The ‘pingdemic’ will deliver a short, sharp shock to the economy – but what about long-term staffing issues?

If we look longer ahead, there are some bright spots amid a difficult situation, writes Hamish McRae

Rising infections and notifications to self-isolate have disrupted the economy (PA Wire)

Empty supermarket shelves, warnings against panic buying, the hunt for staff – suddenly we seem to be heading back to the chaos of those early days of the Covid-19 pandemic last year, but without the lockdown.

Just at the moment when we expected to be back to some sort of normality, the combination of rising infections and the “pingdemic” of notifications to self-isolate has disrupted the entire economy.

When all this is history we will doubtless ponder the wisdom of a track and trace system users could render useless by switching off and indeed by ignoring self-isolation rules. But right now labour shortages cast a cloud over the recovery. People may want to get out to a restaurant, but if the place is closed because of a Covid ping, they can’t do so.

It is, however, a cloud with a silver lining, for it looks like labour will continue to be scarce for the foreseeable future, bidding up wages and forcing employers to push up productivity.

There has been a huge demand for staff right across the economy for the past few weeks. KPMG does a monthly survey on the state of the labour market and the latest one, for June, reports “an unprecedented increase in permanent staff appointments”, while “the availability of workers deteriorates at a record pace … leading to a sharper rise in starting pay”. The shortages seem to be pretty much across the board, but the hospitality industry seems to have been under particular pressure.

Why is there this shortage, and what will happen?

We are so much in the middle of it and it will take some months to settle down, but you can already see some bits of the answer to the “why?” question. There is a bit of Brexit in there, with some EU nationals having decided to return home and not, or at least not yet, coming back. There is the disruption more generally, with people deciding to change careers, go back into education, or maybe spending more time looking after children. And there is the impact of the furlough scheme, now being run down.

But this is not simply a UK problem. In the US there are similar staff shortages as demand for labour has picked up there while supply has shrunk. Among the reasons are the way in which the pandemic has encouraged people to see a better work-life balance. NPR carried a story last month about the way in which the pandemic had changed people’s mindsets. Work is about paying bills, but if you can cut the size of those bills you don’t have to work such long hours. For many, this is a big rethink of how you deal with the world.

None of us can know how long this shift of priorities will last or how far it will run. What we do know is that wages, particularly towards the bottom end of the pay scales, are climbing. Indeed UK revenues from income tax and national insurance last month were running very strongly – one of the reasons why the deficit this year is looking better than expected at the time of the Budget.

Socially, this surely is welcome. We need to lift people at the bottom end of the scale. That is part of the silver lining, but there is another element. Businesses are learning to use labour more efficiently. We don’t have any numbers yet but anecdotally this is a massive shift, particularly in the hospitality industry. Restaurants are going through the way they work to find ways of giving people as good an experience as before with fewer staff.

Simplifying menus is one key way forward and that has been happening since the pandemic struck. For example, a shorter menu cuts prep time, makes it easier to train staff, reduces food waste and, if cleverly done, can improve the quality of the meal. Simplifying the drinks line-up may mean you can use fewer bar staff – and actually do people really want complex cocktails at a time when authenticity is more and more prized?

That is just one segment of the economy, though a most important one, but the theme is being repeated across the entire range of service industries. How do we use what we have learnt from the lockdown to work more efficiently now there is a return to some sort of normality?

There is a further twist. If it is hard to persuade people to work for you, what do you do? The answer is that you probably have to pay staff more but you certainly have to make it nicer. You have to deal with people more fairly and you have to allow more flexible working patterns. Dark clouds now, as empty shelves remind us. But silver linings glinting through in the future.