Mike Dolan

LONDON (Reuters – Higher wages would not suffice to clear distorted and churned global labour markets, and they could even not satisfy primary demand for many workers.

Future pay growth will determine whether the headline inflation spikes of this year persist, and how much demand there is for rare skills. Workers, investors, policymakers, and policymakers need to buckle up for what lies ahead.

But it is not always so simple. However, incoming surveys of corporate employees show that there is a huge demand for workers after a pandemic. They also reveal that the ability to retain and attract staff does not depend on their compensation.

HSBC conducted a poll of more than 2,000 business leaders across 10 countries this week and found that companies face stiff competition to find talent.

Survey results showed that firms are expecting staff numbers to rise by an astounding 13% within 12 months in order to achieve their 20% revenue growth target. The majority of the respondents were from the United States, Mexico, and India.

More than 40% anticipate a rise in workforces of more than 20%. Over two thirds are currently engaged in hiring and retraining.

However, while almost half of firms see financial and salary benefits as the primary factor in securing talent they are now putting more emphasis on flexibility and location as important factors.

This survey is not unusual.

In a report entitled the “Great Attrition”, management consultancy McKinsey & Co points out that a record number of employees are quitting or thinking about doing so, and more than 15 million U.S. workers have walked away since April this year.

McKinsey stated that many companies had difficulty understanding the causes, and that financial incentives were not enough to help workers who are now searching for flexibility and a sense of belonging, purpose and recognition.

This included a survey that surveyed employees from five countries, Australia, Canada, Singapore, the United States, and found that at least 40% of them were likely to leave their jobs within six months. These sectors ranged from leisure and tourism to health care and education, to white collar and high-paying work.

Surprisingly, over a third of those surveyed had left their jobs in the last 6 months and not found a new one.

Although ‘inadequate compensation was clearly mentioned as a factor in this ranking, it wasn’t even among the top four most important reasons. The top spot was occupied by work/life balance, better belonging, and feeling valued by the manager or organisation.

TRUCKERS & PAYROLLS

It may sound like a silly argument for businesses to pay workers less now but these labour market sensibilities, if taken in their entirety could have major macroeconomic implications.

While it might not seem like much from the U.S. job report this week or the chaotic shortages of British truck drivers, the amount of wage pressure moving forward is probably the most important investor dilemma of the moment. Not least because of steep energy price increases likely to occur during the Northern winter.

Many will question central bank’s insistence that the current 3-5% European and US inflation rates this summer are temporary and only due to pandemic-related bottlenecks. This is because pay settlements and awards over the next twelve months are likely to assume higher inflation rates.

Organisation for Economic Cooperation and Development stated last month that a sustained upward movement in inflation is unlikely from the low rates seen before the pandemic.

Although wage indexation is not as common today as it was during the wage-price spirals in 1970s/80s, unionisation and wage indexation are still important.

The OECD believes that aggregate wage pressures will remain mild. However, it highlighted large increases in certain recently reopened “contact-intensive” sectors in the United States such as hospitality and leisure, along with what appears to be temporary labor shortages for small European businesses.

The report highlighted distortions in the picture caused by furlough and job retention programs that are either ending or have expired, as well as the net effects from broader corporate subsidies. The truth about the health of global labour markets may not be available until next year.

Many wealthier workers have large savings that they can lock down over the past 18 month, which may encourage early retirement or prolonged career breaks.

However, wage inflation may be influenced by the priorities workers are now putting on raises in comparison to the new flexibility of working remotely or finer points about motivation and workplace inclusion.

(by Mike Dolan. Twitter (NYSE::): @reutersMikeD. Editing by Jan Harvey