Chaos is Normal, Furlough Subsidies is Work, as Flights are Cancelled, Workers Remain Reluctant to Work, and States Double Down on What Hasn't Worked

On the Intersections of State Subsidies, the Folly of Covid Policies, and Production Shocks Ahead

A few days ago, I wrote about the coming dislocations, which, sadly, it is way too late to avoid. Citing Fatih Birol, long-time affiliate of the International Energy Agency (IEA), it would appear that structural problems, such as many years of under-investment into oil and gas exploration—in part due to politicians and journalists embracing hare-brained ideas hatched by a grumpy Swedish teen—as well as the virtue-signalling ‘faith’ in ‘green energy’ is finally bringing the chicken home to roost: food and energy prices are rising rapidly, wages are stagnating, and people are getting angry.

What else could go wrong in the near term?

My two cents are these: on the one hand, many people would like to ‘return’ to pre-Covid habits of having a nice summer vacation, and if that would be expensive and troublesome, well, so be it, eh? Yet, there’s also the (in my view very justified) fear that after 2+ years of ‘money-printing’ and subsidising virtually the entire population by means of Covid handouts, the labour force will shrink way too fast for any industrial society to cope with, on the other hand.

This essay takes a brief look at both items, as reported by German-language media.

Trouble in Covid Paradise

Writing for Naked Capitalism, Nick Corbishly also warned about these problems (my emphases):

The bad news for air travellers is that flight delays and cancellations are likely to be an ongoing feature of the travel experience this summer, as passenger traffic continues to rise amid persistent labor shortages. Air Council International—Europe’s trade body for airports—has warned that delays are inevitable at two-thirds of European airports this summer.

Now, with the Pentecost, or Whitsun, weekend behind us, we can safely state that this problem is borne out by the facts on the ground, as reported by Der Standard (my emphases):

Following flight cancellations by major European airlines and thousands of passengers stranded abroad due to staff shortages, concerns are growing about chaotic conditions during the peak travel season. Over the Whitsun weekend, thousands of Britons, among others, were stranded abroad due to flight cancellations, according to media reports.

After departures and layoffs during the pandemic, the industry still does not have enough workers to cope with the travel rush…the British government accused the industry of not being sufficiently prepared.

It’s the same wherever one cares, or dares, to look: Air France-KLM had already reduced ticket sales in late May, which is totally weird, at least if one thinks that the business of, well, any enterprise would be to make money: do airline executives actually have a ‘business plan’ left after 2+ years of Covid?

By the way, here’s how KLM intends to cope with this situation (again, my emphases):

In the preceding weeks, [Amsterdam] airport had already struggled with major problems due to staff shortages in baggage handling and security. Schiphol presented a plan of action at the end of May to prevent the even greater chaos feared for the summer. According to the plan, the airport wants to recruit more staff and pay higher wages.

Oh, wow, do they teach things such as ‘supply’ and ‘demand’ at business schools again?

It’s not just the UK, the Netherlands, or Norway, by the way. Here’s what German Transportation Minister Volker Wissing told Bild am Sonntag two days ago:

Two things are at loggerheads here: on the one hand, people who feel a great desire to catch up on being on the road and travelling after all the deprivations and restrictions during the Covid pandemic. On the other hand, there is the travel and transport industry, which was virtually paralysed during Corona and lost many employees.

See: it’s simply a lack of trained staff with security clearance that’s the problem, eh? No need to mention ill-fated government policies, such as lockdowns, travel restrictions, the Covid Passport scheme—or my favourite: perverse incentives.

‘Sorry, we’re Closed’

Not so fast, Mr. Wissing, as another ‘report’ by Der Standard struggled to explain. Entitled ‘Sorry, we’re closed’, Regina Bruckner and Andreas Danzer tried to analyse (ahem) the current predicament:

Translation: ‘Sorry, we’re closed—help desperately wanted: restaurants that are closing, businesses that refuse new orders due to labour shortages. Employees may benefit, but in the long run, automatisation will increase—but there will also be new jobs’

They start off with an anecdote about a restaurant in Vienna, Austria, before cutting to the chase (my emphases):

The restaurant industry is just one example of a glaring shortage of employees. There are hotels that cannot open because of staff shortages, tax consultants who cannot take on new clients, plumbers who have to turn down orders, nursing homes that remain closed: there are shortages everywhere, especially for skilled workers, such as electricians, plumbers, locksmiths, in nursing, in construction—and in tourism.

The job monitor of the Business Association [Wirtschaftsbund] counts more than 281,000 vacancies throughout Austria, 40,000 of them in tourism and hospitality alone. The job monitor taps more sources than the Public Employment Service (AMS). The AMS has a some 15,500 vacancies across this industry, and whatever the true figure, one thing is certain: the lamentation is not exaggerated. The gap between vacancies and willing employees has almost doubled in the past three years. To the surprise of many, the recovery from the consequences of the pandemic came faster than expected.

In a recent (18 May) interview, Labour Minister Martin Kocher (ÖVP), held that ‘the domestic potential is much more important in combating the shortage of skilled workers than that contributed by immigration’. Speaking specifically about tourism, here’s the key point:

Q: Hospitality businesses particularly complain about labour shortages because apparently many have left the industry.

