The Economist - UK (2022-04-09)

64 Finance & economics TheEconomistApril9th 2022

soldiers returning from the front lines.

Government  policy  has  also  boosted

jobs.  In  2020  countries  including  Austra­

lia, Britain, France and Germany launched

or  expanded  job­protection  or  furlough

schemes.  At  the  peak  over  a  fifth  of  Euro­

pean  workers  remained  technically  em­

ployed even as they twiddled their thumbs.

When lockdowns lifted, they could quickly

return to their roles—rather than having to

search  and  apply  for  work,  which  takes

time  and  thus  keeps  unemployment  ele­

vated. America launched a modest job­pro­

tection scheme, but its efforts were largely

targeted  at  maintaining  peoples’  incomes

via  stimulus  cheques  and  topped­up  un­

employment benefits.

Stimulus  schemes  shored  up  families’

finances.  Many  households  also  reined  in

spending in 2020, allowing them to accu­

mulate huge savings. The stockpile is now

being spent on everything from consumer

goods  to  housing,  raising  demand  for

workers in areas such as online retail and

property  services  (including  an  extra

200,000 estate agents in America).

Nice workers if you can get them

With labour demand so strong, employers

are having not only to increase the number

of  jobs  but  also  to  improve  their  quality.

Amazon  exaggerated  when,  last  year,  it

said it would try to be “Earth’s best employ­

er”, but many other companies are promis­

ing similar things, whether by offering em­

ployees  better  in­office  benefits  (such  as

tastier cafeteria food) or better compensa­

tion packages (free college tuition). In 2021

venture investors put more than $12bn into

global hrtech startups, roughly 3.6 times

the  capital  invested  in  them  in  2020,  ac­

cording to PitchBook, a data provider.

Bad employers are having a tough time.

The  share  of  Americans  worried  about

poor job security is near a historical low. In

Britain the share of full­time workers on a

“zero­hours  contract”,  where  there  are  no

guaranteed  hours,  soared  after  the  finan­

cial  crisis  but  is  now  falling.  Many  of  the

gig­economy  firms  that  grew  in  the  early

2010s  by  relying  on  an  army  of  underem­

ployed workers are struggling to find staff.

Whether in London, Paris or San Francisco,

hailing a ride is harder than it used to be.

The  best  measure  of  labour­market

tightness  is  pay,  which  distils  the  relative

bargaining power of workers and firms in­

to a single number. In some places the situ­

ation is clearly getting out of hand. Wheel­

er  County,  Nebraska,  is  a  heavily  agricul­

tural  place  a  long  way  from  anywhere.  In

December  unemployment  fell  to  around

0.5%.  Jobs  at  a  nearby  Chipotle  Mexican

Grill  pay  $15­16.50  an  hour,  at  least  twice

the federal minimum. Some firms claim to

be raising wages by 30% or more. 

Some countries still look decidedly un­

Nebraskan.  Japanese  wage  growth  is  eas­

ing, not accelerating. In December the

“specialwage”,whichincludeswinterbo­

nusesandtypicallymakesupabouthalfof

totalcashwagesinthatmonth,fellby1%

yearonyear.Germanwagegrowthisdoing

nothing special. Canada’s is respectable

butitishardtomakethecasethatthings

areoutofcontrol.

Onaverage, however,labour markets

acrosstherichworldare clearlygetting

tighter.America’sisplainlyoverheating.In

Marchaveragehourlyearningswere5.6%

higherthana yearearlier,ontheheadline

measure.Anothergaugesuggeststhatthe

lowest­paid are seeingbigger rises (see

chart3).GoldmanSachs,a bank,produces

a wage tracker thatcorrects for various

pandemic­related distortions. Itismore

than5%higherthana yearago,thefastest

rateofincreasesincethedatabeganinthe

1980s.AlmostallwagemeasuresinAmeri­

cashowunusuallyrapidgrowth(bycom­

parison,manufacturingwagesrosebyan

annualaverageof4.1%in1960­2019).

Before the pandemic, underlying

Frenchwagegrowthwasintheregionof

1­2%ayear.Nowitiscloseto 3%.Italy

looks similar. On March 23rd Norway’s

centralbanknotedthat“wageinflationhas

beenhigherthanprojected,andwageex­

pectationshaverisen.”Britainisparticu­

larlystriking.OnGoldman’smeasure,un­

derlyingpaythereisrisingatanannual

rateofabout5%.Surveys ofbusinesses

suggestthatevenfastergrowthoverthe

comingyearcannotberuledout.Across

theg 10 largeeconomiesasa wholewages

arerisingbyatleast4%a year.

Is this sustainable? To most people

wagegrowthof4%hardlysoundsmalign.

Butthearithmeticisinescapable.At4%

wagegrowth,labourproductivity(ie,the

valueofwhatworkersproduceperhour)

mustgrowbyatleast2%a yearinorderto

beconsistentwithaninflationtargetof

2%.Businesseswouldpassonhalftheir

extrahourlywagecoststocustomersinthe

formofhigherprices,butwouldabsorbthe

otherhalfsincetheywouldbesellingmore

goods and services, or producing them

moreefficiently.

Productivitygrowthof2%a yearisnot

unachievable,butit wouldbea lotstronger

thanit wasbeforethepandemic.Although

productivitygrowthdoesseemfasterthan

normal,our analysisofdatafromoecd

countriessuggeststhatitfallsshortof2%.

Itmayyetriseascompaniesreapthegains

fromtheirlargeinvestments inremote­

working technologies and digitisation.

Hopes of higher productivity, however,

must be weighed againstfears of still­

higherwagegrowth.

Ifheadywagegrowthcannotbe sus­

tained,howmightitfall?Onelong­floated

possibilityinthosecountrieswithlagging

overall employmentrates isthatpeople

whohavelefttheworkforcereturn,boost­

ingthesupplyoflabour.Fearofcovid­19

mighteventuallyfadeandchildcaremight

becomeeasiertofind,easingworkershort­

agesandcausingwagegrowthtofall.

This hope is receding, however. Al­

thoughmanyAmericanshavereturnedto

theworkforceoverthepastsixmonths,

wagegrowthhasnotslowed—infact,it has

accelerated.TheEconomistcalculatesthat

in September there were nearly 1.9m

“missing”workersaged 25 to54,basedon

participationratesinJanuary 2020 andad­

justingforpopulationgrowth.ByMarch

2022 thishadfallenbymorethanhalfto

about750,000—orlessthantwomonths’

worthofjob growthat therecentpace.

Thereareanother1.3mmissingolderwork­

ers,butmostareover 65 andlikelytohave

retiredpermanently(andthenumber of

missingover­65shasbeengrowing).

Itislikely,therefore,thatinAmerica

andelsewherelabourmarketswillhaveto

becooledtheold­fashionedway:bycen­

tralbanksraisinginterestrates,makingit a

littlemore attractiveto savethanspend

andchokingoffdemand forlabour. The

Fedhasalreadyincreasedratesby0.25per­

centagepoints,andisexpectedtodosoby

a totalof2.5pointsthisyear.Americamay

proveanexampleofwhathappenswhen

policymakersrespondtoa labourmarket

thathasbecomedangerouslyhot.n

In demand

Number of unemployed people per vacancy

Estimate for 16 OECD countries

Sources: OECD; The Economist

2

10

8

6

4

2

0

052001 10 15 2220

Hot and hotter

United States, hourly wages

Median % increase on a year earlier*, by wage quartile

Source:FederalReserve

BankofAtlanta *1-month moving average

3 7 6 5 4 3 2 1 0

1998 2005 22201510

Highest

earners

3rd quartile

nd quartile

Lowest

earners