Real wage squeeze set to continue as strong jobs growth fails to translate into higher productivity
CIPD has released its quarterly Labour Market Outlook (LMO) survey report of 1,000 employers, revealing that wage growth is expected to remain weak even though output is growing strongly and the jobs market is buoyant. The professional body for HR and people development 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. Official figures reveal that output per hour worked, which is the best measure of labour productivity, is still around 4% lower than its pre-recession level.
Despite reports from various business surveys hailing a rise in starting salaries, figures from the CIPD’s Labour Market Outlook reveal that only 2% of employers report a significant increase in starting salaries. 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 (51%) and among service firms (56%). And further 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.
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 (77%), education (74%) and accommodation, food service, arts, entertainment and recreation (74%) 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 (+44) and the North of England (+32). Additionally, SME employers (+47) are significantly more positive about their employment prospects than large employers (+12).
