As I noted back in September, a low unemployment rate benefits workers (in that case it was Gib delivery workers). Not just because they are more likely to be employed, but also because it raises their relative bargaining power in negotiations with employers, increasing the likelihood of higher wages and better working conditions. It's not just Gib delivery workers though, as the New Zealand Herald reported last week:
After an unsettling two and a half years, people’s working habits are changing fast. Experts are calling it an “employees’ market”, with job seekers not afraid to lay out their expectations from employers.
Seek NZ country manager Rob Clark said the script had been flipped on its head.
“It’s really competitive out there. Companies and organisations are having to think quite differently about how to attract talent.
“Pre-pandemic it was probably a case of ‘it’s a privilege for you as a job seeker to come and work for me as an organisation’, and that’s now flipped on its head. Organisations are really having to work a lot harder to attract that talent because it’s just more competitive.”
Clark said it comes down to simple supply and demand.
“The employment landscape is still very much a candidate-short one, and by that we mean the number of jobs has increased significantly and at a much faster rate than we’ve seen the number of candidates available.
“The outcome of that is we’re seeing fewer applications per job. It’s a market where there’s a very high demand for candidates and there’s just a relatively short supply of them compared to what we’ve been used to.”
It doesn't really come down to supply and demand. It's better explained by a search model of the labour market. As I explained in my post in September:
In a search model of the labour market, each match between a worker and an employer creates a surplus, which is then shared between the worker and the employer. The share of the surplus (and hence, the wage for the job) will depend on the relative bargaining power of the worker and the employer. If the worker has relatively more bargaining power, then they will receive a higher share of the surplus, in the form of a higher wage...
What has changed is two things. First, the unemployment rate is low. Low unemployment increases the relative bargaining power of workers, because if a worker leaves their job (or refuses an employment offer), the employer then has to start the process of searching for a new worker all over again. The employer would face the search costs of the time, money, and effort spent searching for a worker and evaluating potential matches.
Workers can use their relatively high bargaining power in a number of ways. They can bargain for higher wages, or better working conditions. The Herald article talks about workers demanding greater flexibility, a continuation of the conditions that many (but not all) of us experienced through the Covid lockdowns.
However, workers had better bank those higher wages and better working conditions fast. The Reserve Bank is raising interest rates, and as I explained in The Conversation earlier this week, that will lead to higher unemployment. And as the unemployment rate increases, workers' relative bargaining power falls, and employers' relative bargaining power rises. Once that happens, it will be interesting to see how many employers are willing to entertain their workers' demands for greater flexibility.
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