The pros and cons of a tight global jobs market

By late 2021, there were 50 per cent to 80 per cent more unfilled jobs in Australia, Canada, the United Kingdom (UK) and the United States (US) than there were before the pandemic.

Open vacancies were at or above their 2019 levels in other advanced economies too, and have risen steadily across all sectors, including those that are more contact-intensive, such as hospitality and transportation. Increases in vacancies have been largest for low-skilled jobs.

The sharp rise in unfilled vacancies partly reflects how strong the economic recovery in advanced economies had been until the start of the Ukraine crisis, with firms recruiting en masse to cope with booming demand.

But, as a new IMF Study shows, this is just one part of the story.

Why aren’t vacancies being filled? Vacancies have been hard to fill for several reasons, some of which were outlined in a previous blog.

One is health concerns related to the pandemic. Because of these, some older and lower-skilled workers previously employed in contact-intensive industries remain outside of the labour force, shrinking the pool of available job seekers.

In the median advanced country, low-skilled workers account for over two-thirds of the gap between aggregate employment and its pre-pandemic trend.

Older workers, as a group, contribute about one-third of this employment gap. In some countries, such as Canada and the United Kingdom, the decline in immigration also seems to have amplified labour shortages among low-skill jobs.

Another reason why vacant jobs have been hard to fill is that Covid may well have changed workers’ job preferences.

In the US, resignations have risen beyond what their historical relationship with vacancies would imply, suggesting that workers are not just seizing opportunities in a hot labour market but also searching for better working conditions.

In the UK, resignations have risen the most for low-wage jobs that are contact-intensive, physically strenuous or offer little flexibility, such as in transport and storage, wholesale and retail trade, or hotels and restaurants.

Impact on wage growth and inflation

Labour market tightness (measured by the ratio of vacancies to the number of unemployed workers) has pushed up wage growth across the board. But the impact on wage growth in low-wage sectors has been over twice as large, at least in the US and UK.

This is because wages are over twice as responsive to tightness in low-pay industries, which have also seen larger increases in tightness than other industries.

We estimate that the annual growth rate of nominal wages in low-pay industries increased by four to six percentage points between mid-2020 and late 2021 because of rising labour market tightness, helping reduce wage inequality in some countries.

Curbing Covid-19 outbreaks would enable older and low-wage workers to reenter the labour force, easing labour market pressures and inflation risks.

Keeping schools and daycares open will also be important for women with young children to fully get back to work.