Global disruptions caused by the war in Ukraine, soaring energy prices and the pandemic have brought new challenges for businesses, but also new opportunities. While post-pandemic economic growth diminished unemployment, with increasing numbers of job vacancies, the labour market tightened in many advanced economies, with companies battling for skilled employees. Businesses have been swift to adapt to disruptions, turning to online and innovative solutions, expanding e-commerce, and embracing digitalisation and the gig economy.
Tight labour market and robust rise in wages
Swift post-pandemic recovery in 2021 fuelled solid growth in demand for labour. For instance, as of the second quarter of 2022, the US registered nearly 12 million job vacancies, leading to 2.1 job vacancies per one unemployed person in the country, compared with 1.3 in the same quarter of 2019. Lack of labour force might limit businesses’ ability to ensure operational stability and productivity growth, and pressure profitability, as companies are forced to raise employee rewards to attract and maintain workers. As the global economy is forecast to record slower growth of just 3.1% in 2022, and businesses are being pressured by rising commodity and energy costs, economies are anticipated to post fewer job vacancies, slightly easing the labour market over the short term.
Over 2016-2021 wages per hour globally grew by 19%, while productivity rose by only 9.2% over the same period. The sharp incline in wages, coupled with a tight labour market and more rigid labour regulations, pose challenges for businesses. More complicated talent acquisition and more expensive labour hinder profitability gains and boost production costs. For instance, over an 80% rise in hourly wages in China is hampering the country’s position as a global manufacturing hub, despite noticeable productivity gains.
Adapting to disruptions and embracing innovations
In response to the COVID-19 pandemic and related business disruptions, companies swiftly adapted to the new reality, and continue investing in contingency and necessary changes in business models. For instance, investments in e-commerce, online marketplaces, virtual experiences and other online solutions have been growing during the pandemic. While social distancing measures have been lifted, online shopping and virtual experiences will remain a vital part of everyday lives, further facilitating investments in digital business solutions.
Faced with skyrocketing energy prices, particularly in Europe, which was heavily reliant on Russian gas, businesses are looking for ways to cut their electricity bills. Energy-intense industries are investing in renewable electricity generation and increasing the energy-efficiency of production lines. With independent renewable energy generation and more energy-efficient production, companies are expecting to reduce production costs, increase productivity and cut their carbon footprint. At the same time, the upgrading of production lines allows increased automation and the adoption of digital solutions to coordinate production, plan output and ensure quality.
The gig economy on the rise
Rapid technological advances have allowed the labour market to grow exponentially, with some of the biggest beneficiaries being the people who normally have less access to conventional jobs and are less capable of accepting traditional work arrangements. This has helped drive the gig economy, which has been especially embraced by millennials, who prefer flexible work arrangements and a work-life balance.
Rising hourly wages globally and the growing number of part-time employees reflect the positive growth factors behind the modern labour market. However, many gig workers do not receive the basic labour rights afforded to those in the traditional economy. The lack of a minimum wage, overtime payments, employment insurance coverages, paid time off and employer contributions are some of the cited challenges associated with gig workers for companies such as ride-hailing, car-sharing and food delivery apps.
Global trends in business dynamism raise several issues companies have to consider in order to remain competitive in a global market:
- Skill shortages and a tight labour market require businesses to invest in the reskilling of employees and their lifelong learning. At the same time, by offering wider work flexibility and remote collaboration, companies can tap into the global talent pool. Nevertheless, management of remote teams will require new tools and practices to ensure productivity and avoid micromanagement.
- The rapid expansion of e-commerce and digitalisation pushes businesses to seek innovations and tech-based solutions. A swift response to market disruptions by embracing innovations will allow businesses to sustain successful growth.
- The growing popularity of the gig economy – a work environment characterised by short-term contracts, freelance and entrepreneurship – offers businesses and employees more flexibility. However, lack of labour security and regulatory frameworks will remain a challenge both for businesses and part-time workers.
See the full report, Global Business Dynamics Trends, for further analysis and understanding of business trends in 2022 and beyond.