Employment growth set to continue but pay intentions remain subdued

The UK jobs machine continue to deliver but skills and labour shortages are forcing employers to rethink their recruitment practices

Britain’s jobs boom is set to continue in the next quarter as employers continue to shrug off the uncertainty around Brexit with new hires. However, despite the tightening labour market, this confidence has yet to translate into significant salary increases for all but new starters and those with key skills. As recruitment and retention challenges grow, employers are increasingly flexing their recruitment practices and drawing on a wider talent pool to fill vacancies.

These are the findings of the latest Labour Market Outlook from the CIPD and the Adecco Group. The forward-looking indicator surveyed 2,182 employers on their recruitment, redundancy and pay intentions for the second quarter of 2019.

Pay outlook – pay growth largely limited to key staff and new starters
Despite rising recruitment and retention pressures, median basic pay expectations in the 12 months to March 2020 remain at 2%. However, pay expectations have fallen back in the private sector from 2.5% to 2% and have risen in the public sector from 1% to 1.5%.

Inflation is continuing to put upward pressure on pay for some organisations. Recruitment and retention difficulties are also a key factor in driving pay decisions, affecting new starters and key staff in particular. More than half of employers (53%) said they have increased starting salaries for at least a minority of vacancies and one in four (28%) have increased salaries for the majority of vacancies in response to recruitment pressures.

In addition to hiring challenges, a third of employers (33%) said that it has become harder to retain staff in the last 12 months, particularly in the public sector (42%). In response, over half (54%) of organisations have increased salaries in some capacity and one in four organisations (25%) have increased salaries for key staff only.

Recruitment outlook – jobs growth set to continue
Britain’s jobs boom is set to continue in the short term. The report’s 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 increased from +20 to +22. Employment growth will continue to be driven by the private sector which has increased from +22 to +25 in the last quarter. The report shows that confidence is highest in business services (+39), construction (+36), healthcare (+31) and ICT (31%).

However, buoyant demand for staff is creating recruitment challenges. Two in five (41%) employers say it has become more difficult to fill vacancies in the past year. Three in five (61%) employers said that at least some of their vacancies were proving hard to fill.

Skills shortages – employers are having to be more flexible to find candidates
Skills shortages are particularly being seen in professional occupations (e.g. scientists, engineers) where 50% of employers report that applicants don’t have the required level of skills needed. In response to skills challenges employers are having to rethink their recruitment practices and draw from a wider talent pool. The Labour Market Outlook found that:

  • Two in five employers (43%) are upskilling existing staff to offset hard to fill vacancies
  • 23% are hiring more apprentices
  • 19% are recruiting from outside the UK
  • 1 in 7 (16%) are lowering their recruitment standards

In line with recent ONS data*, the report also found that employers were making greater efforts to hire those aged over 55 (8%) and those from disadvantaged groups (6%).

Gerwyn Davies, senior labour market adviser for the CIPD, the professional body for HR and people development said:

“The majority of UK workers are long overdue a meaningful pay rise. However, many workers will remain disappointed with their pay packets until there are significant and sustained improvements to productivity. Organisations need to give much greater consideration to the obstacles that are preventing their people from performing better at work. A greater focus on training, development and better people management is needed to lift the UK out of its current productivity crisis. One upside is that many employers are already investing in developing their existing workforce to plug skills gaps. Strengthening workplace training and recruiting in a more inclusive, flexible way will ultimately deliver higher performing and fairer workplaces.”

Alex Fleming, Country Head and President of Staffing and Solutions, the Adecco Group UK and Ireland states:
“A skills-short market is not a new phenomenon in the UK; many of our clients have been operating successfully within this market for years. A lot of our clients are becoming increasingly innovative and agile in the search for talent. Organisations who are most effective in this market are those with sustained plans and programs that are aligned to their strategies and culture.

“Candidates with professional qualifications are those that the report highlights as the toughest to find, and these aren’t roles where relaxing the requirements and selecting the best fit is always possible.

“Creating internal pipelines of talent is the optimal way to tackle skills shortages in the long run – it will allow employers to recruit the best junior talent and retain them into more senior and technical roles, without having to offer inflated salaries to attract new talent. Conversely, employers should also be aware that when candidates venture into the market looking for new employment, they will demand higher pay than they would from their current employer.”

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