Labor Markets Briefs

C-suite executives are taking notice of global talent shortages. Attraction and retention of top talent was the top ranked internal hot button issue by CEOs in every region of the world. At the same time, wage increases are ranked among the bottom of the hot-button issues across regions. This is in line with current wage data for most regions, but with the wage acceleration in recent quarters in many parts of the world, we do expect this to change in 2019.

Central and Eastern Europe (CEE) is the region with perhaps the most severe shortage of labor in the world. Many companies with operations in this region are running into hiring difficulties and labor costs are rapidly rising. While a problem for companies, workers are benefiting and taking home large real wage gains.

The unemployment rate may be overestimating current labor market tightness. An exercise on monthly employment changes shows that 63 percent of all newly employed people aged 25 to 54 in October 2018 were not actively looking for a job in the previous month. If employers are looking for slack in the labor market, they should find better ways to source and recruit the people who are not looking for work and allegedly not willing to work.

Inflationary pressures will rise in the coming year even though we project the US economy to slow down in 2019. Rumors that the Philips Curve (low unemployment rate = faster inflation) is dead have been greatly exaggerated. A continuing tightening of the labor market and further demographic slowdown will result in higher producer prices and wages. The likelihood for above two percent inflation rate is higher in 2019 than at any other time in the past 25 years.

The perception about the growth of the nontraditional workforce is out of line with hard data. While the number of independent contractors earning income through online labor market platforms has been growing, except for the transportation sector, these platforms represent a tiny share of income and total hours worked in the US economy, and are highly concentrated in certain specific occupations.

The share of workers employed in temporary contracts declined from an already low level in 2005. employers still grappling with how to incorporate labor market platforms and other recent technological innovations into hiring practices. Employers continue to value lasting relationships with employees and care deeply about the skills and work habits of those they employ.

The labor shortages in blue-collar jobs are unlikely to disappear any time soon. An important reason: The combination of the US population becoming more educated and the concentration of disability among less educated people is significantly reducing the share of less educated people in the labor force.

A forthcoming 2018 report by The Conference Board on non-traditional work is set to address the lack of growth and impact alternative work arrangements will have on the U.S. labor market. Hiring workers through alternative arrangements is certainly a viable option for many employers, but satisfaction levels may make it difficult for employers to significantly change their share of non-traditional workers.

The threat of labor shortages is more acute in blue-collar and low-paid services occupations than in white-collar occupations.The main reason: The working age population is solidly and uninterruptedly growing for college educated, but shrinking for those without a college degree.