A survey by CIPD (the professional body for HR and people development) and the Adecco Group - of more than 1,000 employers has identified that hiring demand remains strong, whilst unemployment is at a record low. This is in comparison with a May 2017 report and it suggests that UK employment will grow strongly in the third quarter of 2017. However, wage growth is likely to remain weak and basic pay award expectations for the next 12 months remain at just 1%.
The quarter’s net employment balance – which is a measure of the difference between the proportion of employers who expect to increase staffing levels and those who expect to decrease them – shows an increase from +20 to +27 during the past three months.
The restraint on the basic pay award outlook can be put down to various reasons.
Gerwyn Davies, Senior Labour Market Analyst for the CIPD said:
“Predictions of pay growth increasing alongside strong employment growth is the dog that hasn’t barked for some time now, and we are still yet to see tangible signs of this situation changing in the near-term. The facts remain that productivity levels are stagnant; public sector pay increases remain modest while wage costs and uncertainty over access to the EU market have increased for some employers. At the same time, it is also clear that the majority of employers have still been able to find suitable candidates to employ at current wage rates due to a strong labour supply until now. The good news is that the UK labour market continues to go from strength to strength. This is particularly good news for jobseekers, especially the long-term unemployed, who have recently been able to move into work more quickly than in the past. We believe therefore that the Bank of England was right to give more weight to the prospects for pay and productivity than to the rise in employment in their recent interest rate decision. Against the backdrop of future migration restrictions and a tight labour market, the need for a workforce development plan is greater than ever.”
In the private sector, 23% of firms quote that delivering the National Living Wage is a brake on pay growth; 21% cite uncertainty over access to the single market and 21% suggest the Government’s auto-enrolment pension’s scheme is acting as a challenge. Another 21% of firms report that affordability is keeping down pay - which underlines the urgent need to address the weak productivity growth in the UK. In the meantime, around three quarters of public sector employers state that restraint in the public sector is the main reason why they cannot complement the inflation rate target of 2% in their next basic pay award.
Research by the CIPD also indicates that employee pay expectations are weaker this year compared with last year. This may suggest that employers are not coming under any additional pressure to raise pay from workers, despite the low unemployment rate.
In retrospect, the standard for all basic pay decisions taken in the first six months of 2017 is 1.5%. This may mean that employers have become more negative about basic pay growth over the past six months due to a slowing economy.
Alex Fleming, President of General Staffing at the Adecco Group UK remarked:
“This quarter’s report demonstrates strong and stable employment intentions. These have remained in a positive range for the last two years during which time we have seen unemployment consistently fall. Context is important here though: employers continuing to hire isn’t, necessarily, an indication that they are convinced of a bright economic future, rather that nothing significant has changed in recent months. Many employers are getting on with the day-to-day hiring required to keep their businesses ticking along until they have enough information to build concrete recruitment plans. Overall, our labour market picture looks promising especially considering the unknown future impact of Brexit on the flow of talent in and out of the UK. Strong labour supply is a key contributor: the long-term unemployed are finding work more quickly and the amount of workers aged 50-64 who are in employment has risen by around 200,000 during the past year. However continued subdued wage growth that the labour market is currently facing is a real issue that employers need to tackle head on. Employers must to invest in staff to increase productivity, thus in-turn providing them with the opportunity to increase wage growth.”
