Competition for talent remains fierce but employers are running out of steam on raising pay, new CIPD research finds

Anticipated pay rises remain at 3%, suggesting cost of living crisis to worsen as inflation climbs

  • Recruitment intentions remain high across all industries
  • Employers have responded to hard-to-fill vacancies by raising wages, but fewer plan to do this in the coming months
  • Retention is just as important as recruitment as employers are working harder to keep existing workforce happy

New CIPD research shows that almost half (45%) of UK employers report having vacancies that are hard-to-fill, and almost two thirds (65%) anticipate problems filling vacancies in the next six months. The most common response made in the past six months by employers with hard-to-fill vacancies has been to increase pay (44%). However, only a quarter (27%) of organisations plan to raise wages in response to recruitment difficulties in the future. This suggests that organisations may be approaching their limit on this ‘quick win’ strategy and are exploring alternative options, such as upskilling people and flexible working, to attract and retain people.

These are the key findings of the latest quarterly Labour Market Outlook, from the CIPD, which surveyed more than 2,000 employers across all sectors of the economy in April 2022 about their hiring, pay and redundancy intentions for the second quarter of 2022.

Pay intentions:

For the second consecutive quarter, median basic pay increases are expected to be 3% which means they are sustained at the highest level recorded since the report series started in its current form in early 2013.

Pressure on pay could ultimately feed into higher prices for products and services. Indeed, 35% of employers said that they had raised prices in response to cost pressures.

While raising pay is still the number one means to address hard to fill vacancies, organisations are exploring other working practices that stand to boost job quality for both employers and individuals over the long term. For example, 37% of employers said they planned to upskill people and 28% plan to advertise more jobs as flexible. Just 27% of organisations plan to raise wages in response to recruitment difficulties in the future.

Hiring and redundancy intentions:

Employers remain confident about their employment intentions for the coming quarter. Recruitment intentions remain above pre-pandemic levels and almost three quarters (74%) of employers said they plan to recruit in the next three months. Only 6% of employers plan to decrease staff levels over the next quarter.

However, while recruitment intentions remain strong, candidates remain elusive as the unemployment rate continues to fall to incredibly low levels. There has also been an increase in people leaving the labour market altogether. The CIPD is warning that a lack of candidates will likely start to drag on growth, so it’s crucial that employers upgrade the skills of the existing workforce, including managers, to boost individual and organisational productivity.

Jonathan Boys, labour market economist for the CIPD, the professional body for HR and people development, comments:

“The prospect of bumper pay awards will take the edge off high inflation for some workers, but it will still be strongly felt by many people struggling with the rising cost of living. Our research also suggests that employers are running out of steam on their ability to increase pay any further, so they’re switching their focus to retention and keeping their existing workforce happy.

“If the ability to award pay rises is limited, employers can look at the total employment offer. Financial wellbeing support can make a difference, as can revisiting the mix of benefits offered to make sure they work hard for employees, especially the lowest paid. This includes designing jobs that include ample flexible working options. A combination of pandemic induced re-evaluation and a tight labour market have pushed flexibility to the fore. Right now, it’s a candidate’s market and that means new recruits have more power to dictate the terms that work for them.

“After years of falling employer investment in training, it's encouraging to see a renewed focus from employers on upskilling the existing workforce as part of efforts to address recruitment challenges. Reform of the apprenticeship levy could do even more to boost the latent appetite of employers for investing in training and development, as they could spend the levy in a way that best suits their training needs.”

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