Telecommuting, nurseries, immigration, training and health security. The International Monetary Fund (IMF) considers these five factors that labor policies in the large developed economies should be focused on in order to avoid a great loss of purchasing power of families in the face of the current peak of inflation, accelerated in recent months by the escalation of the cost of energy and raw materials due to the disruption caused by the war in Ukraine, following the invasion of Russia, on world markets.
Inflation accelerates to 9.8% in March, year-on-year record since 1985
The IMF warns that the spiral of prices and wages must be avoided, according to which an update of wages at the rate of the CPI – in Spain in March it accelerated to 9.8% – to correct the impact of inflation on purchasing power It feeds back into the increase in company costs and the rise in the general shopping basket, and ends up further aggravating the blow to household disposable income.
And to avoid this loop, the institution stops, in a report published this Thursday, in the labor markets that have suffered what is known as the Great Renunciation since the pandemic. Those in which vacancies (unfilled jobs) far exceed pre-Covid levels (see graph), such as Canada, Australia, the United States and the United Kingdom.
Romain Duval, Myrto Oikonomou and Marina M. Tavares, the economists who signed the IMF report, first explain the reasons for this Great Resignation, which has especially occurred in the lowest-paid sectors and in the least qualified jobs.
One of them is the concern for health, exacerbated by the pandemic, which has expelled from the jobs most related to social contact (for example, hospitality) and also from the hardest (construction or transport) the most vulnerable. Another reason is the lower arrival of immigrants due to restrictions on mobility in response to Covid, natural substitutes for jobs that require less qualification. And also “the change of preferences” of the workers after the vital disruption of the confinements, translated into the demand for better working conditions. A trend fostered in turn by accumulated savings and greater public aid.
The main consequence of these changes in the labor market on the supply side (the workers) has been a rise in wages in the sectors and jobs where they were lowest until the pandemic. “The annual growth rate of wages increased between 4 and 6 percentage points between mid-2020 and the end of 2021,” IMF experts calculate for the United States and the United Kingdom.
“However, these wage improvements have hardly meant an increase in purchasing power [la capacidad para comprar respecto a los precios] due to the effect of inflation”, continue the economists.
The IMF’s solution to this threat to families that is already being seen in the big economies is to revitalize the labor market. And the recipe is to reverse the consequences of the pandemic. On the one hand, with greater health security, which restores interest in more social jobs for older workers and the most vulnerable. On the other hand, promoting teleworking with the same objective and seeking to satisfy the expectation of better working conditions.
In addition, economists speak of strengthening schools and nurseries to promote work-life balance, which suffered greatly in the pandemic, affecting the employability of women above all. And finally, “a resumption” of immigration.
“New expectations” after the pandemic
“Labor markets with fewer and more vacancies have been good news so far in some advanced economies. Wages have risen, especially for low-wage workers, with a manageable impact on price inflation (the increase has been predominantly driven by other factors),” the IMF economists point out.
“But some workers who left during the pandemic have yet to return, while others have lingering concerns about their current jobs and new expectations, restricting job supply. By doing more to help these workers, governments can make the labor market recovery more inclusive while reducing inflation risks.”