Asda has recently announced their decision to stop baking in their stores, the Guardian reports.
This will be enacted across all of their 341 supermarkets within the UK, placing 1200 jobs at risk.
Asda has also cut jobs previously when the supermarket chain decided to close two of its warehouses less than 2 months earlier, a decision which put 5000 jobs at risk.
Tesco made a similar decision last year which also placed 1800 jobs at risk of being redundant.
So, is this decision to lay off workers left right and centre going to hurt the economy with increased unemployment?
One can argue that due to the high labour supply within these markets, the work can be classed as low skilled, because of this, unemployment is not as painful.
This is because if these workers lose their jobs at supermarkets such as Asda and Tesco, assuming full factor mobility, they should be able to get a job at a different establishment.
Therefore, these workers will be able to return back to work, meaning they will carry on developing their skillset and earning money, reducing the pressure on government welfare schemes, thus showing how temporary unemployment is not as painful.
However, this classical view of assuming full factor mobility does not necessarily work in the real world due to the existence of wasted resources.
If full factor mobility were achieved in the UK, all resources within the economy would be working at maximum capacity, this is not the case as illustrated by the current 5.0% unemployment rate.
The reason why this unemployment rate exists is because of occupational and geographical immobility of labour.
This means that workers either do not have the skills necessary to transition to another industry or, workers find it too time-consuming to get to their place of work, it is too far away.
For these reasons, Asda’s and Tesco’s laying off of workers may actually be much more devastating than it actually is.
First of all, the reason why these workers are being laid off in the first place is due to changing consumer habits, the Guardian reports that consumers no longer demand baked goods in these stores.
Because of this, structural unemployment may occur, as there has been a loss of industry due to decreased demand, however, this may not be the case as consumers may have decided to stop purchasing baked goods from Asda, not all around the board.
For this reason, consumers may be beginning to change their buying habits to favour establishments such as Cooplands and Greggs rather than Asda, this makes unemployment is not as painful as the bakers from Asda should be able to find work at these other firms.
Also because both firms require bakers, occupational mobility is not as much of an issue because both firms require the same skills, baking, however, geographical mobility may still be an issue.
If these workers need to move to get new work, geographical mobility poses an obstacle for these people.
First of all, the work may be too far away for these workers, a classical economist would likely say that these individuals would simply migrate, however, there are holes in that argument too.
The main one which we will cover is the concept of “loss aversion,” meaning people may not make decisions to avoid a potential loss as to keep a good image of themselves.
Due to the existence of this psychological concept, some workers may choose to not migrate, thus making geographical immobility an issue.
However, because industries tend to cluster together, a town or city which has a supermarket such as Asda, will likely also house a local bakery or some other chain that offers baked goods.
Therefore, geographical mobility may not be an issue as the likelihood is that there will be some other business in the local vicinity of the worker for them to go to.
This combined with the fact that businesses have seen an increase in demand during the COVID pandemic, especially in highstreets, means these firms are likely looking to hire new workers to satisfy this wave of consumers, so, the likelihood is that Asda’s decision will not cause long-lasting unemployment on the UK economy.
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Research compiled by Billy Ryan.