“Speaking to an audience of economists and financial experts at Bloomberg on 18 January, Ian McCafferty gives his first speech as a member of the Monetary Policy Committee (MPC). He highlights the challenges for monetary policy and sets out his personal views on some of the key issues. He notes that one of the key legacies of the crisis is that some of the fundamental relationships that define the UK economy appear to be in a state of flux. Perhaps the most unusual feature of this cycle has been the behaviour of the labour market…Employment has not fallen as much as we might have expected given the size of the fall in output. He suggests that part of the puzzle relates to changes in the way companies manage their labour force…To achieve productivity gain through process innovation…requires employees to possess a high level of firm-specific skills…Even when faced with weak demand, firms are reluctant to lose experienced workers as they are hard to replace and their firm specific skills take time to replicate.
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