Whether that forecast comes to pass will heavily depend on how quickly and how far the recent labour shortages ease. We subscribe to the view that shortages have been exacerbated by a post-pandemic staffing mismatch as well as the rapid return of hiring appetite through the second half of last year. For instance, the huge change in consumer spending patterns without the corresponding shift of workers between sectors has helped create pockets of pressure. Hiring challenges in logistics, a symptom of the abrupt switch to online retail, is an obvious example. This should start to improve now that spending patterns are rebalancing.
Nevertheless, some causes of the shortages appear to be more deep-rooted. Like the US, the issue has been amplified by abnormally large outflows from the jobs market into inactivity – that is, not actively searching for employment. Early retirement has played a role, and indeed the change in participation is most apparent in older workers.
But long-term sickness is increasingly cited as a core issue – and while it’s tempting to conclude that this is due to long Covid, it’s still unclear whether that’s what the data is telling us. If nothing else, this challenges the idea that higher inflation will lead to a more rapid return of workers to the jobs market.
A lack of inward migration is also a challenge, and the number of EU nationals in UK employment is down by almost 5% since the start of the pandemic, particularly in consumer services. Hospitality saw a 25% reduction in EU nationals as payrolled employees between June 2019 and 2021, and that probably helps explain why food prep/service remains a key source of wage pressure according to Indeed hiring data. Around a fifth of large businesses recently cited a lack of EU applicants as playing a role in worker shortages.
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