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Labor markets remain historically tight, but some softening is on the horizon

Job openings and hiring are generally trending downward in the U.S., but labor availability remains low.

An ongoing labor shortage has been the main driver of upward pressure on wage growth in most parts of the world, especially in the U.S. FM sector. The rapid rise in both job openings and quit rates in 2021 led to an array of private-sector businesses competing intensely for a smaller pool of labor coming out of the pandemic.

Long-term secular trends have been underpinning labor force reduction in many parts of the world. Record-low birth rates, less immigration and baby boomers exiting the workforce have eroded labor force participation in advanced economies for years. Short-term pandemic trends such as increased illness, insufficient childcare and excess savings (built up from stimulus and reduced spending) exacerbated the issue. Unemployment rates in many parts of the world reached record lows coming out of the pandemic and have since remained very tight (see Figure 29).

In late 2022, the number of people in the U.S. labor force finally surpassed pre-pandemic levels, but the labor force participation rate (share of the age 16 and older population in the labor force) remains lower at just 62.6% in Q2 2023 (compared to 63.3% in Q4 2019). Without significant immigration growth, labor force growth will likely remain stagnant and the labor market will stay tight.

Figure 22: Select U.S. labor force factors


Source: Bureau of Labor Statistics JOLTS and CPS, data through April 2023.

Figure 23: U.S. civilian labor force since the pandemic


Source: Bureau of Labor Statistics CPS, data through May 2023.

Wage growth for soft-services sectors is slowing and expected to cool more significantly than hard services

The gap between aggregated FM wages and the rest of the private sector is narrowing, but there is wide variance across FM sectors.

As a response to the intense labor shortages since the pandemic, companies began offering sign-on bonuses, expanded health benefits and tuition support on top of significant increases in base wages. Initially, competition was fiercest in the soft-service sectors, which traditionally have lower barriers to entry and compete with a broad set of industries like transportation, warehousing, retail and food service. With the exception of food-service contractors, soft-service wage inflation has slowed substantially through the first quarter of 2023, falling well below pre-pandemic levels. If the economy continues to slow, demand for this type of labor should wane and the labor pool should expand, meaning soft-services wages are expected to grow much more slowly in the coming years.

The gap between aggregated FM wages and the rest of the private sector is narrowing, but there is wide variance across FM sectors.
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The hard-services sector took a different trajectory, with wage growth above the 2022 average in the first quarter of 2023. That growth is expected to slow as the year goes on, but much more slowly than the rest of the economy. Hard FM services often compete with the construction sector, which remains hot even as the economy is cooling. Additionally, the long-term erosion of the skilled labor force has kept competition for labor high in these sectors.

Figure 24: Average annual U.S. wage growth by FM sector


Note: 2023 (Q1) reflects the year-over-year % change from Q1 2022-Q1 2023.

Figure 25: Average annual U.S. wage growth rates by FM cost component


Source: BLS CES & PPI, Oxford Economics, CBRE Strategic Investment Consulting, Data through Q1 2023.

Wage pressures may depend largely on union density and timing of expiring contracts

Hard-services workers are much more likely to be unionized than those in the soft services.

Non-union wage growth has far outpaced union wage growth in the U.S. in recent years, even within the same industry or occupation. For union members in construction jobs, for example, wages have grown at roughly one-third the pace of non-union members from 2021-2022. Non-union wages tend to fluctuate more closely with the overall tightness and demand in the labor market, since wages typically are set without extensive negotiation or robust labor contracts. Conversely, union wages are set by a contract that can sometimes be negotiated years in advance, meaning wages are tied to the terms of the contract until a new contract cycle approaches.

Most of the countries globally are much more likely to be unionized than the U.S. The U.S. Northeast comes close to European counterparts, but the South is dramatically less likely to be unionized. Employers in markets with high union participation and upcoming contract expirations should expect an outsized jump in wages as new contracts are negotiated. The market rate (set largely by non-union employees) has far exceeded the recent increases in union wages, so labor unions will be looking to catch up.

Figure 26: Share of jobs with union representation by global location


Source: ILO, UnionStats.com, latest data as of Q2 2023.
Note: Year in parenthesis represents the most recent figure available as of 2023.

Figure 27: Share of workers with union representation by occupation in 2022, U.S.


Source: UnionStats.com, latest data as of Q2 2023.

Wage growth is expected to ease across most of the world in 2023, but remain a cost driver

If the global economy slows as expected, some softening in the labor force is likely, but it will be mild in most advanced economies outside of North America.

By historic standards, labor markets will remain very tight in most countries, which means we will likely see ongoing wage growth, albeit at a slower pace by 2024. The Americas, along with select Asia-Pacific and EMEA countries experienced peak FM wage inflation in 2022. Except Argentina, most of the Americas should return to near or below pre-pandemic wage increases in 2024.

Wage inflation will be stickier in other parts of the world, largely due to ongoing labor tightness and, in some cases, political demands for higher wages to keep up with significant CPI increases. Most of Europe and Asia-Pacific will sit above pre-pandemic inflation through 2024 as wages continue to catch up. In many countries, wage inflation was less pronounced in 2021 and 2022, so it may follow a similar trend to the U.S., but a year or two behind.

Figure 28: Average annual % change in FM wages by global location


Source: Oxford Economics, Mercer,. US. BLS, CBRE Strategic Investment Consulting, Q2 2023.
Note: Table sorted by region, then 2023 forecast (descending). 2017-2019 is the pre-pandemic average. Color denotes year of peak inflation.

Figure 29: Year-end unemployment rate by global location


Source: Oxford Economics.
Note: Sorted by region, then 2022 unemployment rate.

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