The strong job growth which characterized the first half of 2018 continued in the third quarter for many of the world’s leading economies. Tangible evidence of rising wages spurred by the tight job markets began to appear in the U.S. and the UK. Employers continued to be challenged by the decreasing pool of available talent which has added to the urgency to successfully recruit and retain talent.
Solid Job Growth and Low Unemployment in Many of the World’s Largest Economies
In Q3 in the United States there were more job openings than unemployed workers to fill them, and in September, the unemployment rate plunged to its lowest level since 1969. In the UK, unemployment rates were at their lowest in more than 40 years. The U.S., UK, China, Germany and Japan all posted unemployment rates under 4 percent during the quarter. Unemployment in Australia dropped to 5.3 percent in July and held steady in August. The euro area (EA19) seasonally-adjusted unemployment rate was 8.1 percent in August. This is the lowest rate recorded in the euro area since November 2008. Individual European economies however, such as France and Italy, continued to post unemployment rates above 9 percent.
For other major economies, the results were more mixed. Canada, which had experienced healthy job growth during much of the last year, had a rise in unemployment in August which was followed by job gains in September driven by part-time employment. Brazil, Latin America’s largest economy, had an unemployment rate above 12 percent during the third quarter. While Brazil’s unemployment rate is among the highest in the Americas, it is still an improvement over the 13.1 percent rate average during the first quarter of 2018.
U.S. and the UK: Possible Signals of Wage Growth are Not Shared Worldwide
In June, the New York Times noted “The rise in consumer prices over the last year has effectively wiped out any wage increases for nonsupervisory workers…That is odd for an economy with a tight labor market, with unemployment running at a 3.8 percent…the benefits of a hot economy have not yet translated into a significant wage increase for workers.” While this article was specifically referring to the United States, slow wage growth has been the norm for the world’s wealthiest countries despite sustained low unemployment.
Wage data released during the third quarter in the U.S. and the UK suggests that real wage growth may have finally arrived. In the U.S., average hourly earnings rose by 0.4 percent in August, pushing the annual rate of increase to 2.9 percent – the fastest pace since June 2009. And in the UK, wage growth accelerated over the summer with the lowest jobless rate in more than four decades. The Office for National Statistics reported that earnings excluding bonuses rose an annual 2.9 percent in the quarter including May, June and July. In July alone, basic wages rose 3.1 percent, the most since 2015. The wage increases in both the U.S. and the UK outpaced the rate of inflation, which may have a positive impact on their overall economies.
By contrast, Canada actually saw a decrease in year-over-year wage increases during the third quarter. In August the growth rate slid to 2.9 percent after expanding to 3.2 percent in July and 3.5 percent in June. In Australia, wage data for the third quarter has yet to be reported. However, the Australian Bureau of Statistics announced that consumer prices and wage price indexes both rose by an identical 2.1 percent from the start of the year to June.
Brexit, Tariffs and the End of NAFTA
While the third quarter ended without any new clarity regarding the details of the UK’s exit from the European Union, a number of businesses, including those in the financial sector, have continued planning to move operations and employees out of the UK. The composition of the UK workforce has also started to change in response to Brexit. In August, The Office of National Statistics reported the number of European Union nationals working in the UK fell by 86,000, a record amount. This decrease was the largest annual amount since records began in 1997 and continues a trend seen since the 2016 Brexit vote. This contrasts with a rise in the number of non-EU nationals working in the UK. That number is now 1.27 million, which is 74,000 more than a year earlier. Without determining the status of EU nationals working in Britain after a final Brexit settlement, the composition of the UK workforce in both the near and long-term remains unclear.
The U.S. imposed tariffs on China before and during the third quarter. In the United States, the tariffs have led to some job losses, but when balanced against impressive domestic job gains, the extent of the impact of these tariffs on both countries remains to be seen.
Uncertainty over the future of the North American Free Trade Agreement, or NAFTA, has been a challenge for many employers in Canada, the U.S. and Mexico. Changes to NAFTA could have potentially altered the price and availability of many goods and services. After extensive negotiations among the three countries, a new trade agreement known as the U.S.-Mexico-Canada agreement, or USMCA, was announced just after the end of the quarter. The agreement must still be ratified by each country’s legislatures, but the announced new terms and rules will allow employers to resume planning and hiring forecasts which may have stalled during uncertainty over NAFTA in the 1.2 trillion dollar North American market comprised of Canada, Mexico and the U.S.
Addressing the Skills Gap: Upskilling Employees
Upskilling, or teaching new skills to current employees, is one way to address the skills shortage and current economic conditions faced by many employers. Upskilling not only provides additional skills to valued workers, it can also support their retention. As a recent article in Forbes notes:
“With the job market booming, employers should make every effort to prevent employees from job hopping their way up the corporate ladder, forcing companies to backfill positions and costing thousands in recruiting expenses and lost productivity. By investing in their employees’ education and skills training, employers not only increase employees’ value to the company but also send them the message that they are worth the investment and have a place in the company’s future.”
No matter how high a company’s retention rate may be, retirement and corporate growth require an effective recruitment strategy to attract new talent. Employers that promote the development of their employees’ skills provides a competitive advantage in attracting motivated candidates, and ultimately productive and successful employees.