The end of cheap labour

Two new Nordea reports delve into shifting labour market trends and the implications for inflation and interest rates going forward.

DOWNLOAD Nordea On Your Mind: The end of cheap labour
DOWNLOAD Inflation at an inflection point

The long era of low wage inflation

Over the past two decades, we have grown used to economic growth without overheating labour markets triggering inflation and high interest rates. A powerful combination of a labour supply boost from a strongly growing global working age population, lower-cost workers migrating to mature economies in search of opportunities and ever-more liberalised world trade has let corporates take advantage of low labour costs by relocating production, employing migrant workers or sourcing from areas with low-cost labour.

Turning tide for demographics, free trade and labour migration

We are not saying this will all change tomorrow, but we want to highlight that we may now be approaching a change in this long trend. Growth in the global working age population has already peaked, is slowing, and will turn negative everywhere except in the world’s very poorest countries. US president Trump’s trade policy represents protectionist threats to free trade, amplified by heightened geopolitical tension. This could make it more difficult and costly to source cheaply from developing markets. And in Europe, strong growth and rising prosperity in Eastern Europe could start tempting migrant workers to move back to more lucrative jobs in their home countries. Taken together, this could make Western labour markets more national again, as in the past, which could cause local labour shortages in a strong economy to trigger wage inflation. That, in turn, could trigger a need for higher interest rates.

Take a deep dive in two new reports and join the webinar

Read more in the latest issue of Nordea On Your Mind from Corporate & Investment banking. The report reveals how labour costs matter for corporates’ financial performance. In our interviews, Nordea Global Co-Head of Corporate & Investment Banking Mathias Leijon gives his views on how Nordic large corporates have globalised and how they are poised for what may lie ahead. ISS CEO Jeff Gravenhorst describes how the company’s interpretation of labour markets affects its view on the appeal of individual country markets. Nordea macroeconomist Kjetil Olsen elaborates on how cyclical drivers impact labour markets and why they may matter more than many currently think. And Nordea capital goods analysts from Equity Research Agnieszka Vilela and Andreas Koski describe how capital goods companies view labour costs, and what has driven them to globalise.

Also out: Our Market Research team takes a look at what tightening labour markets mean for inflation and interest rates going forward. Read the in-depth report, “Inflation at an inflection point”.

And don’t miss our webinar, recorded on 20 Aprilfeaturing Nordea Markets’ Johan Trocmé and Kjetil Olsen in an in-depth discussion of wage inflation and the interest rate implications.



Previous issues of Nordea On Your Mind:

19 March 2018: Nordea On Your Mind: Cybersecurity
20 Feb 2018: Nordea On Your Mind: Diversity boosts stability of returns
24 Jan 2018: Nordea On Your Mind: Nordic housing hiccups
18 Dec 2017: Nordea On Your Mind: Capex – a once-in-a-decade opportunity


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