The latest figures from the Office for National Statistics (ONS) indicate that the labour market could be on the turn, with employment down and unemployment up slightly, in contrast to previous trends. However, it is too early to ascertain whether the latest data represent a fundamental change in prospects for the labour market. Continue reading Is the labour market on the turn?
We publish the results of our pay planning survey – which looks at employers’ reward intentions for 2019 – at a time when the economy and the labour market present a series of apparent paradoxes. On the one hand, economic growth is weak in comparison with previous periods, with the manufacturing sector virtually in recession and job losses in parts of retail. Productivity growth has faltered since the crash of 2009, and business investment remains low in historic terms.
On the other hand, the labour market seems to be robust, at least in terms of falling unemployment (down to 4%, a figure it last reached in the mid-1970s) and still growing employment. But there is a debate about the extent to which the labour market may have a soft underbelly. This is mostly framed in terms of how ‘underemployment’ – the extent to which employees would like to work more hours, while falling, is still some way above pre-recession levels, indicating that there are still areas of weakness in the labour market. Our survey results tend to support the view that the labour market is tighter, or at least tightening. Over three-fifths of respondents said that pay pressures are increasing, with recruitment and retention issues the main factor behind this. It could be that we have reached the point where it is no longer possible to reduce unemployment and raise employment without increasing wages further. The changing make-up of the labour market in the run-up to and in the aftermath of Brexit could also be a factor here. In addition, while inflation is not as high as it has been in previous periods, it remains at moderate levels and is expected to remain so over the next period, with the possibility that Brexit could see it rise further (see forecasts on page 5). It is not surprising, therefore, that the cost of living has become more important for employers when it comes to determining the level of pay rises. These pressures could produce higher pay rises in 2019 than in 2018. We asked respondents how they thought their 2019 pay awards would compare to inflation. Similar proportions – just below a third – thought they would be equal to the RPI and CPI/CPIH in each case, while just above a quarter thought that pay rises would be in-between the CPI/CPIH and RPI percentage rates. If economists’ predictions are correct and the RPI is around 3% in the first quarter of 2019, then we could see a third of awards at this level (with a further small proportion, 6%, above the RPI). A further third could be worth around 2.2%, while just above a quarter could be set at intermediate levels, eg around 2.6%. Overall this points to between three-fifths and two-thirds of pay awards in 2019 coming in at 2.6% or higher, with many of these at 3% or above. Meanwhile the NLW will also continue to present an upward pressure at the lower end of the earnings distribution.
Other issues for HR/reward professionals in the year ahead include the burgeoning agenda around the reporting of various pay statistics. Employers had to publish their gender pay gaps for the first time this year. The new rules made for an enhanced focus on equal pay issues, even if figures for gaps by job or grade were not required, and this is unlikely to diminish. In fact, the prospect of extra data requirements figured in the Conservatives’ 2016 manifesto and is therefore possible even if the current administration survives. Indeed, the Commons committee on the lessons learnt from the introduction of gender pay gap reporting makes a number of recommendations that point in this direction, including gaps at deciles rather than quartiles and measures to improve data accuracy.
Added to this (in 2020) will be the obligation to report the ratios between the salaries of chief executives’ and those for each firm’s ‘average’ worker. All of this means that properly communicating reward practices to employees will gain in importance over the coming period. Another emerging theme is the possibility that more employers could consider linking pay to productivity improvements. This can be done crudely in those instances where output can be easily measured, but in most cases the emphasis is likely to be on connections between salaries and some indicator of capability, competency or skills. These sorts of relationships could help improve the economy’s poor performance in respect of productivity.
It has to be said, though, that widespread developments in this area are unlikely without a rise in business investment. This tends to be positively related to wage growth. Indeed, the fact that business investment has faltered in the wake of the recession and in the advent of Britain’s departure from the EU is a key explanation for the relatively weak real-terms wage growth witnessed since the crash. For the economy to resume growth, investment will have to begin again, whatever the UK’s relationship with its nearest trading partners. If and when it does, wage growth is likely to be stronger.
Pay growth looks to be picking up again, as shown by our own data on pay settlements, official figures on average earnings, and reports from the Bank of England’s agents. IDR’s monitoring indicates that the proportion of deals worth 3% or more is rising.
Continue reading Viewpoint – It’s time to think more strategically on pay
The labour market continues to perform strongly on the main measures, according to the latest statistics from the Office for National Statistics (ONS), for the period from November 2016 to January 2017. Employment has risen yet again and unemployment has fallen further. Economic inactivity is also lower, while redundancies and vacancies show little change. Continue reading Labour market continues to break records
Following the vote to leave the EU, we began to hear anecdotal evidence from retailers and other employers that many migrants from the ‘EU8’ countries that joined the EU in 2004, such as Hungary and Poland, were leaving the UK. Continue reading Viewpoint: Brexit, immigration and the impact on pay
With the winter holiday season almost at hand, two recent news items caught our eye. One is that trained chefs, an important component of the festive labour market, are in short supply. Continue reading Viewpoint: Not enough cooks spoil festive season outlook
The level of unemployment across the different countries of the UK is broadly similar at around 5%. What is more striking are the differences between travel-to-work areas within each country. Continue reading Unemployment hot and cold spots
The vote to leave the EU has affected business confidence, prompting the Bank of England to cut interest rates ahead of what it predicts to be a sharp slowdown in economic growth. If the Bank is right, this is likely to affect the labour market, but the question is: how and when? Continue reading Where next for the labour market?
Migrants form an important part of the UK labour force. They account for around 16% of all employees and for some occupational groups more than half of employees were born outside of the UK. As the new Government pursues policies to ensure continued economic growth following the EU referendum, it will also be judged against its stated aim of reducing net migration. Achieving both of these objectives could prove challenging, not least for those employers that have come to rely on migrants as an important source of labour. Continue reading this free article
The ongoing recovery in the UK labour market looks to have continued in the first quarter of 2016, according to the latest figures from the Office for National Statistics. Employment continues to rise, albeit at a slower rate than during 2015, and unemployment also fell marginally, though it still remains above the important milestone of 5%. Continue reading Labour market remains in mostly good shape