CIPD Voice: Issue 20

The latest quarterly Labour Market Outlook survey provides further evidence that the UK labour market looks set to remain the one bright spot against the backdrop of economic and political uncertainty. The survey data suggests that employment levels look set to break new records in the months ahead. Meanwhile wage growth, which has also recently hit a post-financial crisis high, looks set to accelerate in both the public and private sector.

One of the reasons behind the continued strong employment growth is a relatively strong labour supply from outside the UK for medium and high-skilled roles; especially from outside the EU. The survey showed that the number of applications employers received for each medium and high-skilled vacancy had remained broadly stable over the past year, despite the strong employment growth over the past year. This was likely to reflect the 123, 00 increase in the number of non-EU citizens in the workforce between Q1 2018 and Q1 2019. This has been driven by last year’s decision to exempt doctors and nurses from restrictions on the numbers of visas available to employers.

This all seems like good news, but the data also contains an amber light. The number of people applying for low-skilled roles has dropped by a fifth over the past year and by a third over the past two years, suggesting that some employers may face significant recruitment challenges in the coming months. This is partly due to subdued net migration from the EU, which can only get worse when migration restrictions are introduced; especially through the introduction of a salary and skills threshold.

Until now, employers have been expecting to see restrictions introduced in 2021. However, the Rt Hon Priti Patel MP, the new Home Secretary, recently alarmed employers with a suggestion that free movement will end on 31 October in the event of a no-Deal. The CIPD, like many employer organisations has stated its opposition to this curve ball. And there are encouraging signs that our voice has been heard.

The survey data thus suggests that some additional flexibility needs to be built into the design of the post-Brexit migration system in order to ease labour supply. The CIPD will be publishing its revised set of policy proposals in late September.

According to the Labour Market Outlook survey, some employers responding to labour shortages by increasing pay to compete for staff. Median basic pay expectations in the private sector increased from 2% to 2.5% compared with three months ago. Meanwhile, median basic pay award expectations have also risen in the public sector from 1% to 1.5%. In addition, more than a third expect their basic pay award to increase by at least 3 per cent in the year ahead, up from 28 per cent in the same period last year. It seems likely therefore that wage growth, which recently picked up to its highest level since 2008 according to official data, will nudge up further in the coming months. It cannot be ignored however that current pay growth remains modest by historic standards.

Overall, the labour market therefore remains in rude health. Against the backdrop of record low unemployment and strong employer demand, it is essential therefore that the government’s new immigration policy is fine tuned to the needs of the economy with enough wriggle room for employers that face recruitment pressures.

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.