Illustration: Tang Tengfei/Global Times

Some of London's biggest railway stations are shut on Thursday as strikes on the railway network reach a critical peak. Britain, once the leading great power, is mired in industrial action with workers ranging from trade drivers to nurses protesting against below-inflation pay offers, Bloomberg reported on Thursday.

The UK is currently being battered by a cost-of-living crisis that is hitting low-income households. Inflation in the country came in slightly below expectations at 10.7 percent in November, but is still running at around a four-decade high. Prices rising faster than wages is what created a cost-of-living crisis, which means living standards are falling. Some economists have warned that the UK's cost-of-living crisis will continue into 2023. Although inflation is forecast to fall, energy bills and taxes will likely rise this year. 

Britain has already faced strikes and protests due to high energy prices and mounting costs of living, and now, the country has to find ways to calm things down. It is almost certain that there will be a generous wage increase for British workers. At the very least, their salaries should increase to reflect the rising cost of living as the UK grapples with stubbornly high inflation. A wage increase will inevitably push up labor costs and has a profound impact on the economy.

Inflation and the resulting pressures on wage increase are one of the common problems faced by Western countries. A toxic mix of high inflation and flagging growth has haunted the US and EU as IMF head Kristalina Georgieva warned that a third of the global economy will be in recession this year.

Salaries in the US are struggling to keep up with its inflation. As of November, inflation was at 7.1 percent, according to media outlet CNBC. Although the US Fed has made aggressive interest rate hikes aimed at taming inflation over the last year, most US workers are still struggling to cover everyday expenses as stubbornly high inflation gobbles up pay gains. The inflation problem in the US has obviously not been effectively resolved.

In 2023, the transmission of inflation to wages, that is, the cost rise on the production side will likely become more obvious. Employers in the US plan to boost salaries an average of 4.6 percent in 2023, up from 4.2 percent in 2022, according to a study from Society for Human Resource Management of the US.

Workers in the US and Europe are banking on a pay rise in 2023 in line with rising living costs. However, as labor costs increase, it is inevitable that some industries, especially labor-intensive manufacturing industries, will probably have to go and shift production to other locations in developing countries and emerging economies with lower labor cost. At the very least, the rise in salaries will not be conducive to the ongoing efforts on bringing manufacturing back to the US and Europe.

The administration of US President Joe Biden is adopting a strategy aimed at resurrecting US manufacturing, but it won't be easy to revitalize manufacturing sector in one stroke. Due to long-term hollowing-out of manufacturing, the US lacks a large labor market to support its manufacturing. As labor costs increase, there will be greater difficulties facing the US and other developed countries that are pushing forward with re-industrialization.

Rising labor costs highlighted yet again the challenges the Western economies face. Some politicians hope to bring back manufacturing jobs through political intervention in the global industrial chain and an economic "decoupling" push, but their efforts are doomed to fail. Politicians should avoid intervening in and politicizing economic issues. How to solve the deep-seated problems such as inflation, rising labor cost, and supply chain disruption is a key issue that needs to be properly dealt with.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn