One of the fears at the beginning of the pandemic was that of mass unemployment as businesses across the country were forced to close their doors. Now, as the economy reopens, all we are hearing is a clamour from businesses saying that they can’t find enough staff. What has caused this about-turn in circumstances?
Whilst ‘Brexit’ may be one of the first things that springs to mind it would appear that this is not a uniquely British problem. Half of the states in the USA are now ending the $300 top up to unemployment insurance in a bid to drive people back to work amongst highest on record levels of vacancies. The Ministry of Manpower in Singapore has acknowledged labour shortages. Mining companies in Australia have faced production hits as they have struggled to recruit enough workers.
The reason behind the dearth of workers is Covid-19. It has disrupted all of our lives and it is now disrupting the labour market in new ways as well-vaccinated countries are looking to re-open their economies. Unlike during the Black Death, fortunately the labour shortage has not been caused by much of the working age population dying: workers are still thankfully alive but they are in the wrong place, don’t have the right skills of have been reconsidering their priorities in life.
The pandemic has closed borders and put unprecedented restrictions on travel which are still largely in place. Many immigrant workers have gone home during lockdowns when no work was available, and they now can’t get back in. Brexit may have further exacerbated this affect in the UK. Migration from rural to urban areas even within countries has also been affected. Most of the current vacancies are in cities in industries such as hospitality and construction but many workers have gone back to home villages or moved to the countryside seeking an extra bedroom as a home office.
Areas that were facing a lack of skilled workers, such as IT in the UK, are now experiencing an even more acute problem. Demand for IT infrastructure, as we all have meetings on Zoom and see our GP remotely, has accelerated but the staff needed to build these systems cannot be magicked into existence overnight. The pandemic has also caused a deterioration of skills as many training and educational facilities have spent much of the last 16 months being closed. Britain is experiencing an acute shortage of HGV drivers whilst a backlog for prospective drivers hoping to pass their test remains.
Finally, lifestyle changes and changes to how people see work fitting into their lives are behind some of the shortages combined with the fact that we are not exactly all back to normal yet. It is telling that many of the areas seeing shortages such as hospitality are the most notorious for long hours, poor pay, insecure work and (now) a high exposure to infection. Many of these workers do not want to go back to these jobs particularly if they are young and not yet fully vaccinated. The students that often fill a lot of these roles in city centres are still likely to be back at their mum and dad’s house and studying remotely. Mothers who had to give up their jobs due to the closure of childcare facilities during the pandemic may be reluctant to go back just yet when their chidren are still being sent home from school to self-isolate every other week. Many people who lost jobs during the pandemic will have now found new careers; some individuals will have retired early. There’s now an expectation amongst most white-collar office workers that they’ll be able to keep working from home at least for part of the week: those who have the option will be eschewing employers who cannot offer this flexibility.
What does this mean for the wider economy and will it last? The predictable consequence of a shortage of workers is rising wages as employers compete for people. Whilst this is a good thing for those of us who have jobs and would like a pay rise it is also likely to lead to us having to pay more for everything as labour costs are passed onto consumers. The ability of wages to rise in many competitive industries will depend upon our willingness to pay more for a meal at a restaurant, pint at a pub or day out with the family: if price rises are unsustainable and there is no abatement in the labour shortage this will lead to the closure of businesses. Finally, the effect of higher wages and higher prices is of course inflation: too much of which is damaging for any economy and if sustained is likely to lead to action by central banks to raise interest rates which might also be damaging for the economy.
It is worth noting that the furlough scheme and its international equivalents are still in place and are currently only in a partial state of wind-down. The huge government stimulus and support packages used during the pandemic have prevented the mass unemployment feared but they will also not last forever. It would not be an unreasonable expectation that at least some of the jobs propped up by furlough will be lost within the next 12 months.
Most of the factors causing the recent acute labour shortage are in essence cause by the pandemic and are temporary: although if ‘temporary’ in this context means when the world gets back to normal this could still be a number of years away. Brexit sticks out as the factor that is likely to be permanent. As the world reaches a new and different equilibrium the assumption amongst most economists remains that the labour shortage and inflation that it drives will if not completely disappear at least ease off significantly. Now is a good a time as any to be looking for a new job!
The Economics of Lurking at Home