Economy and jobs market buoyant but wages squeeze set to continue

11th August 2014

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Despite the better economic backdrop and a more buoyant jobs market, UK wage growth is still expected to remain weak.

The Chartered Institute of Personnel and Development (CIPD) in its quarterly Labour Market Outlook survey of 1,000 employers, is arguing that only a concerted focus from employers and policy makers on improving productivity will provide the foundations for sustainable growth in real wages

The HR body found that official figures reveal that output per hour worked, is still around 4% lower than pre-recession levels.

Despite reports from various business surveys hailing a rise in starting salaries, figures from the CIPD reveal that only 2% of employers report a significant increase in starting salaries.

READ MORE: Recruitment plans among UK firms hit their best rate since 1998

The organisation has said this is because some business surveys are not picking up the large number of employers who are not carrying out pay reviews or are implementing pay freezes.  The muted pay picture is further supported by the CIPD’s survey of 1,000 employees which shows that among those workers who have enjoyed a pay rise this year, the median increase has fallen to 2% this year from 2.5% in 2013.

Only two fifths of employers report that their organisation has conducted a pay review since the start of 2014, with the proportion even higher in the private sector, at 51%, and among service firms, at 56%. Additional statistics show that the number of employers that plan to freeze pay has risen to 10% in summer 2014 from 8% in the spring 2014 Labour Market Outlook report.

READ MORE: What do we do in the UK if wage growth does not pick-up?

The median wage settlement excluding bonuses in the 12 months to June 2015 is projected to be 2%. Public sector and voluntary sector organisations – where the median prediction is 1% – expect pay to again lag behind the private sector.

Mark Beatson, chief economist at the CIPD, said: “The UK jobs machine powers on.  Recruitment intentions are high, SMEs provide much of the fuel and we are seeing this all over the UK, with employers in the Midlands and the North having the highest short-term employment optimism. This is great news for job seekers, but we urgently need to see jobs growth accompanied by productivity growth for workers to feel the benefits of the recovery too.  This would help place it on a more balanced and sustainable footing and create the economic headroom for real wage increases.”

The figures show that despite pay squeezes, around two thirds of employers plan to recruit employees in the next three months. Recruitment intentions in the public sector have risen to a five year high with 75% indicating that they plan to recruit in the third quarter of 2014. In the voluntary sector, recruitment intentions have risen from 58% to 68%. Recruitment intentions are highest in the healthcare, education and accommodation, food service, arts, entertainment and recreation sectors.

Other data in the report revealed that the net employment balance* is +23, slightly down from its previous figure of +26.  The balance is positive for all UK regions and countries with the highest levels in the Midlands, at +44, and the North of England, at +32. In addition SME employers, at +47, are significantly more positive about their employment prospects than large employers, with +12.

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