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Our View: Low unemployment brings a new set of problems for the economy

THE UNEMPLOYMENT rate has been on a steady downward path, reaching 8.2 per cent in June, which is just below the EU average. It is an impressive achievement, considering the rate stood at close to 17 per cent in 2013, when economists were predicting that it would require a long time for it to reach a single digit figure.

Low unemployment brings other kinds of problems with it, already being felt in the economy. The Federation of Employers and Industrialists (Oev) warned on Wednesday that the situation “puts pressure on businesses of important sectors of the economy, which are already facing serious shortages of suitable staff.” Oev added that these businesses are “unable to cope adequately with the heavy load of demand for their products and services.”

The tourism sector was experiencing a big problem in finding suitable staff and the matter, Oev said, should be treated as “ultra-urgent.” It had submitted proposals to the government on how to tackle the problem, but it is strange that the federation would rely on the government for the solution. Why do these businesses not advertise their vacancies in other EU countries? Hiring workers from other EU countries is straightforward, as no permits from the government are required.

It seems these businesses have left it very late to address the staff shortages. We are now in August, the peak of the tourism season, which will be over by the time suitable workers are found. Perhaps Oev was already thinking about next year and the upward pressure that would be put on wages in the sector. This should be a concern as labour shortages always push up wages and erode competitiveness, the last thing the tourism sector needs now that it is on the growth path.

Labour shortages, we suspect, will also be experienced in the construction sector, with all the high-rises being built, new developments and the casino resort. Most of the foreigners that worked on the building sites during the previous construction boom left Cyprus when the recession arrived thus reducing the labour supply. Perhaps this is not a problem for the big developers that are selling to foreign nationals and have large enough profit margins to cover the inevitable wage rises, but the smaller contractors might be less able to cope with labour shortages.

This problem may require the government to step in because construction workers might have to be brought in from third countries. Those in EU countries would be seeking much higher pay, while very few young Cypriots are today prepared to work on a building site, even if they have been unemployed for years. Of course it is much better to face problems related to labour shortages than those caused by high unemployment.

 

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