In Paradise and beyond, wage hikes lag global recovery | Inquirer Business

In Paradise and beyond, wage hikes lag global recovery

/ 06:01 PM May 25, 2021

A cycling courier delivers goods, as part of the emerging ‘gig economy’, in Paris, France, April 4, 2017. Picture taken April 4, 2017. REUTERS/Charles Platiau

LONDON/SYDNEY/WASHINGTON — 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.

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 policy-makers 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% on a year over year basis – below the 3.5% gain seen in 2019 and, they say, not indicative of tight labor market conditions.

For now, the modest U.S. 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% was misleading because, as in the United States, lower-paid workers are more like to have lost jobs in the pandemic in the past year.

Adjusting for this, it estimates pay growth is around 2.5% – 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% rise from next January – short of initial union demands of 4%.

“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% in March year-on-year after falls of 0.4% in 2019 and 1.2% 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.”

Subscribe to our business newsletter

By providing an email address. I agree to the Terms of Use and acknowledge that I have read the Privacy Policy.

For more news about the novel coronavirus click here.
What you need to know about Coronavirus.
For more information on COVID-19, call the DOH Hotline: (02) 86517800 local 1149/1150.

The Inquirer Foundation supports our healthcare frontliners and is still accepting cash donations to be deposited at Banco de Oro (BDO) current account #007960018860 or donate through PayMaya using this link .

Read Next
Don't miss out on the latest news and information.

Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.

TAGS: COVID-19, economy, Labor, wage hikes
For feedback, complaints, or inquiries, contact us.

Subscribe to our business news

By providing an email address. I agree to the Terms of Use and
acknowledge that I have read the Privacy Policy.

© Copyright 1997-2021 | All Rights Reserved

We use cookies to ensure you get the best experience on our website. By continuing, you are agreeing to our use of cookies. To find out more, please click this link.