Labour Market Outlook: Highlights

By Jon Boys, Labour Market Economist, CIPD

The quarterly CIPD Labour Market Outlook (LMO) provides a set of forward-looking labour market indicators, highlighting employers’ recruitment, redundancy and pay intentions for the first quarter of 2019. In this blog I pick out some highlights.

Recruitment and retention

Official government statistics show that employment is at its highest rate (75.8%) since records began. Unemployment at 4% has not been lower since the 1970s, and with vacancies at an all-time high there are more job openings chasing fewer people. When this happens, we say the labour market is ‘tight’ and under these conditions we would expect to recruitment to be challenging. This is reflected in the LMO where we see an increasing trend of vacancies being hard to fill.

Whilst 43% of employers told us that recruitment had become more difficult during the past year, only 32% said retention had become more difficult. This tallies with the Bank of England’s most recent inflation report that “retention was less of an issue, as uncertainty around Brexit was making employees less inclined to move jobs.

Pay

Under tight labour market conditions, we would also expect to see wages rising and there is evidence of this in the LMO.

In the LMO we look at basic pay awards (excluding things like bonuses and other forms of ‘pay drift’). For the first time in 6 years the expectation for private sector basic pay awards has risen to 2.5%, the highest since we started tracking in 2012. This increase in private sector pay awards has been noted in other organisation’s surveys. At the same time public sector expectations have fallen to 1.1%. This is one to watch. If the gap between public and private sector pay becomes a trend it could drive a wedge between pay in the two sectors as the difference grows over time.

Another indication that the private sector is more willing (and able) to spend money to overcome recruitment difficulties is seen in figure 6 from the report. The proportion of private sector employers raising starting salaries in response to recruitment difficulties has risen whilst the opposite is true for the public sector.

Median basic pay increases for all sectors is expected to be 2%. With the Bank of England forecasting inflation to fall below 2% for much of 2019 this will mean a real terms pay rise for many. Hurrah! Whilst this will be welcomed by employees, I don’t think it will last beyond 2019. Inflation is expected to rise back above 2% towards the end of 2019 and nominal pay growth needs some substance behind it if it is to be sustained. Usually productivity growth would make pay rises affordable to employers, but productivity has moved little since the financial crash.

Productivity

In this LMO we asked HR leaders about the meaning, measurement and importance of productivity. This is often viewed as a big national problem and so we set out to see to what extent employers have internalised it into their day to day operations. The results are mixed. Only half of all employers (50%) use the term productivity often when discussing performance, and 60% of employers have measurements for productivity. There are marked differences by industry. Some employers live and breathe productivity, finding it a useful concept. In other industries, the term means little. For example, 78% of Manufacturers use the term often, compared with just 18% of Education employers and 16% for Voluntary Sector employers.

There is growing interest in the role of people management practices as a source of potential productivity gains and recent research by the ONS shows that such practices are strongly correlated to productivity. We asked about certain High Performance Working (HPW) practices and found that for every single HPW practice considered, organisations that said they have HPW practices in place were more likely to say they are measuring their productivity.

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