Onex President Says Wage Inflation Will Stay, Squeezing Margins
(Bloomberg) -- Companies that employ a lot of low-wage workers will need to grow faster or increase their productivity if they want to maintain their margins without raising prices, Onex Corp. President Bobby Le Blanc said.
“I think the inflation problem is more real than some people think,” Le Blanc said in a recent interview. The Toronto-based private equity firm has investments in travel, hospitality, retail and manufacturing companies, among others.
Among the many causes of accelerating prices, Le Blanc says he sees supply-chain bottlenecks working themselves out over time. By contrast, wage inflation tends to be “very sticky” once overall inflation kicks in and will persist, he predicted.
“It’s much easier to move jobs right now,” Le Blanc said, referring to many employers’ newfound acceptance of remote work. “People have much more choice in terms of where they can work.”
Le Blanc has direct visibility into several sectors through Onex’s investments. They include WestJet Airlines, Canada’s second-largest carrier; Parkdean Resorts, a theme park operator; and Laces Group, which manufactures and sells home products.
Workers are in short supply across several sectors in North America. In the U.S., voluntary terminations are at their highest rate in 20 years, with many people leaving their jobs without having new ones lined up.
Wages are rising fastest in services sectors, according to Anna Wong of Bloomberg Economics, with employee costs rising 3.7% in the third quarter compared with last year. A worker shortage in the leisure and hospitality industry pushed up wages 6.9% over the same period.
Le Blanc suggested that too many business leaders are failing to plan for a sustained period of accelerating wages. “People ought to be more concerned about it than they really are,” he said.
In Canada, 64% of entrepreneurs said that the labor shortage is limiting their growth, according to a recent survey by Business Development Bank of Canada.
Enticing hourly workers into new jobs will cost more than before, Le Blanc said. “So you’ve got to figure out ways to offset that margin pressure over time,” he said.
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