Azad Zangana
The global pandemic underlined the fragility of ageing labour markets in the world’s largest economies. This occurred at a time when their governments had already been running out of options to offset adverse demographics.
Support for populist parties in post-Brexit UK, post-Trump US and increasingly in Europe, had often countered any improvement in migration trends which might have relieved the pressure on these labour markets.
By the end of this decade the working age population of the world’s largest economies will be shrinking. A diminishing pool of labour is likely to mean companies will have to compete with each other to secure the staff they need. This is expected to drive up the labour share of GDP – the cost of employee compensation as a percent of GDP – and consequently drive down labour productivity, and the profit share for companies.
Fewer available workers will exacerbate inflationary trends in the global economy already resulting from other major macro-economic trends such as the challenges to globalisation and the transition to renewable energy (see Regime shift: investing into the new era).
Companies will have little choice but to respond with investment in technology focused on automation, robotics and artificial intelligence (AI) as they strive to counter rising labour costs by increasing productivity. The promise of a “fourth industrial revolution”, enabled by smart robotics, could have profound implications for productivity and global economic growth. These benefits may persuade governments that the cost of some displaced workers as a result of these new technologies is a worthwhile trade-off. Against the backdrop of high indebtedness and higher inflation further stretching public finances, they offer some relief.
Any response by companies and governments to deteriorating labour markets, however, is only likely to help partially offset the inflation pressures resulting from the new regime, and not alleviate them entirely.
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