Faced with a shortage of reception staff, the Australian state of Queensland wishes to attract chefs, bartenders and tour guides to its sunny beaches with a “Work In Paradise” program of one-off incentives and assistance with the costs of trip.
Once there, however, newcomers shouldn’t expect big pay rises from local businesses whose margins are battered by the need to keep prices low to gain customers.
“Companies are trying to cope with the (labor) shortage in different ways, but we don’t see any industry-wide wage pressures,” said Daniel Gschwind, Managing Director of Queensland Tourism. Industry Council.
In the decade since the global financial crisis, wage growth around the world struggled to recover even before COVID-19 lockdowns last year pushed it even further in many countries, according to the International Labor Organization.
Now, as investors and policymakers judge whether the resuscitation of the pandemic will end in unwanted inflation, labor markets are sending more pessimistic signals about wage growth which is generally seen as a prerequisite for a sustained increase. prices.
While some workers in fast-recovering industries are already chased by higher wages, the big picture is where wage growth lags the rebound and is often overestimated by data distorted by the effects of COVID.
This is even before some unknowns – such as the extent to which the pandemic is pushing more companies to downsize or lay off workers in favor of automation – weigh on future wage trends. .
In the United States, Federal Reserve officials argue that healthy wage growth will perhaps be the most important signal of the recovery in labor markets.
But the pandemic has made it difficult to determine what is really going on. Average hourly earnings soared at the onset of the health crisis, but only because so many low-paid workers were kicked out of their jobs. This then led to sharp declines as they returned to work, meaning government wage data remains skewed.
Fed staff developed other ways to track wages, and in March estimated median wages rose about 3.1% year-over-year – below the gain of 3.5 % observed in 2019 and, they say, does not reflect difficult labor market conditions.
For now, modest wage growth in the United States has become embroiled in a debate over whether there is a labor shortage – a dissonant idea in an economy still 8 million. jobs below what they were before the pandemic.
But the most relevant question going forward is whether the pandemic is causing long-term economic scars or accelerating underlying trends that were already acting as a drag on wages.
The minutes of the Fed’s April meeting included the observation that some companies were downsizing or “focusing on cutting costs or increasing productivity, including through automation.”
Save the consumer
Like the United States and Australia, Britain is seeing labor shortages emerging as its vaccine-fueled economic recovery begins. A May survey by IHS Markit cited rising wages as a factor behind the biggest increase in cost pressures in the UK service sector since July 2008.
But the Bureau of National Statistics warned that the 4.0% annual wage growth in the first quarter was misleading because, like in the United States, lower-paid workers are more likely to have lost their jobs in the pandemic in the United States. over the past year.
Taking that into account, he estimates wage growth to be around 2.5% – close to its long-term average.
In the euro zone, several months behind the United States and Great Britain on the recovery curve, pay conditions are characterized by the April 13 agreement between the largest European car manufacturer Volkswagen and the IG Metall union for a modest increase of 2.3% from next January union demands of 4%.
“A turnaround in wage deals is not expected – if at all – before mid-2022 at the earliest,” Commerzbank analysts said in a note, agreeing with policymakers at the European Central Bank who, at their April meeting, found wage pressures to be low.
In Japan, meanwhile, outright deflation is still seen as a greater risk than inflation, with the Bank of Japan complaining that this has led households and businesses to believe that prices will not rise much. .
This perception in turn translates into low or even negative wage pressures: wages increased by a meager 0.2% in March year-on-year after decreases of 0.4% in 2019 and 1 , 2% in 2020.
Assuming that the developed economies continue to recover, it cannot be excluded that wage pressures will intensify as the demand for labor increases. But then the question is whether the wage gains will drive up prices as they have in the past.
Some analysts are not convinced they will, citing factors such as China’s admission to the World Trade Organization in 2001 as creating an environment in which companies will laugh and save costs elsewhere rather than ” increase prices for customers.
Mike Kelly, multi-asset manager at PineBridge Investments, said many companies operate in markets where any attempt to pass higher labor costs onto consumers would be “suicidal.”
“What businesses do is when they see this pressure, they bend over it, but then they look elsewhere in their cost structure to eliminate that.”