The labour market/industrial relations indicator has been deteriorating globally for more than a year, as soaring inflation prompts wage demands and walkouts.
There are 113 of the 174 countries in the Euromoney Country Risk (ECR) survey with an increased risk of structural labour market problems in 2022.
This is highlighting the risk to investors of prolonged disruption to public and private-sector services, of increasing labour costs for employers, and additional pressure on fiscal budgets and debt burdens.
A poorly functioning labour market can also have a direct impact on economic growth potential, along with capital and technological change.
In addition to various economic and political risks, Euromoney’s unique crowd-sourcing risk survey factors in experts’ views on structural indicators, of which the labour market/industrial relations factor is one of four.
The score for this particular indicator has been falling consistently for more than a year, symbolizing increased risk, not just in industrialized economies – with stronger labour rights and powerful trades unions – but across the world.
Labour market/industrial relations scores have worsened in Kazakhstan, Kyrgyz Republic and Tajikistan, in Lesotho, Malawi and Tunisia, and in China, Sri Lanka and South Korea, among other countries worldwide.
In Iran, along with protests against the regime, a second walkout has taken place among workers at the steel company in Isfahan. There have been strikes by car workers, at a home-appliances factory, and among truck drivers – the latter ostensibly aimed at supporting wider demonstrations against the killing of Mahsa Amini at the hands of the country’s morality police.
In Ukraine, the labour market has been decimated through conscription, emigration and war fatalities. In Jordan, there is a lack of job opportunities, low wages, an absence of security and job stability, and violations of labour rights. In North Korea, famine is taking hold, depriving the hermit kingdom of workforce skills.
For investors in emerging markets (EMs), labour disputes sometimes can be pervasive.
Take South Africa, one of the many countries with its labour market/industrial relations indicator downgraded, and with a low pre-existing score.
The country has one of the highest unemployment rates globally, and a huge income and wealth divide. As in other countries, its workers are feeling the pinch from high inflation, and in November civil servants went on strike, affecting government services, including the issuance of passports and other documents, as well as immigration services.
Together with power cuts, strikes at the nation’s gold mines and ports have had a bearing on economic activity.
Elsewhere in Africa, Kenyan farmers and sugar mill workers have taken to protesting against wage arrears, and Sudan has had a nationwide teachers’ strike, among other labour strife across the continent.
Europe is invariably also awash with strikes.
In Spain, metalworkers, footwear manufacturing employees, and doctors and paediatricians in the Canary Islands and Madrid have taken to industrial action. Trades unions representing port workers in Portugal, postal workers in the Netherlands, wind-turbine service technicians at Vestas in Germany, and French train conductors have called strikes for more remuneration and improved employment conditions.
Meanwhile, the UK is bracing itself for more strikes during the winter. It is among the 10 countries with the largest downgraded scores for the labour market/industrial relations indicator this year.
Like many countries, it has a low unemployment rate and high inflation, spurring catch-up wage demands on the back of wage freezes during the pandemic and, often than not, linked to previous austerity.
This winter, train services will be severely disrupted after the National Union of Rail, Maritime and Transport Workers (RMT) rejected an 8% pay rise over two years with no compulsory redundancies until April 2024.
The offer was rejected by the RMT for not meeting its wage aspirations, establishing an agreement for longer-term job security or protecting working conditions.
Strikes by ambulance workers, nurses, postal staff and university lecturers are among the many disputes the government is facing, causing disruption to normal services and placing a heavy burden on the public purse.
It seems obvious that European economies are shifting from the unemployment and shareholder-value era to a new paradigm where trades unions and white collars will have much more bargaining power- Norbert Gaillard, NG Consulting
In October alone, three days of strike action by postal workers is estimated to have cost Royal Mail £70 million, according to Investors’ Chronicle, with the total operating loss for the business in the current financial year rising by £100 million to £450 million as a result of customers using alternative services.
The Communication Workers Union, representing postal workers, has held 12 days of strikes and is planning six more in December.
Currys, the electrical goods retailer chain, has announced it plans to use an alternative delivery service, for now, to ensure its products are received on time in the run-up to Christmas. Others will be surely looking to do the same.
Travel industry strikes are expected to be widespread across Europe this winter, too, with disruption to air and rail services in December and January, including the Eurostar, the TGV and various airlines.
ECR expert Norbert Gaillard, of NG Consulting, notes the fact the labour markets in most European economies have evolved substantially since the onset of Covid-19 in February 2020.
First, he says, the development of remote work and subsequent human-resources mismanagements have convinced an increasing number of workers to resign from their jobs.
Second, despite the inflationary tensions observed for 12 months, many firms have been reluctant to increase wages, which has exacerbated labour militancy and frustrated workers.
“In this context, we understand why, in the EU countries that enjoy a low or relatively low unemployment rate – such as Belgium, the Netherlands, Germany, Austria, Slovenia, Czech Republic and Denmark – more than 3% of jobs are unfilled,” he says.
Gaillard goes on to say that European economies face different challenges.
In Germany, for example, the annual gap between the workers who retire and the young people who enter the job market has been widening, which implies a growing lack of workforce in the short and medium terms.
Decisions involving immigration policy, wage rises, and/or massive automation will have to be taken soon.
In the UK, there are more available job openings than unemployed people. The present uncertainties over Brexit and tax policy are challenges to hire and retain qualified workers there, and the attractiveness of the UK is at stake.
In countries where the unemployment rate is high or relatively high – such as in France, Italy, Spain, and Greece – wage rises should be modest and less widespread, but they could destabilize many firms whose profits are based on price competitiveness.
“In the medium term, this evolution will hamper economic growth,” warns Gaillard, adding: “It seems obvious that European economies are shifting from the unemployment and shareholder-value era to a new paradigm where trades unions and white collars will have much more bargaining power.”
This shift, he says, could affect political stability, especially in countries with high unemployment.