The latest quarterly Labour Market Outlook from the CIPD and The Adecco Group, based on a survey of 2,001 employers, shows that while the short-term outlook for employment remains strong, labour and skills shortages are finally starting to bite:
During the past three months, the net employment balance – a measure of the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels – has decreased slightly to +23 from +26 in Q3 2018. Employment growth looks set to be particularly strong among business services (+37), transport (+38) and construction (+38) firms. Looking at the regions, employment confidence is highest in London (+31) and the South West of England (+30), and lowest in the North East of England* (+10) and the West Midlands (+13), with Scotland matching the UK average of +23.
However, the strong demand for labour is finally increasing recruitment pressures for employers. This is because the growth in labour supply is failing to keep pace with labour demand, exacerbated by a ‘supply shock’ of far fewer EU nationals coming into the UK. According to the latest official data, the number of EU-born workers in the UK increased by just 7,000 between Q1 2017 and Q1 2018, compared with an increase of 148,000 from Q1 2016 to Q1 2017. This represents a fall of 95 per cent and has fed into a tightening of the labour market, which is being seen through skills and labour shortages being reported by employers:
While demand for labour is continuing, median basic pay expectations in the 12 months to June 2019 remain at just two per cent, and mean basic pay expectations have only risen slightly, from 2.1 per cent to 2.2 per cent in the last three months.
The squeeze on skills is having a clear impact on many employers’ pay decisions. Half of organisations (53 per cent) that have experienced increased difficulty recruiting staff during the past 12 months have increased starting salaries in response. A quarter (24 per cent) have done so for the majority of vacancies, and a further quarter (28 per cent) have done so for a minority of vacancies.
Among organisations that have experienced increased difficulty retaining staff over the past 12 months, just over half (55 per cent) have increased salaries, with 30 per cent raising salaries for the majority of staff and 25 per cent doing so for key staff only. More than four in ten employers (42 per cent) have not raised salaries at all in response to rising retention difficulties, highlighting the wider productivity challenges and cost pressures facing many organisations.
The CIPD is pointing to the UK’s continued productivity crisis as a key factor behind employers’ inability to raise wages across the workforce. Gerwyn Davies, senior labour market analyst for the CIPD, the professional body for HR and people development, comments:
“The most recent official data shows that there has been a significant slowdown in the number of EU nationals coming to work in the UK over the past year. This is feeding into increasing recruitment and retention challenges, particularly for employers in sectors that have historically relied on non-UK labour to fill roles and which are particularly vulnerable to the prospect of future changes to immigration policy for EU migrants. With skills and labour shortages set to worsen further against the backdrop of rising talk of a ‘no deal’ outcome with the EU, the need for the Government to issue consistent, categorical assurances about the status of current and future EU citizens, whatever the outcome of the negotiations, is more important now than ever.”
Alex Fleming, Country Head and President of Staffing and Solutions, The Adecco Group UK and Ireland, added: “With Brexit looming we’re seeing a talent shortage and a more competitive marketplace. In this candidate-short landscape the pressure is on employers to not only offer an attractive salary, but also additional benefits. In today’s environment employment benefits such as healthcare, a strong pension, flexible working and a collaborative and empowering work culture give employers a strong competitive advantage in attracting the best talent. Retention also remains key; it is imperative that employers develop and promote their staff so they don’t fall short and feel the impact of the dwindling growth of the UK’s talent pool. The recent falling net migration ONS figures for EU nationals arriving in the UK with no job offer is just another clear indication that it is time for employers to recognise their shortcomings in attracting new staff, and in retaining their current talent.”