Faced with shortages of hospitality staff, Australia’s
Queensland state wants to lure chefs, bartenders and tour guides to its
sun-kissed beaches with a “Work In Paradise” scheme of one-off incentives and
help with travel costs.
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Once there, however, new arrivals shouldn’t expect big pay
rises from local businesses whose margins are being battered by the need to
keep prices low to win customers.
“Businesses are trying to cope with the (labor) shortage in
different ways but we aren’t seeing industry-wide wage pressures,” said Daniel
Gschwind, chief executive of the Queensland Tourism Industry Council.
In the decade since the global financial crisis, wage growth
around the world was struggling to recover even before
COVID-19 lockdowns last
year pushed it down still further in many countries, according to the
International Labor Organization.
Now, as investors and policymakers judge whether pandemic
stimulus will end in unwanted inflation, labor markets are sending more
downbeat signals on the wage growth that is typically viewed as a prerequisite
for sustained price rises.
While some workers in fast-recovering sectors are already
being chased with higher pay, the overall picture is one where wage growth is
lagging the rebound and often being overstated by data distorted by
COVID-linked effects.
That is even before certain unknowables — such as the extent
to which the pandemic pushes more firms to downsize or shed labor in favor of
automation — weigh on future wage patterns.
In the United States, Federal Reserve officials argue that
healthy wage growth will be perhaps the most important signal that labor
markets are on the mend.
But the pandemic has made it difficult to determine what is
really happening. Average hourly earnings spiked early in the health crisis,
but only because so many low-wage workers were thrown out of jobs. That then
led to sharp declines as they went back to work, meaning government wage data
remains distorted.
Fed staff have developed alternate ways to track wages, and
as of March estimated median wages grew around 3.1 percent on a year over year
basis — below the 3.5 percent gain seen in 2019 and, they say, not indicative
of tight labor market conditions.
For now, the modest US wage growth has become embroiled in a
debate over whether there is a labor shortage — a dissonant idea in an economy
still 8 million jobs short of where it was before the pandemic.
But the more relevant question going forward is whether the
pandemic leads to long-term economic scarring or accelerates underlying trends
that were already acting as a drag on wages.
Minutes from the Fed’s April meeting included the
observation that some businesses were either downsizing or “focused on cutting
costs or increasing productivity, particularly through automation”.
Sparing the consumer
As with the United States and Australia, Britain is seeing
labor shortages emerge as its vaccine-fuelled economic recovery gets underway.
A May survey by IHS Markit cited rising salaries as a factor behind the biggest
increase in cost pressures in the UK services sector since July, 2008.
But the Office for National Statistics warned that
first-quarter headline annual pay growth of 4.0 percent was misleading because,
as in the United States, lower-paid workers are more likely to have lost jobs
in the pandemic in the past year.
Adjusting for this, it estimates pay growth is around 2.5
percent — close to its long-run average.
In the euro zone, several months behind the United States
and Britain on the recovery curve, pay conditions are typified by the April 13
agreement between Europe’s largest carmaker Volkswagen and trade union IG
Metall for a modest 2.3 percent rise from next January — short of initial union
demands of 4 percent.
“A turnaround in wage settlements is not expected — if at
all – until mid-2022 at the earliest,” Commerzbank analysts said in a note,
concurring with European Central Bank policy-makers who in their April meeting
judged wage pressures to be low.
In Japan, meanwhile, outright deflation is still regarded as
a bigger risk than inflation, with the Bank of Japan complaining that this has
led households and companies to believe that prices won’t rise much.
That perception is in turn reflected in weak or even
negative wage pressures: Wages rose a meagre 0.2 percent in March year-on-year
after falls of 0.4 percent in 2019 and 1.2 percent in 2020.
Assuming developed economies continue to recover, it cannot
be ruled out that wage pressures will grow as demand for labor grows. But then
the question becomes whether wage gains will send prices up as they have tended
to in the past.
Some analysts are not convinced they will, citing factors
such as the admission of China into the World Trade Organization in 2001 as
creating an environment where companies will scrimp and save costs elsewhere
rather than increase prices to customers.
Mike Kelly, head of multi-asset at PineBridge Investments,
said many companies were operating in markets in which any bid to pass on
higher wage costs to consumers would be “suicidal”.
“What companies are doing is that when they see those
pressures, they bend to them but then they look somewhere else in their cost
structure to take that out.”
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