Companies under pressure due to sharply rising wage costs

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Businesses are coming under increasing pressure from rising wage costs. Research by ABN Amro shows that these costs will increase by 17 billion euros this year. The increase is partly due to the tightness on the labor market and inflation. ‘We expect collectively negotiated wages to rise by 5.3 percent this year as well.’

Sector economist Albert Jan Swart of ABN Amro calls the increase ‘historically’ high. ‘Employees want much more wages because inflation is so high.’ The bank expects wages to rise by another 5.3 percent this year, after an increase of 3.2 percent last year. As a result of the higher minimum wage, wage costs are expected to increase by 6.1 percent.

Under pressure

‘Due to the slowing growth of the economy, volumes in a number of sectors will come under pressure this year. Then it will also become more difficult for entrepreneurs to properly pass on cost increases,’ says Swart. The bank’s calculations show that wages in industry will rise by 7 percent, as will wages in transport, logistics and trade.

Businesses are coming under increasing pressure from rising wage costs.  Research by ABN Amro shows that these costs will increase by 17 billion euros this year.
Businesses are coming under increasing pressure from rising wage costs. Research by ABN Amro shows that these costs will increase by 17 billion euros this year. (ANP / Ramon van Flymen )

Despite wage increases, private consumption is coming under increasing pressure. Consumers are keeping their purse strings tight, and that will slow down economic growth, Swart thinks. ‘Last year, workers lost a lot of purchasing power because wage increases could not keep up with inflation. And this year too, with a plus of 5 to 6 percent, that will not be made up for.’

“Workers want much more wages because inflation is so high.” ‘

Albert Jan Swart, sector economist ABN Amro

President Klaas Knot of De Nederlandsche Bank recently warned against too high wage increases. This could trigger a wage-price spiral. “That is what the central banks want to keep under control at the moment. They raise interest rates to curb economic growth. In the end, that also slows down the demand for labor and thus wage growth,’ says Swart.

Job market

Statistics Netherlands figures show that the labor market is still very tight, and that little has changed compared to the fourth quarter of last year. According to Swart, this is a sign that ‘economic growth is slowing down’. A looming fear scenario is then a wave of bankruptcies. ‘We actually expected this earlier, from the fourth quarter of last year,’ says Swart. The bank does expect an increase, although the number of bankruptcies is still relatively low. And also lower than four years ago.

Also listen | Macro with Boot and Mujagić – ECB risks ‘credibility’ with inflation fight

Artificial intelligence

It is now especially important for entrepreneurs to invest in better processes and innovation to increase labor productivity. ‘Don’t work harder, but smarter’, for example through automation and artificial intelligence. “U.S. studies show that customer service productivity can increase by 40 percent if AI is used”

Only not every company can afford this. ‘That is difficult. The higher interest rates show that business investments are under pressure.’ Swart acknowledges that this kind of expenditure is not interesting in the short term. But in the long term, an entrepreneur should really be able to reap the benefits, he thinks. ‘If the economy picks up again, it will be interesting to invest in it again in view of the tight labor market.’


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