Expert comment: Labour shortages hit economy

Categories: Salford Business School

Labour shortages are badly affecting many parts of the UK, and world, economy, and finance expert Dr Maria Rana, of the University of Salford Business School, looks at what is going on.

Dr Rana said: “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, 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.  

“Let’s be clear, the labour shortage is not affecting all sectors and a number (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.  

“The pandemic has exacerbated these issues, 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). 

“There is no doubt that given the current shortage of labour supply in a number of sectors, and given the increase in demand, wages have increased. 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 Indeed, the job recruitment website, the average pay rate in the UK has increased only by 1.3%, while inflation has increased to 3.2% in August and the Bank of England expects it to increase even further and above 4% by the end of the year.

“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.  

 “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.”  

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