HAMISH MCRAE: Labour shortages in many countries are going to push up wages – so stand by for some welcome increases in earnings
We have to pay people more. We have to pay heavy goods vehicle drivers more, of course. Empty supermarket shelves are testimony to that.
But this is not just about one particular activity being short-staffed. There are many other areas where employers are finding it hard to fill vacancies.
The hospitality industry is struggling to staff restaurants and hotels. The CBI reported that builders, bricklayers and welders are in short supply. And when City law firms have to pay £100,000 a year to attract a newly-qualified solicitor, you can see that something big is happening.
Filling the void: For years power has been with the employer – now the boot is on the other foot
For years power has been with the employer. Now the boot is on the other foot.
The HGV driver shortage shows what happens if companies push down wages too far. People won’t train to do that job.
There is a national shortage of 90,000 drivers, of which only 25,000 can be accounted for by Europeans going back to the Continent.
Covid accounts for some of the shortfall on a day-to-day basis, but the real problem goes back a decade or more. The average age of a driver is apparently the mid-50s, and since pay rates have risen more slowly than other comparable activities, it is hardly surprising that not enough young people have been prepared to apply.
It will take a while for the labour market to settle down. Brexit, the pandemic and the other structural changes taking place in the economy have distorted the picture.
So it is hard to know what are temporary shortages and what are underlying ones. But when we get back to some sort of normality, I think we will find that three things have happened.
One is that employers will have to work much harder at luring people to join them.
That will mean higher pay where particular skills are needed. But it will also mean training people better – adding to their human capital – treating them decently, building loyalty, being flexible about working conditions and so on.
Some years ago I was talking to an American consultancy that was spending a huge amount on training. ‘Aren’t you worried,’ I asked, ‘that people will leave and take their new skills elsewhere?’ The reply came: ‘No, Hamish, you don’t understand. It’s because we add to their human capital that they stay. The moment we stop investing in them, they will find someone else that will teach them more.’
The past 18 months have seen a huge shakeout. The poorly-managed firms have gone to the wall, while the adept and flexible have come through, often in much better shape.
The next stage of the shakeout will see the enterprises that train their staff prosper. Those that don’t will struggle. The motor industry has to make the massive transition to electric cars, as Lord Grimstone charts. That means building a whole new set of skills. It can be done, and must be done.
The second thing that will happen is a boom in productivity. When people are better trained they are more productive. If people are to be paid more, employers will find ways of using them better, for example by streamlining tasks so they take less time. The easy option of hiring more people won’t be there.
So I think we will see an economy that does not create new jobs at quite the rate of the past few years, but instead learns to be more efficient in its use of labour.
Real wages will go up, particularly at the bottom end of the pay-scales, as they jolly well should.
That leads to the final thing to expect: higher inflation.
We can’t escape the harsh truth that inflation will climb. There has long been a debate about the extent to which inflation is driven by higher costs or by central banks creating too much money.
The surge we are seeing all over the developed world in share prices and property values must in large measure be the result of central bank policies.
There will be some sort of reckoning there – as discussed by Raghuram Rajan on the next page.
But costs matter too, and the labour shortages that are coming through in many countries are going to push up wages, which in turn will push up prices more generally.
So stand by for some welcome increases in earnings through the autumn and beyond.
But be prepared for sharper increases in prices too.