Invest-ability daily 18/10/21: Jobs for the Bots

Recruiters are enjoying a strong post-pandemic recovery, but the long-term trend is robotic

Photo by Andy Kelly on Unsplash

Britain always seems to be lurching from some kind of employment crisis to another. The 70s and 80s were the era of strikes and mass unemployment. The turn of the millennium has been marked by a continued decline in productivity that nobody seems to know the answer to. Right now, the problem is that companies don’t seem to be able to get any staff at all.

As I wrote last week, vacancies in the hospitality industry are proving very hard to fill. But the sector is not alone in struggling to attract workers – overall UK job vacancies hit 1m in August, and starting salaries are rising at the fastest rate in 24 years, according to the KPMG and REC UK Report on Jobs. Amazon is reportedly paying signing on bonuses of as much as £3000 to attract warehouse and delivery staff to cope with the Christmas rush, much to the chagrin of smaller businesses that can’t stump up similar payments. When it comes to labour, it is – for the first time in a long time – a seller’s market.

The current state of the labour market isn’t, of course, what the government expected as the pandemic hit last year, and many businesses were temporarily forced to close their doors. Millions were supported through furlough schemes, and a wave of redundancies was predicted when they were wound up at the end of last month.

But so far that hasn’t materialised – many have simply re-evaluated their former employment and decided they’d walk instead, either into alternative employment, retirement, or to set up their own businesses (look no further than Invest-ability for the trend in action). A record number of new businesses were started during the pandemic, and huge amounts of start-up capital have been raised – €30bn in the UK this year, more than double the level in 2019. Britain’s entrepreneurial spirit has been awoken.

Not everyone wants to take the risk of starting a new business, of course, but job-seeking is also on the up. That’s translating into very strong trading for recruitment companies like Hays and PageGroup, which earlier this month increased its profit guidance after reporting record gross profits in its third quarter. The 12.9% jump in gross profits when measured against the last pre-pandemic comparative period in 2019 was driven by a particularly strong showing in the US, where the so-called Great Resignation has been most pronounced. Hays, which reported Q1 trading last week, also reported record net fees in the US and nearly a dozen other countries.

Recruiters are, of course, notoriously cyclical – Page’s shares have been rangebound for the best part of 15 years, and although it’s now adding new fee earners that’s largely replacing those it let go when the pandemic struck. This ability to trim their sails to adjust to the market conditions is a positive for the sector, which has been generating mountains of cash and paying out special dividends. The worry now must be that, after a post-pandemic bounce back, further trimming will be required if global growth starts to stutter – the sub-sector may be on an upgrade cycle, but it won’t last forever, and the shares price-tag doesn’t appear to reflect that.

And longer term, one wonders whether businesses would prefer to do away with the troublesome business of employing people altogether. Recruitment consultants might be enjoying the tight jobs market, but companies are clearly not – for many it more than likely means a higher wage bill and, without any discernible improvements in productivity, pressure on profit. Some will be looking towards automation instead, whether that be in the back office on the factory floor or in the supermarket aisles, where grocers are accelerating investment into cashier-less stores. It has all the hallmarks of a secular trend and is really easy to get broad exposure to through an ETF like L&G ROBO Global Robotics and Automation UCITS ETF.

It’s important not to get carried away with the rise of the robots, though. Levels of automation and artificial intelligence (AI) within industry are currently very low – according to a study by PwC, only 3% of jobs are currently at risk of automation. But the staffing crunch can only make companies more resolute in this shift, and improvements in AI technology could accelerate it – the same PwC study suggests as many as a third of jobs could be at risk by the mid-2030s, particularly as autonomous vehicle technology improves. Put simply, if you can’t get the staff get a robot instead.

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