Half of private sector employers planning Covid-19 pay freezes, research finds

Jobless are also facing the ‘toughest hiring market in generations’, according to experts

More than half of private sector employers are preparing to freeze pay over the next year because of the economic impact of the coronavirus outbreak, a poll of organisations has found.

The CIPD’s latest labour market outlook (LMO), which surveyed more than 2,000 employers, found a third (33 per cent) plan to freeze employee pay as a result of the virus. This increased to 51 per cent among private sector employers.

The latest LMO also found hiring intentions were at their lowest levels since the survey began in 2005. Just two in five employers (40 per cent) reported plans to recruit staff in the three months to July 2020, compared to 44 per cent that said they had implemented recruitment freezes.

Gerwyn Davies, senior labour market economist at the CIPD, said workers needed to “brace themselves for pay freezes or even pay cuts” as employers moved to protect jobs. “It seems that the pain is being directed towards pay and recruitment rather than job losses,” he said.

There were also implications for younger workers, whose employment prospects were “crumbling” as hiring slowed. “What we will see is unfortunately a rise in youth unemployment, which will increase at a sharper rate compared with other age groups,” Davies predicted, but said much could change depending on the trajectory of the UK and global economy as the crisis continued.

Tony Wilson, director of the Institute for Employment Studies (IES), said the report backed up IES analysis showing that job vacancies have fallen further and faster than at any point since the 1940s. “For the likely near three million unemployed, this is undoubtedly the toughest hiring market in generations,” he said.

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As lockdown restrictions start to ease, Wilson said he expected to see an increase in hiring activity. But, he said: “It’s going to be a long way back. We need to act now to support people to prepare for the recovery when it comes, and we need to put in place measures to deal with the large rise in longer-term unemployment that we’re going to see later in the year – including through a jobs or training guarantee for all young people facing long-term unemployment.” 

However, Tom Hadley, director of policy and campaigns at the Recruitment & Employment Confederation, said that while the short-term outlook was weak, in the medium term employers’ hiring intentions were much more positive. “Companies will be looking to hire as soon as the economy opens up again,” he said.

The latest LMO did bring some more positive news. Despite the economic effects of the coronavirus outbreak, employer redundancy intentions had only risen six percentage points from the previous quarter, from 16 per cent to 22 per cent, as more than half (51 per cent) of businesses said they planned to use or continue to make use of of the government’s job retention scheme.

On average, organisations using the furlough scheme said if the scheme had not been set up they would have made 35 per cent of their workforce redundant.

Firms using the scheme said they expected to temporarily lay off 60 per cent of their workforce on average, although this varied by sector and was highest in the hospitality (80 per cent), retail (76 per cent) and construction (66 per cent).

Administration and other support services on average furloughed 61 per cent of their workforce, while manufacturing stood at 57 per cent.

Davies said the figures were good news for those who are in work, and praised the government’s move to extend the furlough scheme through to October 2020. “A high proportion of jobs have been preserved that perhaps might not have been preserved were it not for the job retention scheme,” he said.

“The next challenge will be for the government to work with employers to design the best way to enable furloughed staff to work part time for their employer, and gradually reduce reliance on the wage subsidy before the scheme ends.” 

The LMO also found a majority of employers (61 per cent) reported extending home working during the crisis, while almost a third (32 per cent) said they had introduced new flexible working arrangements to support staff.