finance

Central bankers should beware of labour shortages


The two Michelin-starred London restaurant Le Gavroche has temporarily stopped serving lunch. Management blamed problems with finding enough qualified staff, partly citing the effects of post-Brexit restrictions on migration. The restaurant is not alone. Businesses in Britain reported the fastest rate of hiring in 23 years in May, according to the Recruitment & Employment Confederation survey.

Across the Atlantic, companies are likewise struggling to find workers. Nearly half of small businesses answering the monthly jobs report from the National Federation of Independent Business said they had an open job they could not fill — the greatest proportion for nearly half a century. Jobs figures published on Friday suggested wage growth is accelerating.

Labour shortages so soon after what seemed to be the worst economic crisis for centuries are a good problem to have. Without vaccines and unprecedented government support, the world could instead be facing mass unemployment. Economists would then be worried about persistent deflation, not “overheating”. In many countries, wages had barely regained their level from before the 2008 financial crisis when the pandemic hit; a faster bounceback this time would be quite an achievement.

Nevertheless, investors and policymakers need to keep a watchful eye on how the labour market develops. Withdrawing policy support too soon could undo their good work but persistent labour shortages and higher wage growth could feed through into higher inflation and, eventually, interest rates.

There is no need to worry yet. Some of these shortages will be temporary. Mirroring the way that lockdowns last year led to a dramatic spike in unemployment as businesses shut their doors all at once, reopening has led to a sudden surge in labour demand. It will take time for businesses and staff to find one another.

Shortages may also reflect the lingering effects of coronavirus support; in many US states a temporary increase in unemployment benefits means they are higher than the going wage. In Europe, furlough schemes mean some workers similarly feel less urgency to find a new job. These programmes will soon end, however.

Mismatches between workers and the jobs available are more concerning and may be longer lasting. The total number of employed workers is still below where it was when economies locked down, but the process has transformed labour markets. Sectors that are now expanding and hiring are not necessarily the same ones that made workers redundant. Many of those who left jobs in hospitality have since found work in supermarkets or as delivery drivers.

The US government, too, wants to shift bargaining power towards workers and increase the relative power of labour compared with capital. Ensuring a scarcity of workers relative to jobs is an explicit goal of policy, intended to lead to higher wages and better conditions for workers, as well as encouraging businesses to invest in labour-saving technology and training. Some of those pushing for stricter UK migration controls may have similar motives.

Faster productivity growth would mean rising wage bills are not necessarily passed on to consumers through inflation. There is encouraging evidence here too: spending on technology investment in Britain is higher than before the pandemic. Homeworking and other digitisation efforts could help boost productivity growth.

That is unlikely to help would-be diners for the lunch service at Le Gavroche. For the moment they, just like central bankers, will have to wait.



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