Kocher: That is not the reason why we have such a shortage. The main reason was that so few people changed to the industry or joined it in the last two years. Normally 40,000 workers go into tourism in Austria in two years. In the last two years there were only 20,000. And foreign skilled workers have also stayed away.

This is so patently absurd: Mr. Kocher, pray tell, why did the tourism industry fail to attract talent in the past two years? Could it be that political measures, such as lockdowns, travel restrictions, and the abomination called ‘Covid Passports’ may have played certain roles?

Also, I’m beginning to wonder what these people who ‘stayed away’ from working in the past two years did to earn a living?

Q: Employee interest advocates [Sozialpartner] complain that you insist on a 15% deductible for Kurzarbeit [this is a Covid support measure: the state pays 85% of the salary of employees furloughed due to pandemic measures], although there is a bigger problem now with supply bottlenecks compared to the Corona crisis. Do you remain tough? [I’m unsure what the question actually is: I read this to mean that the state should pay furloughed workers their full salary, but I may be wrong about this.]

Kocher: You have to differentiate here. We have to reduce reliance on state-subsidised furloughs further than we have managed so far. At the moment there are many companies using this furlough scheme that would not have been doing so three years ago. There are some that follow all the rules but compensate for the fluctuations in business activities, which are normal entrepreneurial risk, through the furlough subsidy program. We have already tightened the rules, and we will tighten them even more in the coming months. But it is also important that the furlough subsidy program continues to be available as a safety net precisely for such cases.

This decision was reached by the AMS Board of Directors, which decided to extend the current form of furlough subsidy until the end of the year. If companies cannot produce for two or three months because of a lack of material inputs, it makes no sense to lay off employees for this period. That’s exactly what short-time work is for: for exogenous shocks, where several employees would have to be laid off if the furlough subsidy program did not exist. It should not be used in instances where normal fluctuations in business activity, which always exist, are compensated for by the furlough subsidies. We will manage this differentiation, and we will become even stricter and more differentiated with regard to detailed regulations.

Behold—the advent of a permanent ‘safety net’ for companies that lack raw materials or other inputs. It’s the normalisation of insanity, for these supply problems, which very much include ‘energy’ (in the form of Russian hydrocarbon products), are also politically engineered. Much like with all matters Covid, the state is endeavouring to make matters much, much worse by doing what it always has done: interventionism.

Back to the other piece:

Tectonic shifts are imminent in the labour market. It won’t be long before the baby boomers leave the labour market in droves and comparatively few young people join them. Statistics Austria expects the number of people of working age to shrink by 170,000 by 2030. The situation is already very tense.

Despite high energy prices and the Ukraine war, the labour market is booming. In May, the official unemployment rate stood at 5.7%, the lowest it has been in 14 years. At the AMS alone, 138,000 vacancies were registered—a new all-time high, which has the Chamber of Commerce speaking of a ‘dried-up labour market’.

As to solutions, well…

Many businesses are increasingly confronted with bold salary demands. ‘There is a wage upswing, and many companies are willing to, or have to be willing to, offer higher salaries’, says Ranja Reda-Kouba from McKinsey. This is especially true in the IT sector, where demand is also high. Many are now paying a kind of ‘hiring bonus’ for or offering them with a four-day week.

Those who can afford it offer company canteens, in-house kindergartens, or home office options. Waste management company Jüly, for instance, advertises ‘attractive working hours. We go home at 4 p.m.’ Elsewhere, workers groan under the burden of work because resources are not increased.

And then there’s the elephant in the room: automatisation and robotics:

‘By 2030, 600 million jobs will be lost worldwide due to digitalisation and automation’, explains consultant Ranja Reda-Kouba. At the same time, 750 million new jobs would be created—albeit with fundamentally new requirement profiles.

For Austria, she predicts that there will be a shortage of no less than 70,000 skilled workers in the next four years. ‘Just because it is theoretically possible to automate a job does not automatically mean that it makes sense for a company’, says Economics University professor Klaus Prettner.

Bottom Lines (my emphases)

On behalf of the Business Association [Wirtschaftskammer], think tank ibw Austria surveyed almost 4,000 companies in March and April for the Labour Force Trends. Almost three quarters of the companies surveyed are very strongly or rather strongly affected by the shortage of skilled workers. In the tourism and hospitality industry, almost 80% are very strongly or rather strongly affected, the survey shows. This industry is thus the most affected by the shortage. It is followed by transportation, professions, and tradecraft.

For 61%, this has a very strong effect as an ‘additional burden on company management’. The work intensity for existing employees also increased for almost 85% of the surveyed. Conversely, only a mere 16.5% of businesses rely heavily on the increased training of their own apprentices.

So, many more vacancies that may not (never) be filled due to many workers quitting or doing something else. Businesses are struggling to find new workers, even though offering higher wages or better working conditions is, of course, the notion of last resort.

Most problematically, though, is the fact that the transportation and logistics industry is struggling, which has any number of downstream problems (as we rely so heavily on shipping stuff).

Sooner or later—quite certainly rather sooner than later—something will have to give.

Chaos and confusion about causes and effects is rapidly normalised, and these ‘features’ will soon come to your neighbourhood, too.