CIPD Voice: Issue 16

Employer plans to take on more staff are being hit by worsening skills and labour shortages, partly as a result of a sudden reversal in the growth in the number of both EU and non-EU migrants in employment in the UK. This is the conclusion of the latest quarterly Labour Market Outlook from the CIPD and The Adecco Group, based on a survey of 1,002 employers, which shows that while the short-term outlook for employment remains strong, labour and skills shortages are accelerating. Around seven in ten (70%) employers that have vacancies now report that at least some of their vacancies are proving hard-to-fill; higher than in Summer 2018 (66%) and Spring 2018 (61%).

The reason behind the rising recruitment difficulties is the failure of labour supply to keep pace with the strong employment growth; and the key factor is the sudden reversal in migrant labour trends, especially non-EU citizens. According to the latest official data, the number of non-EU-born workers in the UK decreased by 40,000 between Q2 2017 and Q2 2018, compared with an increase of almost a quarter of a million (225,000) during the same period in the previous year.

Conveniently, these figures roughly compare the 12 months before the Brexit vote and the 12 months that followed. It seems likely therefore that the fall in the value of the pound has reduced the financial attractiveness of the UK as a place to work for non-EU citizens as well as EU citizens. The second main potential factor that is supressing demand for non-EU workers is government policy. In recent years, we have seen various costs such as the Immigration Skills Surcharge introduced alongside stricter criteria for recruiting non-workers. These include raising the minimum skills threshold to graduate-level occupations and raising the minimum salary threshold to £30,000.

The results point to the need for government to reflect these warning signals in its post-Brexit immigration system; that in all likelihood will be introduced in January 2021. The latest clues on where government policy may be heading were revealed in the recent Migration Advisory Committee report that recommended that EU citizens should be covered by the same immigration system as non-EU citizens.

The good news is that the MAC adopted many of the CIPD’s policy recommendations, such as lowering the minimum skills threshold to include medium skill-level occupations, to review the bureaucracy of the current system and to extend the Youth Mobility Scheme to all EU nationals, which would allow all 18-30 year olds from the EU to live and work in the UK for a period of 2 years without employer sponsorship.

However, the bad news is that the MAC recommends that there should be no formal low-skilled route for employers. As CIPD research shows, some employers have no alternative other than to recruit EU citizens because they cannot find local applicants to fill the roles despite their best efforts. This may be due to the local unemployment rate, the unattractiveness of the role or the skill level required. A sensible compromise might therefore be to consider a labour shortage occupation that limits low-skilled migration to occupations that have genuine labour shortages.

The wide range of costs employers will be subject to for using the immigration system and the dampening effect this will have on demand is another concern for the CIPD in 2021. Currently, employers are subjected to a wide range of costs for recruiting non-EU workers that include a sponsorship licence, a health surcharge, a skills levy and a fee for every non-EEA national they employ. Those costs are substantial and significantly higher than in most countries. The volume of applications will increase substantially once migration restrictions are introduced; so there is a strong argument for reviewing these costs.

Overall, this latest research underlines the risk that more non-UK-born citizens and employers will be discouraged from using the post-Brexit system if more support is not provided and it is not made simpler, fairer and more affordable; especially for lower-skilled roles. Against the backdrop of a tight labour market, failure to do this will heighten recruitment difficulties and could lead to negative consequences for existing staff, such as higher workloads, and loss of business or orders for firms. It’s vital that employers understand the workforce challenges they face, and make the relevant investment in skills and adopt the right people management practices to boost productivity in their organisation. A failure to do this will lead to worse labour and skills shortages still.

Gerwyn Davies

Gerwyn Davies, Labour Market Adviser

Gerwyn is the CIPD’s Public Policy Adviser for a wide range of labour market issues. With lead responsibility for welfare reform, migration and zero-hour contracts at the CIPD, Gerwyn has led and shaped the policy debate and achieved substantial national media coverage through various publications. These include Zero-hours contracts: myth and reality (2013) and The growth of EU labour: assessing the impact on the UK labour market (2014). In addition Gerwyn authors the institute’s high profile and influential quarterly Labour market outlook report. Gerwyn is an experienced labour market commentator, making regular appearances in the national media and on other public platforms, including several appearances before the House of Commons Work and Pensions select committee.