Global businesses face need to up pay amid talent shortage

17 January 2018 4 min. read

Research of 2,500 businesses in 36 economies, has highlighted profitability downgrades in nine out of ten businesses. As mounting pressure for talent is increasingly likely over 2018, bosses are expected to see real pressure to concede to demands for increased pay for skilled workers in the near future.

Grant Thornton research suggests that a squeeze on skilled employees is set to put pressure on companies over the coming 12 months. As workers with in-demand skills leverage their position to demand higher wages, even top companies could experience significant pay pressure, which may impact profitability. In turn, some experts suggest this could increase inflationary pressure, as companies up prices to maintain profit margins.

In spite of this, the analysis, from Grant Thornton’s continuing International Business Report, shows that the number of businesses expecting their profits to increase over the coming 12 months has fallen five percentage points, from 47% to 42% in the latter half of 2017. The US exhibited the largest such fall, a drop of 10 percentage points, while conversely, Germany remained by far the most pessimistic, with political uncertainty – thanks to the continuing failure to form a government following inconclusive elections – seeing 25% more businesses in the leading EU economy anticipating falls in profit.

Global businesses face need to up pay amid talent shortage

More generally, ‘optimism’ remains high across the globe however, with US firms’ optimism gaged at 70%, followed by Chinese businesses at 52%, in what is a three-year high.

The UK

The UK, meanwhile, continues to find itself in uncertainty – profitability expectations in the second half of 2017 fell to 39% of respondents, while business optimism has plummeted to a net 9%, the lowest level seen since the start of 2013. With the UK’s business scene recently rocked by the collapse of major construction firm Carillion, a turbulent 2018 already appears to be on the cards for the British economy.

Over the next 12 months, the UK faces other challenges, including access to key skills becoming increasingly scare – particularly in light of EU national concerns around the effect of Brexit – and as it stands, around 38% of leaders say that skill shortages are on the rise. Currently the UK faces the opposite problem suggested by Grant Thornton for the globe, as a sustained stagnation in real wages has placed increased pressure on households, and limited consumer power. As a result the UK economy continues to grow at a slower than average rate. The lack of access to skills could be a positive in some aspects then, as it may finally see wage increases, with competition for skills potentially pushing up remunerations (cited by 78% of Grant Thornton’s respondents) over the coming 12 months.

Commenting on the figures, Francesca Lagerberg, Global Leader at Grant Thornton, said, “Profits are under pressure. Wage bills are firmly on the rise as businesses try to tackle the skilled worker shortage.  It’s an issue that is becoming acute. In all the years surveying businesses, this is the highest level of concern we have seen about the potentially negative impact of a lack of skilled staff on growth prospects. Companies are having to compete for skills - both to retain those they have and recruit those they need. As a result, we are seeing businesses plan to boost pay. This reflects what we are hearing from companies around the world, and firms paying staff more is almost certainly hitting the outlook on profits.

She added, “Nine in ten of the world’s largest economies have reduced their profit outlook for the coming year. The impact will be significant and are real threat to long term growth. Diverting profits to pay staff is understandable. But it will limit firms’ ability to invest in future long-term growth through R&D or plant and machinery. Furthermore, if profits are depressed, businesses may look to increase the price of their goods and services – which creates inflationary pressure. As businesses plan for the coming months and years, it will be critical to ensure a balance so that other investments are not abandoned altogether.”