Long reads

What's going on with the labour market? (And how can we fix it?)

15 Jul 2021 By Jo Faragher

A heady combination of Brexit-related visa changes and a mass exodus of talent – not to mention furlough – have wrought havoc with hiring. But there are ways HR can mitigate the issues

After waiting months to open again as pandemic restrictions eased, Michelin-starred restaurant owner David Moore faced a painful decision just a few weeks later. Like many in the hospitality industry, the Pied à Terre boss was faced with a triple whammy: post-Brexit rules making it harder to hire EU staff; successive lockdowns meaning many staff returned to home countries or sought new careers; and the challenges of bringing staff back from furlough. Faced with a choice of working his 12 employees to the point of burnout or closing for lunch bookings, he went with the latter. In an interview with the BBC, he confessed: “If I slog them to death, in two weeks’ time, I won’t have a restaurant.”

After a year in which more than 11 million jobs have been covered by the government’s furlough scheme and unemployment reached a four-year high, emerging from the pandemic with staff shortages across a number of sectors is unlikely to have been on many people’s radar. “The labour market is in a huge state of flux,” says CIPD senior labour market adviser Gerwyn Davies. “There’s a lot of replacement activity as organisations deal with a reduction in EU workers – while furloughed workers may have transferred to other sectors, and the combination has led to shortages, especially in sectors such as hospitality and construction.” He points to official figures showing the number of EU-born workers in the UK fell by 7.4 per cent between the second half of 2019 and the same period in 2020. “Because EU nationals tend to be in roles where there have been more redundancies or furloughed workers [during the pandemic], many will have taken the option to go home and may not return,” he adds. 

Pent-up demand has led to some employers inflating wages to attract candidates, with reports of juicy referral bonuses in some restaurant chains for customers as well as staff. But other factors could shift the landscape in months to come, in particular as the government withdraws furlough support at the end of September. “The other looming milestone is the end of furlough,” says Andrew Hunter, co-founder of job search engine Adzuna. “While some furloughed workers will go back to work as sectors like live events, hospitality, and travel continue reopening, some employers won’t be able to afford to take workers back, leading to an unemployment spike. This release of talent back into the jobs market needs to flow into the areas that need it most. Upskilling and retraining will be key.” An early indicator may be how employers react to changes to the scheme from 1 July, after which they need to contribute 10 per cent of the 80 per cent that had been covered by the government. 

For now, however, many employers are dealing with a candidate-poor market. “In September 2020 we’d post a role from our applicant tracking system and overnight we’d get more than 100 applications – the biggest issue was dealing with the volume,” says Hannah Bates, director of people at lead generation software company Cognism, which has grown from a handful of people based in London five years ago to more than 250 employees across seven countries. “Around April this year, that flipped on its head. We were advertising the same roles in the same places but there was a trickle of five to 10 people. When we looked into what was going on, it seemed to be that other companies were starting to get their confidence back – where before they had held back on recruitment or furloughed people (we didn’t), we were feeling the competition again.” The main challenge is hiring sales staff, many of whom are fresh out of university or on their first or second job. “We were getting into bidding wars over 23-year-olds with limited experience,” she adds. 

Realising that it would be unsustainable to throw money at the situation, the company has reviewed its salary structure “sensibly” to ensure it is competitive but also the non-financial incentives it can offer. “We have a clear development path for our sales team and we make a big deal about our learning culture,” explains Bates. “If we take on a graduate, we are confident that the structure we have in place means that at the end of three months we can fast-track them to the next step in their career.”

Reaching this milestone can mean a 12 per cent uplift in salary and promotion to the role of sales development representative, eligible for a minimum of three hours’ training a week. On the digital side, the shift to remote working has meant that Cognism can avoid some of the challenges of a tight tech labour market by setting up entities in other countries including Croatia, Macedonia, Germany and in the coming months South Africa. “This has helped to keep us flexible when recruiting for niche or hard-to-fill roles,” she adds. 

