Damian Kimmelman is exactly the kind of entrepreneur the U.K. government says it needs. His London startup has 100 employees and expects to hire many more. Unfortunately for the British economy, Kimmelman’s new people won’t be in the U.K.:
He changed his plans after voters chose to to leave the European Union last week.“We’ll be distributing our team, opening up new offices in Europe rather than focusing on the U.K.,” said Kimmelman, whose company, DueDil, provides data-analytics tools to study private companies. “This is a miserable outcome for the economy.”
Kimmelman is among thousands of U.K. businesspeople, investors and consumers overhauling their plans as a result of the Leave campaign’s surprise victory. Hiring is being canceled or moved overseas, investments terminated and expansions shelved.
It all adds up to what economists warn could be a sudden recession -- especially if politicians don’t act fast to lay out a convincing plan for extricating the U.K. from the EU without major disruption. Almost three-quarters of economists consulted in a Bloomberg survey this week said they think the country is headed for its first recession since 2009.
While full economic statistics won’t come in for weeks, the early signs aren’t good. A survey of 1,092 business leaders conducted after the referendum by the Institute of Directors, a London-based business organization, found a quarter are freezing recruitment and almost as many are considering moving some operations out of the U.K. In a survey of 2,000 consumers by Retail Economics, a consulting firm, 58 percent said they thought the vote would have a negative impact on their spending on non-essential items.
Participation rose steadily from the 1970s through the 1990s as increasing numbers of women entered the formal workforce. That process ran its course, and, around the year 2000, participation began a gradual decline because of population aging and the continuation of other long-term trends, particularly the decline in participation among prime age males. From 2008 through 2013, participation dropped sharply by 3 percentage points, but has remained about flat, on net, since late 2013 in a context of strong job growth and declining unemployment. Economists estimate that, as the population ages, participation will naturally tend to decline at a trend rate of about 0.2 percentage point per year, so this period of flat participation actually represents an improvement against the post-crisis cyclical drop. Today, participation is near its longer-run trend as estimated by a group of Fed economists whose work is widely cited on these issues.2 Some other estimates suggest that there is still a shortfall in participation, and, of course, estimates of the trend participation rate are surrounded by fairly wide bands of uncertainty. I am inclined to believe that there are potential workers at the margins of the labor market who will return as the recovery continues, the labor market tightens further and wages increase. The U.S. participation rate for workers in the 25-54 age group is now below those of most other advanced economies, including the U.K., France and Germany, for example.
A Long-Term Chart of the LFPR
A Long-Term Chart of the LFPR between for Men and Women (Careful of the different scales)
U-6 Unemployment Rate
Atlanta Fed Wage Growth Tracker