Research shows a brightening picture on pay but tightening labour market poses problems for employers

LONDON, Aug. 12, 2019 /PRNewswire/ -- The sharp increase in non-EU citizens coming to work in the UK has helped to ease recruitment difficulties for medium and high-skilled roles, according to new research. Despite employment growing strongly over the past year, the number of applicants chasing each medium and high-skilled vacancy has fallen relatively modestly compared with the same period last year. However, the number of people applying for low-skilled roles has dropped by a fifth over the past year, suggesting that some employers may face significant recruitment challenges in the coming months.

The survey also shows that the overall fall in the number of applicants is putting upward pay pressure on a significant minority of employers. Median basic pay expectations in the private sector increased from 2% to 2.5% compared with three months ago. Median basic pay award expectations have also risen in the public sector from 1% to 1.5%. Overall, the average basic pay increase remains steady at 2%.

These are the findings of the latest quarterly Labour Market Outlook from the CIPD and the Adecco Group, a survey of 2,104 employers which explores their pay and hiring intentions.

Labour shortages - Alarm is sounding for employers with low-skill vacancies

Overall, the survey data shows that the supply of labour is constrained compared with previous years, particularly for low-skill vacancies. Where employers last filled a low-skilled vacancy, they received a median number of 16 applicants for that role. This compares with 20 applicants in the summer 2018 report and 24 applicants in the summer 2017 report. This may be partly due to subdued growth in the annual increase in the number of EU-born citizens in employment, which remains well below the pre-referendum average.

In contrast, the supply of medium-skilled and high-skilled applicants has held up relatively well. This can be partly attributed to the sharp increase of 123,000 non-EU citizens in the UK workforce between Q1 2018 and Q1 2019, the majority of which will have been subject to a skills threshold.  This compares with a decrease of 6,000 between March 2017 and March 2018 in the number of non-EU citizens in employment in the UK. This increase has been mainly driven by the buoyant recruitment of nurses and medical practitioners, partly following a relaxation to remove doctors and nurses from the Government's migration cap in June 2018. According to the latest official data that looks at employment levels by country of birth, non-EU citizens account for more than a third of the 364,000 increase in employment in the UK between Q1 2018 and Q1 2019*.

Recruitment Outlook – jobs growth set to continue but at a slower pace

Employment confidence remains robust but saw a modest fall in the last quarter. 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 fallen from +22 to +18, the lowest number recorded since Winter 2017. Employment confidence is highest in Wales (+29), Scotland (+21) and lowest in the East Midlands (+7) and the East of England (+7). The labour market remains tight, which is putting pressure on employers to increase pay.

Pay outlook – promising signs of pay pushing above inflation

Overall, median basic pay increase expectations remain at 2% for the 12 months to June 2020. Median basic pay increase expectations in the private sector have increased from 2% to 2.5% and from 1% to 1.5% in the public sector, compared with the last quarter.

Of particular note is the increase in the number of employers expecting a basic pay increase of more than 3% in the next year. More than a third of employers (36%) plan to increase basic pay by at least 3% compared to 28% of employers in the same period last year.

The key factors driving pay awards of 2% or more are inflation (43%) and the going rate of pay elsewhere (37%). Recruitment and retention difficulties were also a factor (29%).

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

"Amidst the current political uncertainty, the UK labour market is holding up surprisingly well. Labour demand remains strong, and the robust supply of non-EU workers has helped many employers meet this demand; partly owing to the Government's decision to remove the migration cap for doctors and nurses.

"This has been key to freeing up visa capacity for employers in other sectors who have sensibly been able to resolve skill shortages by hiring non-EU migrants. Looking ahead, the Government's post-Brexit immigration policy must demonstrate similar levels of flexibility to ensure that such shortage occupations benefit from a more generous minimum salary threshold.

Davies continues, "However, the alarm bell is sounding for employers trying to fill low-skill roles, many of whom are still in wait and see mode. It's essential that those employers are prepared for reduced numbers of candidates and further restrictions to low-skill labour planned from 2021 with a workforce plan."

Alex Fleming, Country Head and President of Staffing and Solutions, the Adecco Group UK and Ireland, said:

"In our tightening labour market ensuring businesses have the right supply of talent isn't a new issue and during these uncertain times the "grow your own" mentality has become more important than ever for organisations. Workforce planning comes into play again as organisations need to be constantly looking forward and anticipating their future needs and training their own talent accordingly.

"Planning ahead for workforce strategies is a long-term solution that now needs to be addressed more urgently than ever so the labour market can thrive with the right talent in place.

"Conversely, in the shorter term imaginative recruitment strategies are also needed to find the right kind of skillsets to bring into organisations, for example unlocking hidden pools of talent can hold considerable value for employers and should be seriously considered as an important source."

SOURCE The Adecco Group; CIPD