One sector where the labour supply has been hit hard by post-Brexit immigration rules is social care. In adult social care, between 7 and 8 per cent of roles remained unfilled even before the pandemic, equivalent to around 112,000 vacancies. Furthermore, care industry bodies have warned that a recent decision to make Covid vaccinations compulsory for care home staff in England could put off candidates in an already struggling sector. Grzegorz Wrzosek, finance director for Promedica24, which provides live-in care services, says care homes have been “stretched to their limits” over the past year. “We had no control over Covid, but even before that there was a gap between supply and demand. The government decided not to make any further planning contingencies despite the fact we have an ageing society and we know that more people will need care in the future.” Even the addition of senior care workers to the shortage occupation list has made little difference to his company, as it requires supervisory responsibility – something individual home carers are unlikely to have as they often work alone. 

Promedica24 plans to hire more recruiters to help address the gaps and has invested in targeted marketing to passive candidates via jobs databases such as CV-Library and Indeed. It has also increased its social media marketing and offers workers travel between clients. “Our pay is above the benchmark but we also try to incentivise people with other things, such as free coffee, discounts on restaurants such as Nando’s, and a virtual GP service. We also offer in-depth training they can use while with us but will also prove useful if they move to another role elsewhere,” he adds. In the next 18 months, the company wants to hire an additional 2,000 care workers so it has a big enough pool to match carers with the right client, but Wrzosek admits this will be a challenge. A bigger recruitment team will build relationships with universities’ social care departments and get out to job fairs, he adds: “We can’t even get a Tier-2 visa for care workers as it’s considered low skill – there’s no formal education required but it’s absolutely a skill. Offering a seasonal worker visa costs a fraction of this with no immigration health surcharge, which is frustrating.” 

Pandemic travel restrictions have, up to now, lessened the impact of the new immigration regulations, argues Be Kaler Pilgrim, founder and chief of brand partnerships at Futureheads, a recruitment agency for digital roles. “I don’t think we’ve felt the impact of this yet. We looked at our contractor profiles and thought it would affect about 15 per cent of them, although the ability to hire skills remotely might help,” she explains. She believes a bigger issue for companies looking to hire digital talent is the new IR35 rules, which require employers to take a decision on individuals’ worker status and ensure they pay the right levels of tax and national insurance. A number of employers have decided to bring contractors onto payroll to avoid the risk of their contractors’ contributions falling short and being investigated by HMRC, leading to a drop in contracting roles. “The delay from 2020 [when the rules were due to come into force for the private sector] meant a lot more clients were prepared but we’re anticipating a 20 per cent drop-off, and around half of our revenue comes from contractors,” she adds. “But they remain a huge part of workforce planning, perhaps if there’s a new project or you need someone with particular experience. But IR35 can be expensive and time-consuming to navigate.”

From a candidate perspective, however, post-pandemic positivity is on the up. “There’s not so much talk about redundancies – the vaccines gave people a lot of optimism, there’s a feeling we’re in a good place,” says Sabby Gill, CEO of assessment company Thomas International. To respond to this, employers need to not just consider how to meet their recruitment challenges but also how they motivate and retain new and existing staff. He adds: “Salary is only one component of how you motivate people – there are holidays, benefits, healthcare, and crucially how you treat your employees. Lots of people are looking at employers’ green credentials and whether their own personal brand matches that of a potential employer, so the more organisations can do to communicate that, the better.” 

Getting this right works both ways: in the current candidate-driven market, hiring and onboarding the wrong person can prove expensive. Being clear about your long-term flexible or hybrid working arrangements is essential, as this is becoming a dealbreaker for many candidates. “When you’re seeing someone who is motivated to leave, they’re finding themselves with a lot more options on the table. There might be two or three offers, one might offer more money, but candidates want to work flexibly,” says Henry Morse, associate director for London at recruiter Robert Half. “They’re  making demands even before the interview to know whether the role will be at home or in the office, and most people are looking for a mix.”

Retention and culture sit at the centre of how facilities and business services company ISS has responded to the flux in the labour market. “I really believe that you leave your boss and not your company,” says Stephanie Hamilton, director of people and culture for UK & Ireland. “Our leadership programmes are robust; we’ve supported managers to do reviews and give feedback online. It’s about making people feel they belong through continual engagement, having leaders in a space where they can have good conversations.” 

