether, either by being deferred to a later time or referred to an alternative.

So, the downturn in one quarter is either made up in a later period or appears elsewhere. No solace to my friend on Platform 5, but a welcome surprise perhaps to another retailer, who is suddenly doing just that little bit better. Though I did at least order a large hot chocolate, as it was very cold outside.

History is of little help to us because the nearest comparable period — a sustained public-sec- tor strike action in 2011 — had a negligible effect on the economy, at least in activity data as opposed to foregone economic growth. You have to go back to the “Winter of Discontent” in 1979 to see a sizeable impact on GDP. Economists could, of course, conjure some harmonised model that allows for x and y but GDP data accuracy has enough problems as it is. That is why it is so frequently revised. GDP is a flawed measure but it’s all we realistically have for now.

Nonetheless, Feb 1 could be a different matter — and not just due to the scale of the planned action. Closing schools has a real effect on the private sector, as many parents will be forced to stay at home to look after their children. And this may well not be a one-off event as the unions are clearly aiming for a sustained, combined effect to force the government to back down. Widespread industrial action is clearly not a zero-sum game. But finding the effects in the economic data is sadly not as easy we might logically expect. — Bloomberg