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The Great Labor Dilemma — How It Began and Where We Are Now

Companies across all sectors report challenging conditions for attracting workers (Image: Scott Baker / Unsplash).

Image source: Scott Baker / Unsplash

In September, the US economy added 194,000 jobs, far below consensus analyst expectations of 500,000 jobs. The unemployment rate moved lower to 4.8% from 5.2% in August. Ironically, there are plenty of jobs available for workers, but companies across all sectors report challenging conditions for attracting workers.

The pandemic’s impact continues in the labor force

  • Demand for workers is rising as economies reopen.
  • Many workers are leaving the workforce. The “quits scale” rose to 4.3 million in August, a record high.
  • The sectors most affected have been accommodation and food services, wholesale trade, and state and local government education.

It’s not just a US issue

  • Employment shortages are not limited to the US.
  • Brexit has exacerbated the UK labor force shortages as foreign workers have departed.
  • Furlough schemes in the Eurozone have caused many workers to exit the labor market.

Impacting the supply chain

  • The lack of sufficient workers affects the global supply chain with rising prices and demand for goods.
  • The employment shortage has led to shorter hours and doing more with fewer employees for many retail and service businesses.
  • A truck driver shortage increases the time for companies to bring their goods to markets.

Lots of job vacancies but filling them is a challenge

  • There were 10.4 million unfilled job openings in August.
  • Aging and retiring workers are not returning to the workforce in the aftermath of the pandemic.
  • Border controls and immigration limits curtail the number of available workers.
  • Demands for higher pay and flexible working arrangements are limiting the number of workers.
  • Government subsidies and stimulus disbursements made staying home the same as working for lower-paid workers during the pandemic.

Wages will need to rise – More inflationary pressures

  • Inflation has been increasing. The latest September CPI data rose 0.4%, pushing the year-over-year gain to 5.4%.
  • Energy prices are soaring. Energy is a critical cost of goods sold input for all businesses.
  • Rising wages will put upward pressure on inflation as companies pass along increased costs to consumers.
  • Inflationary pressures will eventually lead to higher interest rates. Rising wages will weigh on corporate earnings.

The dilemma’s bottom line

  • We could begin to see earnings pressure in the retail and restaurant sectors.
  • Workers need to earn more to pay for essentials as inflation continues to rise.
  • Inflation can become a vicious circle. Rising prices are the same as deteriorating currency values. The labor market shortage is another reason why inflationary pressure may not be all that “transitory.”
  • Last weekend, Square’s (SQ) Jack Dorsey warned of impending hyperinflation, saying, “It will happen in the US soon, and so the world.”

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Equities News Contributor: Tradier Inc

Source: Equities News