Supply Chain Disruptions To Continue Through This Year, Businesses Will Pay More for Labor

Business will be forced to pay more for labor this year — especially service workers — as the global supply chain remains strained, according to a report by analytics firm IHS Markit. Services workers are among the most in danger of contracting Covid and been among the most hesitant to return to work.

Other factors are weighing on the global supply chain as well.

Fixing the disruptions will run well into this year. IHS Markit noted Covid-19, including the current omicron variant, is a significant factor but not the only one. Capacity, logistical and labor challenges also exist beyond the pandemic.

“What is unfolding in supply chains globally is not only disruptive, it is also historic,” said Daniel Yergin, vice chairman at IHS Markit.

“The bottom line is if you are a business, you are going to pay more for labor in 2022. It’s that simple,” said John Anton, director, price and purchasing service, at IHS Markit. “Labor supply issues are hitting as demand for goods remains elevated.”

Even under normal conditions, employers would have to hire a lot more workers to meet demand and with tight labor market conditions, employers are finding they need to pay more to attract and retain.

“Another thing to consider in 2022 is inflation. Higher inflation rates are no longer transitory, nor are they limited to the United States,” Anton said. “Rising inflation rates in the Americas and Europe will add to wage pressure. Workers are looking for an increased base to keep up with inflation, which can lead to a self-fulfilling spiral on the way up. If workers anticipate inflation, they ask for raises based on it, which makes inflation worse.”

IHS Markit noted it’s not just labor causing the disruptions, which comprised one aspect of the report. It also said manufacturing output was severely constrained, port congestion continues, semiconductor and electrical steel shortages will continue to impact automakers, and oil and gas prices are higher amid strong demand from the economic rebound.

Geopolitics will also play a significant role in supply chains this year as governments seek to control strategic resources.

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