Workers suddenly went missing. Covid spurred on the Great Quit. There’s even a Redditt forum devoted to the topic; encouraging people to simply get up and leave. And guess what? 4.5 million Americans did jus that. Try having no job when all the stimi checks come to an end and the free money supply gets cut off. Times will get pretty rough pretty soon. Cause until now, crypto has only been going one way. And that’s been up. And meme stock, tech stocks and nonsense stocks have all been going up. Up, up, up. But guess what? Inflation’s here, rate rises are here and it’s getting ugly out there.
This newfound labour shortage has caused inflation on a whole other level. Which, obviously, no one wants. Everything gets more expensive. Here in the UK, we’ve already witnessed its effects. Inflation can be really nasty. Energy prices will soar by 54% come April and some 6.5 million households will be in fuel poverty while 4.5 million Brits will struggle to feed themselves. It’s heat or eat.
Working Up Price Hikes
So, what’s a lack of workers doing to our prices? Well, if there are fewer workers around (which there are right now) that means they hold the power and they can demand higher wage rises since there aren’t exactly queues of people lining up for the job! And even if they don’t demand higher wages, employers will be upping them anyway (which many have already done) to entice workers. More money sounds like a good place to start. But if wages rise, companies’ input costs rise (alongside the cost of raw materials which is a story in itself) and companies aren’t gonna bear these costs alone. Nah. They’ll be passing them onto us! Their beloved consumer. Wait, it gets a whole lot better. Wages rise so prices rise which means workers will now definitely ask for pay rises since their cost of living has gone up and they need to be compensated for that! To ensure that their precious purchasing power doesn’t peter off. And there ye have it. A never-ending cycle of price hikes. Lovely stuff. See how crucial the worker is? Read here all about the missing drivers of our economy.
And it’s these price hikes that’s got the Fed worried which is why they’ll raise rates. The UK has already raised rates for the second time, bringing the interest level to 0.5%. Read here how rising interest rates will affect your finances and to prepare for them. Right now, the US is short of 3.5 million workers putting strain on supply chains which are strained as they are! The thing is though, rising rates to sort out inflation is no easy thing. Hiking up rates lowers employment and the US already has an (un)employment. problem. Is that really want they want? Cause it’s a side effect, and a nasty one at that. One that they probably wanna avoid. But then again, all this inflation is hurting us. And the poor more that anyone else. Inflation is a nasty kind of tax that gifts the rich and steals from the poor.
It’s Not Looking Good
This isn’t just a problem in the US. It’s happening in China and Japan, too. Over in China they’re seeing their young workers wave goodbye to the grind. They want something different. And a long working day does not seem to be appealing to them. In Japan, the country most known for their unforgiving office hours, has introduced a four-day work week to try and entice people to come back to work. But this issue of there not being enough workers is most problematic in the US. Companies over in the US are left fighting for their workers like never before. They’re having to up their pay leading to us lot paying way more for their stuff. It’s no wonder the US has inflation standing at 7%. The highest it’s been for decades.
But I think what’s landed the US in this sticky mess is the fact that they protected growth while Europe protected jobs (via furlough schemes). The US allowed firms to lay off whoever they wanted, whenever they wanted, handing out stimulus checks to laid-off folk. And huge amounts of these guys ended up pouring their (free, no-strings-attached) money right into the US stock market. Not at all a bad outcome, right?! This pushed US markets to all-time-highs. The S&P 500 has doubled since its March low. These guys also rode on the meme stock wave. Read all about that here and the lesson that’s in it for you. In short, they used their checks to load up on Robinhood, trading all sorts of (silly) things from GameStop to AMC. Don’t even get me started. But the well has most definitely dried up. The stimi checks are coming no more. And if people haven’t lost (more like gambled) their money away, they’re probably finding themselves in need of a salary. One that actually pays!
Early Retirement: Yay Or Nay?
There were also many (relatively) young people who decided to take early retirement during the pandemic! Thanks to whopper house price growth and the stock market doing swell (perhaps too swell!), folk found themselves with a much bigger nest egg than before and thought why not bring my retirement forward? Not to mention the fact they were anxious about contracintg the virus, they left the worforce. Seems sensible enough. But as the virus slowly fades away and economies (and markets) slowly return back to normal I wonder if people will realise they made a mistake? That they still have some work left in them. After all, markets go up and down and the best time to think of retiring, let alone take the plunge, is when markets soar. Like it did till now. But with this ugly cocktail of tapering and tightening along with a dollop of inflation and interest rates, markets are selling off. The Nasdaq is already down by 8.6% and the S&P by 6.7%. These numbers were way worse last week. But anyway, I wonder how long it takes before newbie retirees realise their nest egg might not be quite so big after all. After all this correction stuff. My guess is as good as yours!
My old doctor, who has been a GP for the best part of 50 years decided to retire! Yippee! Free time, time to do what he enjoys and finally slow down. But you know what? 8 months into his retirement (we’re all surprised he lasted that long!), after buying a Staffordshire terrier and taking up some hobbies (reading, gardening, you name it), he finally admitted he wasn’t liking it as much as he’d thought. So he returned back to work! And he loves it. I bet he’s not the first, nor last. And it’s these kinda people that will help our labour force back to where it ought to be!
But for the hospitality, leisure and restaurant industries, they’re finding it the hardest. Workers in these fields tend to be overworked and underpaid and, as a result of the pandemic, they’re making use of this tight labour market to get better paid jobs with less-than-gruelling hours! Not to mention the perks and benefits they could get by joining some place new who are also starved of workers. And the numbers back it up. Those who switched jobs were rewarded with an average salary raise of 5.1% compared to 3.7% for those who stayed put.
This tight market has also meant that companies need to pay their workers more to retain their talent as hiring and firing is not as easy as it seems! It costs time and money. Some companies resorted to gifts and whatnot to keep workers happy. Some paid for their workers’ Netflix subscription, others gave workers Deliveroo gift cards and other memberships to keep ‘em.
Don’t be afraid to ask for a wage increase. You’ve got inflation on your side (bargaining chip #1) and you’ve got the upper hand since there just aren’t enough workers to be going round (bargaining chip #2). Make sure that your employer rewards you for sticking around and not jumping jobs! Workers are now in prime spots to bargain! There just aren’t enough of them.
The thing is, no one really knows what the longer term effects of all this will be. It’s too soon to know whether workers who left the workforce altogether will slowly come back once this economic mess is sorted out or whether we’re onto something way bigger. The start of a shift in working attitudes that might only get stronger.
Without a doubt, though, we’re all rethinking our work-life balance. We’re prioritising home and family life over work life and we’re wanting meaning in our work. These things are powerful, when combined. Either way, workers finally have the upper hand! So make good use of it and go for what you want. Who knows how long it’ll last.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.