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Labour Shortage the Irreversible Impact

A few months ago every central bank was focusing on loose policy to help achieve higher employment and this was resulting in a large shift in the wage policy. The biggest impact of Covid and lockdowns is on the labor market which will take many months or even years to reverse.

Let me explain as we speak the unemployment rate in the USA has reduced to 3.5% but when we look at absolute numbers then there are still around 12 mn people claiming unemployment benefits and millions of job openings still vacant. Many factors are leading to such a trend of labor shortage with an unprecedented rise in wages.

This trend is occurring all over the world and throughout industries. If we look at India, then the largest employment sector is Information Technology and here as the job switch rates are higher with compensation changes from 40-50% compared to current salary.

All of this does look positive from the perspective of the economy and especially employees. But this does become an indicator of overheating economy, especially the service sector that has benefited majorly from such loose monetary policies.

It also has resulted in a sustainable contributor to the inflation that is now being fought by all the central banks together and such disparity with a high growth can cause an accident leading to a recession in the short to medium term.

In the end, The reversal of such a trend will be impossible even after a recession as the developed world will surely move towards Universal Basic Income sooner than later.


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