The consequences for the UK economy of one of the worst labor shortages among wealthy nations are beginning to be palpable. There is no shortage of testimonials from employers who are looking for staff and cannot find it or come across candidates who ask for more salary and who even weigh between several offers.
The ‘disappearance’ of almost a million workers from the British labor market after the pandemic is beginning to be noticed and puts the Bank of England in a loophole: the growing wage inflation, added to an already considerable rise in prices, makes more pressing a rate hike to which the BoE did not dare at its last meeting in November. This rise, which everyone was already expecting for the December meeting next week, is in doubt due to the emergence of omicron and now we are talking about February.
Britain is experiencing a rare time when workers have the upper hand. While this should help sustain demand and living standards, it carries significant economic risks. A failure to recruit staff threatens to limit the speed of the post-shutdown recovery from covid. Paying more to workers is pouring more gasoline on an inflation that the BoE wants to quell. The situation in the country is more delicate than in the US or the Eurozone, since the impact of Brexit on the labor market has been added to that of the pandemic, drying up the flow of labor from the continent.
UK employers raised starting wages at a record pace in November amid an “unsustainable” shortage of workers, according to a survey released Thursday. The report of the KPMG Contracting and Employment Confederation, collected by Bloomberg, describes a scenario in which companies are again finding it difficult to fill vacancies and are forced to increase pay to attract workers. “The current trajectory is unsustainable in the long term for business and economic recovery overall, “said Claire Warnes, the firm’s head of education, skills and productivity.
Low availability of candidates makes starting salary inflation the highest since data began to be collected in 1997. This now-real-life threat helps explain why BoE is expected to raise interest rates before the US Federal Reserve.
Michael Saunders, one of the central bank policy makers who voted in the minority in favor of raising rates in November, rejected last week the agency’s official forecast that wage growth would decline from the underlying rate of 4, 5% to about 2% next year. “More than a slowdown in underlying median income, I think salary deals are more likely to pick up next yearbecause the job market is tight, “Saunders emphasized. His colleague Lieutenant Governor Ben Broadbent, more dovish, has admitted that the tight labor market is exerting “continuous upward pressure on wages.”
The question for central bankers is whether higher wages will get people back to work to fill a record 1.3 million job openings. In total, the UK share gap -an estimate of the number of people who would have been available for work had the pandemic not occurred- amounts to about 900,000according to Tony Wilson, director of the Institute for Employment Studies. This represents almost 3% of the pre-pandemic workforce and is not far from the level of existing vacancies.
Much depends on whether companies can attract the new “inactive” back to work. If they return, wage pressures will diminish and the BoE has already said that this dynamic will determine its policies. However, the fate of these workers remains unknown. Official statistics indicate that there are about 200,000 fewer EU citizens in the country, and 360,000 more people under 65 years of age are inactive, that is, they do not work or seek employment. In addition, the workforce would have increased by about 300,000 if normal pre-pandemic trends had been maintained.
A separate analysis by Wilson, Saunders, and Jonathan Haskel, another of those responsible for rate setting in the BOE, shows that many of those who left the labor market can be difficult to attract again, which would reinforce upward pressure on wages. Since February 2020, 60,000 more people below the state retirement age have declared themselves “retired”, and some 150,000 more are now “long-term sick.” Wilson said the numbers are likely to reflect the workforce’s “detachment” from people who may be depressed or downcast. Long-term casualties can amount to another 20,000. Employers may find it difficult to hire those 230,000 ex-workers.
Time to ask for a raise
The counterpart is in the British willing to work, especially in certain sectors. According to a UK Treasury analysis collected by Bloomberg, on construction, manufacturing and hospitality the number of unemployed with the relevant qualifications per job has decreased more since the pandemic than in any other sector. There have also been large decreases in the relationship between unemployment and vacancy in logistics, administration and health and social work.
Is then the time ask for a raise in the United Kingdom? In theory, the workers in those jobs are the most successful in asking for such a raise, as the stories of truckers earning 50,000 pounds of salaries attest – Boris Johnson had to pull the military to transport fuel to gas stations – and restaurant worker hiring bonuses. Treasury figures confirm this. The “median” salary of the typical worker in the logistics, manufacturing, administration and healthcare and social work sectors has increased between 4% and 7% in the last year, faster than the current inflation rate 4.2%.
Also in the information and communication technology sector As in the field of scientific and technical professions, see medicine, there has been a shortage of qualified workers since before the pandemic. Salaries in these sectors are the ones that have risen the most, more than 7% in the last year. Right behind them is the financial services industry. Bankers and insurers have seen their salaries rise by 7%, even though the job market in those sectors has weakened in the pandemic.
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