That’s not to say the company hasn’t reviewed its recruitment and workforce planning strategies, she adds. “When it comes to offers, we’re finding other employers have been aggressive about making counter-offers. But it can’t be a money move, it has to be a good cultural fit, so we don’t counter-offer.”

Hamilton and her team have also reviewed the candidate experience, ensuring there was the right number of stages and a good level of personal interaction. There’s a strong focus on re-skilling employees across the business rather than bringing in external talent. Last year when teams in the private sector business were placed on furlough, for example, many employees were offered the option to move across to public sector clients where work was available. “

We use an outsourcing provider to support our recruitment and they really helped with redeployment last year. If someone would rather work than be on furlough, we could support that,” she says. Looking forward, ISS will boost its homegrown talent pipeline by expanding apprenticeships, and using initiatives such as its JointForces@ISS employability programme, which helps place ex-forces personnel in roles.

But will the labour market stay like this long term, or is this a spike as venues open? A recent report by think tank the Resolution Foundation noted that employees were coming off the furlough scheme at a rapid pace to meet market demand, but warned of complacency as the government eases back and finally withdraws furlough support in September. 

The CIPD’s Davies predicts we’re more likely to see something representing “normality” in the autumn rather than large-scale redundancies at one end of the spectrum or catastrophic skills shortages at the other. Employers that place an emphasis on job quality will have the advantage, he believes – those that offer variety in people’s roles, invest in skills development and ensure they’re making the most of new ways of working. “Many organisations are playing catch-up now, but once they’ve reached a new equilibrium in terms of managing and attracting staff with the right conditions and wages, we’ll start to see those labour shortages recede,” he says. For an HR profession that has been on the point of burnout for more than a year, a slice of normality will surely be welcome. 

What's happening with hospitality?

Hospitality was one of the worst hit sectors at the start of the pandemic in 2020 as bars and restaurants closed their doors and thousands of staff were placed on furlough. While the sector has historically relied on a steady stream of EU workers, the double impact of post-Brexit immigration rules and foreign workers returning home due to the virus has led to hiring difficulties for many.

According to Indeed Flex, an online marketplace for temporary or flexible workers, this has driven hospitality companies to increase wages by as much as 14 per cent. The site found that the average hourly wage for a weekend shift has risen by 9 per cent compared with the same time in 2019. Shifting ‘freedom’ dates (after unlocking was postponed from 21 June to 19 July) have created even more of a challenge for these companies, as they needed to cover table service and accommodate for social distancing, often meaning more staff.

Indeed Flex found that the biggest increase in hourly rates was 11.15 per cent for weekday staff in Greater Manchester and Cheshire, and almost 14 per cent for weekend shifts. Jack Beaman, CEO of Indeed Flex, says there has been “an influx of people opting for temporary work as a post-lockdown lifestyle choice”, which was helping venues fill temporary roles.

Where are the hiring hot spots?

According to jobs search engine Adzuna, which aggregates vacancies from hundreds of job sites across the UK, the region with the highest number of advertised vacancies is the Southeast, with 218,172 open vacancies. This is almost three times the number of roles open in June 2020. London has 203,745 vacancies, compared to 80,000 in June 2020. In both cases, numbers have shot up in the two months since lockdown restrictions began to ease.

Adzuna’s numbers show a total of 1,177,949 vacancies available across the UK as a whole, up 67 per cent on just two months ago, and more than four times higher than June 2020. The regions with the lowest number of advertised vacancies are Northern Ireland, the Northeast and Wales. Reflecting a resurgence of tourism in the area, vacancies in the Southwest are more than three times higher than they were in June 2020, at 108,367.

Andrew Hunter, co-founder of the company, says there has been a “gear shift” in the jobs market in the last three months. “The hiring environment has moved from candidate rich to candidate poor,” he explains. “Finding talent has been made all the more challenging by a tight labour market with fewer overseas job seekers looking for UK work, millions of workers still on furlough, and a hesitancy among many to re-enter the world of work after the rollercoaster of the last 15 months.”

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