If you thought that the cost of living crisis that has swept around the world was a result of market instability caused by a geopolitical conflict in Ukraine, you would be right. However, in a demonstration of just how interconnected our world is, Andrew Bailey, the Governor of the Bank of England (BoE) has claimed that the wave of early retirement that is sweeping developed economies around the world is pushing up inflation.
His argument, straight from the top of the tree of economic expertise, is that the trend has forced the Bank of England to push up interest rates. In a speech given at the London School of Economics Mr. Bailey talked about the relationship between supply and demand.
The UK is experiencing the highest level of inflation of any democratic developed economy, including Asia-Pacific powerhouses such as South Korea and Australia. The message from the UK government and the central bank is to curb inflation ASAP. To try to arrest the rise, this month the BoE decided to hike interest rates for the 11th consecutive time to 4.25 percent. Inflation continues to run high, with the consumer price index (CPI) rate rising to 10.4 percent in the 12 months to February.
In economic terms, the Governor believes inactivity, particularly by older workers, equates to a change in the supply of labour. Those that have accumulated enough savings to fund the same lifestyle they had before taking early retirement will continue to consume at the same rate.
However, because they are not working and producing, demand will outstrip supply. As well as fuelling inflation, this is pivotal in widening the talent gap. In the UK, the number of people who are ‘economically inactive’ – not in work, not looking for work and not studying – has risen by 500,000 since the COVID-19 pandemic.
The situation in the UK is not mirrored globally. Other G7 nations’ inflation rates may be running high, but some are well below the UK. Across the G7 the rates for February 2023 are Canada 5.2%, France 6.3%, Germany 8.7%, Italy 9.1%, Japan 3.3%, United States 6%, and the European Union 8.5%.
Even though it is not a member of the G7, alongside India and South Korea, Australia features frequently in discussions to expand the group into the D10 because they are democratic nations that are important players in the global economy.
Australia’s inflation rate for February 2023 was 6.8%, month-on-month, a fall of 0.6%, with observers suggesting it is evidence that the worst of the cost of living crisis price rises has passed.
Despite this relatively optimistic outlook on inflation and the potential for a strong recovery, Australia’s skills gap is well established. If we just look at technology alone, the digital skills gap is costing Australian businesses $3.1 billion annually right now.
Over the coming years, this is set to deepen into a “skills and knowledge crisis,” as it is estimated that as many as 4 million workers from the baby boomer generation will retire in the next 10 to 20 years, resulting in a significant loss of knowledge and skills in the Australian labour market. Other factors feeding into the talent gap in developed economies worldwide are declining birth rates and ageing populations.
For recruiters, the takeaway is clear. Whether it is the UK, Australia, or any other developed economy, there is a need to focus on getting older workers to return to work. Focusing on their needs and tailoring job descriptions to better fit their expectations are important factors in successfully recruiting from this talent pool.
One idea is to create returnerships as an initiative specifically to attract older workers, who might be retirees with financial issues, those who are motivated to return and pass on their skills, those returning from a career break, or those looking for upskilling or retraining. Targeted at the over-50s, a UK government-led returnership program has just been announced with funding of £63 million.
Recruitment agencies should work with their clients to consider similar strategic moves that help reengage talent that is needed to return to work after leaving early. Organisations such as the Centre for Ageing Better provide some excellent resources and advice to optimise the efforts to hire workers 50+.
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