Despite regular pay experiencing the “strongest growth rate” seen outside of the pandemic, it still can’t catch up to inflation, official data shows.
The Office for National Statistics’s latest Labour market overview revealed that growth in average total pay among employees reached 5.9 per cent (including bonuses) and 6.7 per cent, excluding bonuses, in October to December 2022.
However, the data found that when adjusted for inflation, growth in pay fell on the year by 3.1 per cent for total pay (including bonuses) and by 2.5 per cent for regular pay (excluding bonuses) – making it the “largest” pay fall in growth since records began in 2001.
Ella Bond, senior employment law solicitor at Harper James, said that while rising wage offerings shows employers’ “keenness” to recruit, they are still struggling to attract talent, and warned against dramatic pay increases.
“Wage rises do not translate as effectively into real pay given the cost of living price hikes, which continue to outweigh salary increases in percentage terms,” said Bond, who added that this was likely to cause “increased levels of competition among employers”.
Jonathan Boys, senior labour market economist at the CIPD, said that as pay continues to grow at a slower pace than prices, this is deepening the cost of living crisis: “Regular pay growth of 6.7 per cent would normally be a welcome sight for workers, but in the face of inflation running at 10.5 per cent, this increase won’t stop living standards from falling for most working people.”
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Boys pointed out that employers were notably struggling to “make a match with the right candidates” as even “bumper pay rises” can’t compete with inflation. He urged employers to consider the “whole package” they offer to staff.
Meanwhile, the CIPD’s recent Labour Market Outlook survey revealed that more than half (55 per cent) of employers expected to raise base or variable pay further in 2023 to better recruit and retain staff.
The research, which surveyed 2,012 employers, also found that organisations were divided in their approaches to tackling hard-to-fill vacancies, as half preferred upskilling existing staff (47 per cent ), while 43 per cent would raise wages as a response.
Stephen Evans, chief executive at Learning and Work Institute, said: “In a tight labour market, investing in staff is even more important for recruitment and retention.”
However, he pointed out that recent data from the institute indicated that employer investment in training per employee has fallen and on average prices were rising faster than wages.
Echoing this, JC Townend, chief executive officer of career transition and mobility at LHH in the UK and Ireland, said the situation “brings even more pressure and opportunity to retrain and reskill existing workers into the roles companies need now, filling key vacancies and also helping employees progress on positive career paths”.
She emphasised that investing in L&D programmes was more than a short-term solution to bridge the skills gap, as it could “future-proof a workforce in the case of further economic fluctuations”.
Gemma Bullivant, independent HR consultant, reminded employers that, ultimately, “clearly articulated, compelling career pathways to engage and inspire colleagues, supported by target L&D to help accelerate their growth and integrated pay structures to reward fairly as they progress, can attract, retain and grow exceptional talent”.
“Positioning L&D and reward investment in this context, juxtaposed with annual recruitment spend, will help to clarify where best to target the reduced budget in the most effective way,” she added.