Workers face a squeeze on their earnings as employers anticipate awarding median pay rises of just 1% in the year ahead, according to findings from the latest CIPD/The Adecco Group Labour Market Outlook survey.
The survey of more than 1,000 employers suggests that the UK economy is about to be hit by a fall in basic pay awards and real wages. According to the survey data, employers’ median basic pay expectations in the 12 months to March 2018 have fallen to 1% compared to 1.5% three months ago, which is lower than at any time during the past three and a half years. This is consistent with recent Labour Market Outlook reports, which have indicated a slowing in the rate of basic pay growth, and with official labour market data.
While pay expectations are weakening, the survey finds that demand for labour remains robust for the second quarter of 2017. The report’s net employment balance, which measures the difference between the share of employers expanding their workforce and the share of employers reducing their workforce, remains positive. However, it has softened slightly since the previous report, down to +20 from the previous quarter’s figure of +23, which is consistent with a modest deterioration over the past two years.
Gerwyn Davies, Labour Market Adviser at the CIPD, the professional body for HR and people development, comments: “The good news in this latest survey is that employment confidence remains positive, with sectors like manufacturing and production proving particularly buoyant. The bad news is that there is a real risk that a significant proportion of UK workers will see a fall in their living standards as the year progresses, due to a slowdown in basic pay and expectations of inflation increases over the next few months. This could create higher levels of economic insecurity and could have serious implications for consumer spending, which has helped to support economic growth in recent months.
“The weak pay data is no surprise given the continued weak productivity growth in the UK. However, this is being exacerbated by many employers’ passive attitude towards workforce development and training, despite reporting hard-to-fill vacancies. At the same time, private sector employers are proving stubbornly unresponsive to labour market changes that should, in theory, act to increase wages, such as the number of unfilled vacancies. The data suggests that the introduction and increase of various labour costs, such as the government’s auto-enrolment scheme and the apprenticeship levy may be part of the explanation. It’s crucial therefore that we see a pick-up in employer investment in workforce skills development to support and sustain productivity growth.”
The survey also found that around two-thirds (68%) of organisations are planning to recruit employees in the next three months, reflecting optimism amongst employers.
Alex Fleming, Managing Director, Adecco UK & Ireland commented: “Workforce planning continues to be vital as Brexit becomes a closer reality for the UK. Skills shortages continue to be evident in the UK labour market and employers need to be addressing this issue head-on with thorough planning. Interestingly, one in ten firms indicate that the UK’s decision to leave the European Union has made them consider relocating some or all of their business operations to outside of the UK. Amongst those who have considered relocating to outside of the UK, one in three don’t know which country they would relocate to or say it is too soon to say. UK employers need to take investment in skills and people seriously to protect the future of our economy.”
