Labor costs have risen sharply, outpacing inflation for only the second time since the beginning of the financial crisis. Labor costs per unit grew 2.8 percent in the fourth quarter of 2011, in large part because of higher compensation, the Wall Street Journal reports. It’s the biggest increase since the end of 2008, and it could be a good for workers, who may be having an easier time bargaining for higher salaries as there’s more demand for new employees.
The downside: There are labor costs other than salaries that could be adding to rising costs at well. Companies are hiring new workers who tend to have less experience, which “tends to lower overall productivity and raise unit labor costs” the Journal explains, as they have to be trained and have to acclimate to the new job. If so, that’s another argument in favor of the German work-sharing model — which reduces hours for workers across the board instead of mass layoffs — in order to reduce the pain for workers and lower long-term costs for employers as well, as rehiring after a downturn can prove expensive.
Industry analysts warn that rising labor costs could also slow new hiring if employers find their profit margins too squeezed. But rising wages also mean that workers have more money to spend, which is likely to boost macroeconomic growth and employment.