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Edition 267 – Wage Pressure

As we finish up the first quarter of 2021, the news is overwhelmingly positive in Australia and a stark contrast to what we were all experiencing 12 months ago.

  1. Unemployment is down.
  2. House prices are up.
  3. Profits are up – but not in all businesses.
  4. Government tax collections are running ahead of budget – indicating a strong economy.
  5. Australia’s economy is growing and has almost recovered from the COVID economic collapse. The UK – it’s down 10%!
  6. The vaccine rollout is underway – as is its local manufacture.
  7. The talk of international border bubbles opening up is starting to get louder.

There’s something else at play here too. Wage pressure in most family businesses is, very quickly, becoming a major issue. Last year, I opined that wages growth may remain low on the basis that, in the midst of 10% unemployment and long queues at Centrelink offices, most people will be grateful for a job. Twelve months on and clearly, I was wrong.

One trades based client is experiencing difficulty finding staff. When they heard of a former staff member who was interested in returning to the fold, the stumbling block was the fact the employee knocked back the $65K base wage offer on the basis they were already on $90K. When my client responded that bonuses and overtime would be in addition, the candidate responded “they are too where I’m currently at”. $25K is 38% higher.

A second trades based client, also experiencing difficult sourcing staff (and in a completely different industry) had their offer of $28 per hour countered with a $33 per hour request – 18% higher than the base. In this business, an increase of $1 per hour for all their staff will considerably erode their profit margin.

Here’s why I believe there is wage pressure right now:

  1. The closure of our international borders has meant the pool of travellers who, typically, fell into the trades space whilst they were in Australia, aren’t here. Hence, there are fewer people available to fill the spots. It’s supply vs. demand.
  2. House prices are rising, putting pressure on mortgage repayments and rents. If people need to pay more for where they want to live, they need to earn more and you, as their employer, are the answer.
  3. Sydney, in particular, is booming. There is construction everywhere – from infrastructure to high rise apartments. I can’t see this abating until the latter part of this decade. You’ve got a larger group of businesses chasing a smaller pool of talent.
  4. The education system is too slanted towards driving students into a university education post secondary. The focus away from encouraging our young to chase a trade has meant we haven’t got enough people to build and manufacture stuff. Eventually, if we don’t grow skilled tradespeople, we’ll need to import them.
  5. I don’t believe the cost of living is any higher than it always has been (except for real estate prices, perhaps). However, the quality of living has grown significantly over the last 30 years. Our lives have become more social, so we eat out regularly and holiday more lavishly. Employees need to fund it, so you’re the solution.
  6. Some things are more expensive or in short supply. Used car prices are up 30% over a year ago through a combination of short supply of new product locally AND a shift away from public transport.

If you’re not already experiencing this in your family business, then it’s coming. If you are experiencing it, you have some quick decisions you need to make around:

  1. Project and work costings.
  2. Budgets.
  3. Productivity.
  4. Non cash salary package options – such as cars, laptops, etc.
  5. Whether additional leave or flexible work hours may be more attractive to staff.
  6. Growing skilled people internally – from the ground up.

Could your business handle a 15% to 40% increase in your annual wage bill, right now?