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Pay growth expectations slump to three-and-a-half-year low

14 Aug 2017 By Marianne Calnan

Economy will be ‘stuck in a low-wage, low-productivity swamp’ if HR fails to react, say experts

Pay growth is anticipated to be just 1 per cent over the next 12 months – the lowest expectations have been for three-and-a-half years, figures published today have found.

The latest Labour Market Outlook from the CIPD and the Adecco Group also revealed that, of those employers that were unable to increase wages to match the 2 per cent Bank of England inflation target, two in five (42 per cent) blamed the public sector pay cap, a quarter (24 per cent) said their organisation was simply unable to pay more and 14 per cent cited increases to the national living wage in April. 

The research also pointed to an increase in labour supply over the past year putting downward pressure on pay. Employers reported an average of 24 applicants for the last low-skilled vacancy they tried to fill; 19 candidates for the last medium-skilled role; and eight applicants for the last high-skilled position. Overall, respondents felt that around half of applicants were suitable for each role they were recruiting for.

“HR needs to look at organisational, work and job design to see how performance can be increased in a sustainable way so employee pay and benefits can be improved,” said Charles Cotton, performance and reward adviser at the CIPD. “There are many things employers can do to boost employee financial wellbeing, such as making sure that pay decisions are fair and that there are benefits on offer that help workers make their wages go further, and helping them become more financially savvy.”

Cotton warned that, if HR did not act fast to correct this, the economy risked being stuck in a “low-wage, low-productivity swamp”.

Gerwyn Davies, senior labour market analyst for the CIPD, added: “Predictions of pay growth increasing alongside strong employment growth is the dog that hasn’t barked for some time now, and we are still yet to see tangible signs of this changing… Against the backdrop of future migration restrictions and a tight labour market, the need for a workforce development plan is greater than ever.”

Meanwhile, Alex Fleming, president of general staffing at The Adecco Group UK&I, said the continued subdued wage growth the labour market currently faced was a “real issue that employers need to tackle head on”. 

He urged employers to invest in staff to increase productivity, which should in turn stimulate wage growth.

The Labour Market Outlook is not the only recent warning over sluggish pay growth. In a speech at an event in June, the Resolution Foundation’s director, Torsten Bell, warned delegates that real pay is on course to be the worst in 210 years by 2021.

The latest Office for National Statistics (ONS) figures revealed pay had grown just 2 per cent in nominal terms year-on-year. The next round of ONS labour market statistics is due to be published on Wednesday.

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