In general, it is a fair assessment that all prospering economies are alike, but all failing economies tend to be ailing in their own peculiar ways. Still, there are some larger global events that affect world economies in a common way. For example, in the aftermath of the 2008 financial crisis, there was this overall lack of demand. The housing boom had gone bust, the consumers were just not spending enough to fill the gap and while the richer economies resorted to providing stimulus in order to buy their way out of trouble the developing economies faced the brunt in shape of dearer capital, reduced returns on their labour and an economic slowdown that saw unemployment and poverty rise.
Today in 2021, by contrast, most of the problems seem to be about inadequate supply. Goods can’t reach consumers because ports are clogged; a shortage of semiconductor chips has crimped auto production; many employers report that they are having a hard time finding workers. Much of this is probably transitory, although supply chain disruptions will clearly last for a while.
But something more fundamental and lasting may be happening in the country’s labour market. Long suffering Pakistani workers, who have been underpaid and overworked for years, may have hit their breaking point. If only the Pakistani government would not have spoiled this golden moment of theirs by excessive devaluation followed by resultant inflation, things would have been much more prosperous in their kitchens. Contrary to earlier theories and beliefs that increasing wages more often than not tend to hurt growth and employment, the outlook on increasing wages to reflect a level where fairness kicks-in at least above the market-mean (median) if not higher, stands altered for ever by the economists Joshua Angrist, David Card and Guido Imbens. The research conducted by the 3 Economic Nobel Laureates this year (2019) that got them their acclaim, especially Angrist, focused on highlighting this very point that better wages never hurt any business, conducted in real life situations through practical experimentation: More on this in another article.
About these supply-chain issues: it is important to realise that more goods are transiting today than ever before. The problem is that despite increased deliveries, the system isn’t managing to keep up with the extraordinary demand. Earlier in the pandemic, people compensated for the loss of many services by buying stuff instead. People who couldn’t eat out remodeled their kitchens, people who couldn’t go to gyms bought home exercise equipment, and so on.
The result was an astonishing surge in purchases of everything from household appliances to consumer electronics. Early this year, the global spending on durable goods was more than 30 percent above pre-pandemic levels, and even today it still is considerably higher than the pre-Covid times. Nevertheless, things are bound to improve at this front as we move forward.
As post-Covid normalcy returns and life generally gets back to normal, consumers will buy more services and less stuff, reducing the pressure on ports, trucking and railroads. However, the labour situation on the other hand, in contrast, looks like a genuine reduction in supply not just in Pakistan, but more so as a global phenomenon. Interestingly, while total global employment is still nearly 10 percent below its pre-pandemic peak and employment in the leisure and hospitality sector is still down more than 9 percent, yet everything we see suggests a very tight labour market.
On one side, workers are quitting their jobs at unprecedented rates, a sign that they are confident about finding new jobs. On the other side, employers are not just confronted with labour shortages, they are having to attract workers with significantly higher wages than before: The Pakistani market has not been an exception either. Over the past six months in Pakistan the wages of leisure and hospitality workers have risen at an annual rate of almost 25 percent and the industrial labour rates for skilled employees by more than 30 percent per annum.
Even Multinational Corporations (MNCs) have of late have had to resort to between two or three wage revisions in a fiscal year (previously just the one) with even some leading employers-of-choice—to avoid poaching—having to peg their remuneration packages to as high as seventy fifth percentile of the market (previously they used to be under the 50 percentile mark)!
So what seems to have triggered this for Pakistan? While a simple answer would be the over-heated manufacturing market thereby creating a demand for skilled labour, on a deep dive one sees two very important trends taking shape: First, post pandemic, the workers in the developed western economies seem to rethink their lives cum career choices and are asking whether they would even like to return back to their old jobs. As a good percentage either simply quits respective positions or for the period where it remains undecided, the displacement in-turn is creating a natural opportunity for workers in the developing markets and the second, is primarily internal where most of the recent manufacturing growth wave in Pakistan has come into industries that are highly labour intensive, exports pre se, textiles, construction and housing, steel, and others.
Fortunately, for us the boon is likely to stay for a while and it is really up to our economic managers to ensure that they harness its full potential before it starts to subside. Also, the real upside this time is that the beneficiaries are not only the investors, but instead all the stakeholders, especially the workers. While this new choosiness by the workers who feel empowered is helping them in striking a better bargain with business owners, let us be clear: Overall, it is a good thing. Pakistani workers today are insisting on a better deal, and it is in the nation’s interest that they get it. And when they do, we need to see to it that we don’t spoil their party by penalising them through a reduction in value of their wage instrument or via inflation that as practically demonstrated by Angrist, will not be of their making.