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Employment outlook remains strong but pay rates continue to disappoint

This is the message from the CIPD, the professional body for HR and people development, following the publication of its latest Labour Market Outlook. The survey of more than 1,000 employers reveals continued optimism on hiring intentions but basic pay is expected to grow by just 1.8% in the coming year, down from 2% in the previous quarter.

This projection remains well below pre-recession levels and is just half that of the average pay increase forecast in Spring 2008 (3.6%) although it should be noted that inflation in the spring of 2008 was much higher than it is now. The modest fall in pay expectations is most likely due to falling inflation, says the CIPD, but it shouldn’t deflect attention away from underlying concerns about business performance, investment in training and productivity.

As the new Government takes shape, the Labour Market Outlook paints a positive picture for employment prospects. This quarter’s net employment balance – which measures the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease levels in the second quarter of 2015 – increased from 24 to 25.  There has been a significant confidence boost in the manufacturing and production sector, rising from 28 to 51. However, confidence in the services sector has dropped from 38 to 31 since the LMO Winter 2014/15 report.

Gerwyn Davies, Labour Market Analyst for the CIPD comments: “The new Government may be inheriting a strong labour market but people’s pay packets are only seeing very modest improvements, if at all. The & lsquo;burning platform’ of widespread recruitment pressures that would have an impact on wages isn’t even smouldering yet. The proportion of people switching jobs remains well below pre-recession levels despite recent increases, while labour supply remains strong, especially from migrants, welfare claimants entering the labour market and older workers staying in work for longer. As a result, employers simply aren’t under pressure to increase salaries.  In addition, word has spread that inflation is expected to remain very low this year so it’s no surprise many employers are hitting the pause button on pay.

“However, to remain complacent about subdued productivity growth and modest increases in recruitment pressures is short-sighted. Many employers are not finding it hard to recruit at the moment but at some point the market will begin to tighten and turn into widespread labour shortages. Business investment remains strong on average, yet overall levels of training spend are falling.  More employers need to re-allocate spending towards workforce development in order to deliver the productivity improvements that are essential to achieve higher levels of pay growth.”

Evidence from the CIPD’s report highlights a number of reasons why pay remains weak. The two key reasons cited by employers for not being able to meet the Bank of England’s inflation rate target of 2% in their pay awards are public sector pay restraint (41%) and affordability (32%).  Additionally, private sector employers are more likely to identify having no recruitment or retention pressures (25%), the national minimum wage (20%) and the low rate of inflation/cost of living (15%).

Davies comments: “Low or no pay rises were essential options that kept many businesses afloat and people in work during the heights of the recession yet somehow they’ve become the norm in the post-recovery world. Interestingly, we’re not seeing a massive backlash from employees on this who seem content with the arrangement and happy just to be in work and receiving a regular wage even if it isn’t as high as they would like. And very low inflation means that cost of living pressures are much less important than they were two or three years ago.  It seems that & lsquo;stable’ has become the new & lsquo;ambition’ for both individuals and businesses, which could go some way to explaining the UK’s productivity woes.”





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