Why are global labour shortages a good thing?

Ex-BBC journalist Andrew Neil recently returned to Question Time as a panellist and went on to describe the current global labour shortage as “great”. In light of the comment made by the show’s former host, Business Leader has taken a closer look at why the global labour shortage might just be a good thing.

What are the reasons behind the global labour shortage?

With global lockdowns causing economic growth to slow, leading to job losses, the pandemic has received much of the blame for the global labour shortage.

In the UK, the loss of EU workers caused by Brexit is another reason that is often cited for labour shortages, especially for the dwindling number of HGV drivers.

“Brexit, I think, has caused problems in Britain because over a million EU citizens left with Covid, and it’s tougher for them now to get back in,” said Andrew Neil in his recent appearance on Question Time. But he later added: “Even without Brexit, we’d have major problems.

“There is a global labour shortage developing now, for demographic reasons, it’s for changes in population, changes in work patterns and so on.”

“Germany today said it needed immediately 400,000 workers. The last time I checked they were still in the EU. There is a global labour shortage everywhere,” concluded Neil.

However, according to John Bryson, the Chair in Enterprise and Economic Geography at the University of Birmingham: “It is too simple to state that there is a global labour shortage.

“There is a paradox here as global unemployment remains high but this is combined with high job vacancy rates. There are multiple reasons for this.”

“For example, in the West Midlands, for lower-skilled occupations there are concentrations of unemployment in some areas and then a very different geography of hard-to-fill vacancies. There is a mismatch between demand and supply.

“The problem is linked to a mismatch between the structure of the local housing market and employment combined with gaps in public transport, which make it impossible for those unemployed to take some of these jobs.

“It is important to remember that hard-to-fill vacancies are a long-term problem, and it is one that I have described as representing a form of erosion of local economies from below.

“Too often, the explanation for firms closing or downsizing is based on globalisation, but for many firms it may be based on an inability to recruit the right people with the right skill sets. This is not about qualifications, but people with the required skills defined as being able to complete required tasks.”

Maria Rana, an economic expert at the University of Salford Business School, also points out that the global labour shortage is not affecting every sector.

“Let’s be clear, the labour shortage is not affecting all sectors and a number of sectors (e.g. professional services, programmers, web developers, etc.) have been facing labour shortage even before the pandemic due to labour market mismatch and structural changes in the economy,” says Maria.

“The pandemic has exacerbated the issue, especially in those industries that have been hardest hit by Covid-19 (i.e. hospitality and retail) and/or are known for low wages and poor working conditions (hospitality, retail, warehouse, transport/ logistics).

“The increase in demand due  to changes in consumers’ taste and the reopening of the economy, together with the decrease in supply of labour due to workers shifting to different sectors perceived as more secure in the long term, more flexible and offering better working conditions, as well as the decrease in labour supply from foreign-born workers returning to their countries amid the pandemic and not willing or able to return or be replaced due to post-Brexit immigration rules, are all factors that combined have caused the labour shortage currently experienced by the UK.

So, whilst Brexit and the pandemic have clearly played big roles in staff shortages throughout the UK, we need to be careful not to solely lay the blame at their shoes as the overall picture for the labour shortages is far more complex.

The global labour shortage will drive wages up

Perhaps the most remarkable thing that Andrew Neil said when referring to the labour shortage in his recent Question Time appearance was: “I think it’s great. Because with shortage and scarcity, wages are starting to rise again.”

Whilst on the show, Neil also highlighted how labour issues in Florida have led to McDonald’s offering would-be workers $50 just to reach the interview stage and went on to explain how wages stagnated in the first two decades of the 21st century and added that people with assets saw their wealth continue to rise.

We asked John Bryson and Maria Rana whether Andrew Neil was correct in saying that the global labour shortage will drive wages and John Bryson said: “Yes and no. In some sectors, there will be an increase in wages, but also in benefits. For example, a four-day working week, or new forms of flexible working.

“It is important to remember that one outcome of the Black Death (1346-53) was that the reductions in the labour supply led to an increase in working conditions, but also technological innovation.

“Thus, initially there might be some increase in salaries in some sectors experiencing hard to fill vacancies, but this would be followed by productivity enhancement resulting from process and technological innovation.

“For example, a dramatic increase in the national minimum wage could potentially end up producing more unemployment as employees substituted workers with technology.”

“There is no doubt that given the current shortage of labour supply in a number of sectors, and given the increase in demand, the wages have increased,” says Maria Rana.

“However, it is also true that the increase in wages are transferred to consumers, causing an increase in the general level of prices, with essentially no increase (or even decrease) in real wages and purchasing power for the majority of workers.

“According to job recruitment website Indeed, the average pay rate in the UK has increased only by 1.3%, and according to the BoE this figure is approximately 2%. On the other hand, the BoE has forecasted inflation to increase above 4% by the end of 2021 (well above the 2% target and well above the 1.3% increase in pay rate).

“Additionally, the rise in wages in itself is not sufficient to stimulate the supply of labour in those sectors known for poor working conditions, so working conditions will also need to be improved. And yes, of course this is good news.”

How can businesses address the labour shortage in the UK?

Whilst the global labour shortage might prove to be beneficial for those who work in certain sectors and have assets, empty shelves and a shortage of HGV drivers are two problems that we are currently experiencing in the UK. The government has tried to address them by issuing temporary visas for HGV drivers and poultry workers.

However, David McCormack, CEO of Birmingham-based HR consultancy HIVE360, says: “For employers in the agriculture, logistics, retail, hospitality, and construction sectors, the way to tackle the skills shortage is to make some simple changes to how they approach what they offer workers and how, which won’t impact costs or operational resources.”

“Despite the devastating news businesses are not to be given the chance of employing workers from overseas given temporary work visas to fill the skills gap, a change in thinking around how they attract and reward workers will work, because adding relevant benefits to their earnings will improve staff retention and attraction.”

“There is no long-term solution as the demand for skills in the labour market continually alters,” says John Bryson.

“One implication is the need for a focus on lifelong learning to ensure that individuals maintain skills that are needed in the labour market. Another implication is to ensure that the schools focus on core transferable skills as well as technical/subject knowledge.”

“A core skill now is the ability to play with and understand data. One question to consider is: who should be responsible for developing a solution? The answer is not just government. Companies must invest in their current employees but also engage with schools, FE colleges and universities.”

“Migration is part of the solution, but only one part as migration is based on exploiting investments made by other countries in their citizens.”

“One of the reasons why there is a shortage of truck drivers is that the average wage for a truck driver is only £28,000 a year,” added Andrew Neil whilst on Question Time. “That’s just about the average in earnings at the moment.

“That’s not a lot of money for the job it is, long hours, takes you away from home, you don’t see your family and so on. We need to start paying people better, bigger wages!”

However, Maria Rana believes that more will be needed to address the labour shortages in certain sectors.

“In a tight labour market and in the short term, just increasing wages and working conditions will not fix the problem. A lessening of post-Brexit immigration rules to increase the labour supply from overseas workers is required to support hospitality, logistics and food processing sectors.

“The shortage of labour is affecting the recovery of the UK economy and there is no more time to waste.”

From better wages and employee benefits to lifelong education, there appears to be a lot of potential remedies for addressing the ongoing shortage of labour. But for those who are employed in sectors where a lack of staff means better wages and benefits, will they be wishing for the deficit to be addressed anytime soon?