Employment outlook continues to grow in UK, but wages look likely to fall
While employment growth looks set to continue in the UK, there are signs that this growth is beginning to slow and that real wages are likely to fall during 2017 for many employees.
Concerns are also emerging over the implications of Brexit for employers’ access to migrant labour and a reduction in employer investment intentions.
These are among the main findings of the latest quarterly Group Labour Market Outlook report from Adecco and the Chartered Institute of Personnel and Development, which shows that the net employment balance, while remaining in positive territory at +22, has shown a slight negative decline from the previous quarter’s figure of +27.
At the same time, real wages look set to fall during 2017 as, for the second quarter running, employers anticipate median basic pay settlements of just 1.1% for the 12 months ahead, against a backdrop of anticipated higher inflation. Furthermore, although 42% of employers believe that future restrictions on EU labour could damage their UK operations, just 15% have started to prepare for this eventuality.
Only 6% of employers said they favour a hard Brexit, which would see the introduction of World Trade Organisation rules. The majority of employers broadly favour existing trading arrangements (16%), a European Economic Area type arrangement including free movement of labour (26%), or negotiated bilateral free trade arrangements (10%).
Gerwyn Davies, labour market analyst at the CIPD, said:
“The report points to the UK economy beginning to face some likely headwinds following the decision to leave the European Union. The impact of potential restrictions to migrant labour will certainly be exacerbated by the fall we’re seeing in business investment intentions.
“Given the current level of uncertainty and the projected increases in costs as a result of a weaker pound, it’s not surprising that employers aren’t currently persuaded to respond to likely controls on migration by investing more in skills. However, this will put further pressure on the UK’s productivity growth potential, which is critical to employers’ ability to afford more generous pay increases. Pay expectations are already weak, and as inflation moves up we can expect a period of low or negative real wage growth for the squeezed middle.
“It seems that few UK employers want or are ready for a hard Brexit outcome, which all the latest political commentary seems to be pointing towards. However, uncertainty over the UK’s future arrangements with the EU is no excuse for inaction. From all of the information we have, it’s inevitable that there will be restrictions on EU migrant labour after the UK leaves the EU and employers must be prepared for this. It’s vital that the UK government considers making intermediate arrangements when introducing changes to immigration policy. This will ensure that employers that have come to depend on EU migrants to deal with recruitment difficulties or skills shortages have time to review their recruitment and training and development strategies ahead of Brexit.”
The survey also shows that employers are already reporting that it will be harder to recruit and retain EU migrant workers even before the UK officially leaves the UK. Of the 62% of employers that employ migrant workers, 23% say they have evidence that EU migrants are already considering leaving the UK in the next 12 months as a result of Brexit. Furthermore, 54% of those who have intentions to recruit EU migrants during the next 12 months believe it will be harder to recruit EU migrants in the year ahead.
Among the 15% of employers that have started planning for the likelihood that it will become harder to recruit EU nationals in the future, 43% say they have started strategic workforce planning, 39% report they are undertaking a review of the organisation’s resourcing strategy, and 22% say they are planning to start investing in or increasing their investment in apprenticeships, with a similar proportion looking to build closer links with schools and colleges.
John L Marshall III, CEO of Adecco Group for the UK and Ireland, commented:
“For years the UK has been one of the most attractive countries for EU workers, benefitting from easy access to a large, European talent pool. However, the Brexit vote is now seeing UK employers look increasingly concerned about their access to the single market.
“This should serve as a wake-up call for employers, who need to adopt a more strategic approach to workforce planning, invest more in their own staff and engage with educational institutions to improve the UK’s domestic pipeline of talent.”
Additionally, the report found that 30% of employers expect that the UK’s vote to leave the EU will increase their costs during the next three months, which may partly explain why employers are more likely to be planning to reduce investment in skills.