Starting pay hits record high due to fall in candidate availability, study reveals

Experts warn wage growth will not sustain economic recovery and call on government to work with firms to avoid a 'crisis-driven sugar rush'

Starting pay for all workers hit a record high over the last month due to an increase in competition for staff, research has found.

The latest Report on Jobs survey by the Recruitment and Employment Confederation (REC) and KPMG found the rate of growth of permanent starting salaries accelerated again in September to hit a new record for the third month in a row. 

More than half (57 per cent) of the 400 UK recruiters and consultancies polled noted higher pay for new permanent joiners, compared to less than 1 per cent who recorded a fall.

Meanwhile REC’s latest permanent starting salaries index – based on the survey of recruiters and where a score higher than 50 indicates more employers are increasing salaries, and a score below 50 indicates the reverse – rose to 74.7 in September from 73.5 in August.

The temporary wages index also saw an increase to 69.1 in September from 66.8.

Although there were reports of candidates negotiating higher pay, recruitment experts suggest the surge in starting salaries was mostly because of the increased competition for workers and efforts by firms to attract applicants.

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The report also revealed that the REC’s latest permanent staff placements index fell slightly from August's peak of 72.7 down to 71.8 in September. While this indicated more employers were still hiring new staff than not, it suggests the number being posted into roles was easing.

Although a marginal decrease, the study said this was still the second-highest score for this on the index since the survey began exactly 24 years ago.

Claire Warnes, head of education, skills and productivity at KPMG, said that the unprecedented increase in starting salaries was the highest in 24 years and was being driven by the near record fall in candidate availability. 

But, she said: “While higher salaries are good for job seekers, wage growth alone is unlikely to help sustain economic recovery because of limited levers to bring people with the right skills to where the jobs are and increase productivity.” 

Warnes also suggested that while the end of the furlough scheme should bring “tens of thousands of new people to the jobs market”, it was unlikely this new pool of labour would have the right skills to transfer to the sectors with most demand.

“Reskilling and supporting people to move jobs which are in demand needs to be speeded up,” she advised and said that firms may otherwise see tensions in the labour market turning into a workforce crisis in many sectors.

Neil Carberry, chief executive of the REC, commented that, while this was the fastest growth in starting salaries since this survey began, the past few weeks have shown firms how labour shortages have affected people’s everyday lives.

“The scale of the shortages we are seeing cannot be explained by one factor alone, but are a major challenge to businesses’ ability to drive the prosperity of the UK in the months and years to come – supporting families and paying the taxes that fund public services,” he said. 

While the current crises will pass, Carberry projected that rising input costs and further tax rises would mean higher prices and lower investment in the medium term. 

“It is essential that the government works in partnership with business to deliver sustainable growth and rising wages, rather than a crisis-driven sugar rush,” he said and suggested those policies should encourage business investment, consider an international outlook and develop skills.

The report also found that although the total staff availability index rose from 23.0 in August to 25.3 in September, it remained well below the neutral 50 level, signaling a substantial drop in candidate availability.

The REC and KPMG reported that the rate of deterioration was the second-quickest seen in 24 years of data collection after only improving slightly from August's record.

The total vacancies index also continued at a high level of 72.9 in September, although it was down from the highs of 73.9 in August and 74.4 in July.

The report cited a recent REC survey of recruiters which found that three in five (58 per cent) have over 30 per cent more vacancies than before the pandemic, and nearly all (97 per cent) said it is taking longer to fill them.