Record vacancies, as firms complain they can’t find staff. Employers taking that most extreme of measures: raising wages. This is not the usual post-recession story, partly reflecting that the pandemic has shrunk our labour force by around half a million workers.
This has led to speculation about the lasting effects of pandemic-induced labour shortages, with suggestions ranging from higher prices, to more machines replacing missing workers, or a smaller economy. But in terms of what comes next, it’s possible that less crystal ball gazing and a few more history lessons might help.
That’s where new research into the impact of cholera outbreaks in 19th-century France that killed 1% of the population comes in. It looks at the number of deaths in different areas to investigate how the labour scarcity they caused affected the adoption of technology. It turns out that bigger shortages had a positive effect on uptake of technology (ploughs) and innovation (irrigation) in agriculture, but a temporary negative impact on industry (mining/textiles).
Why? Because technology substitutes workers in agriculture, so can replace them, but complements them in industry. Labour shortages increased people’s confidence that learning how to read would pay off via higher wages, boosting the need for agricultural mechanisation because literate workers avoided low-paid jobs there.
So, some good news for those hoping labour shortages will boost investment. The bad news? It involved training, which we’re not much interested in these days. Importantly, today’s workforce reduction is about older workers and young men not seeking work, compared with cholera deaths in 19th-century France. So we shouldn’t just ponder the effect of labour shortages – we should reduce them by supporting people back to work.