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Quarterly Labour Market Outlook explains gravity defying labour market

Quarterly Labour Market Outlook explains gravity defying labour market

CIPD research reveals that 1 in 3 firms are maintaining staff levels higher than they need in order to avoid losing skills, but will make redundancies if economic growth does not return soon

The immediate jobs outlook remains positive, bolstered by employers who are holding on to staff to avoid losing skills despite low levels of demand. This is according to the latest Chartered Institute of Personnel and Development (CIPD) Labour Market Outlooksurvey of more than 1,000 employers, conducted by YouGov.

The report’s net employment balance, which measures the difference between the proportion of employers that intend to increase total staffing levels and those that intend to decrease total staffing levels in the third quarter of 2012, has remained positive at 5 (compared to 6 during the previous 3 months). The report also finds that optimism is higher among private sector SMEs (46) than large private sector firms (17), while the net score for the public sector remains negative (- 36).

However, the precarious nature of the current market is highlighted by the finding that almost a third (31%) of private sector firms have maintained staff levels higher than is required by their current level of output during the past year. The main reason for holding on to labour is to maintain the skills base within the organisation (as reported by 62% of these employers). Meanwhile, almost two thirds (62%) of private sector firms feel that they would be forced to cut back on labour if output or service delivery does not pick up in the next year. The report concludes that the recent trajectory of the jobs market, which has seen unemployment fall, may change course if economic growth does not pick up.

Gerwyn Davies, Labour Market Adviser at the CIPD, said: “Recent falls in unemployment suggest that the labour market is on a sound footing, but a closer examination reveals that many employers are holding on to more staff than is required by the current level of demand in order to retain their skills. This is a make or break moment for employers - unless growth picks up many will find that they cannot hold on to some workers any longer. The tenacity with which employers are hanging on to skilled labour is a reflection of the high value they place on it and the damage they fear will be done to their businesses if they are forced to start making more redundancies.

“The spare capacity implied by the research suggests that firms are ready to increase their output quickly if demand grows. But there is only so long they can hold out for growth. The labour market is approaching a game-changing phase – one that could shape Britain’s capacity to compete for a generation. Private sector firms should be using any spare capacity they have to train, to innovate, or to focus staff in areas such as business development to help drive the medium-term prospects of their firm and the UK economy.”

Other key findings from the report include:

The report shows that pay packets will continue to be squeezed at 1.6%. Public sector organisations’ predictions of average basic pay awards of 0.2% will continue to lag behind those in the private sector (2.5%).

The number of firms planning to make redundancies in the third quarter of 2012 has fallen to 29% from 32% three months ago.

Around one in three (36%) LMO employers expect there to be fewer entry-level jobs at their organisation in ten years’ time.

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