Pay rises remain subdued as 24 applicants chase every low-skilled job vacancy

Hiring demand remains strong whilst unemployment is at a record low

The latest CIPD/The Adecco Group Labour Market Outlook suggests that UK employment will again grow strongly in the third quarter of 2017, but wage growth is likely to remain weak.

The quarterly survey of more than 1,000 employers identifies that near-term employment expectations have risen compared with the previous spring report (May 2017). This is reflected in the quarter’s net employment balance – a measure of the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels in Q3 2017 – which shows an increase from +20 to +27 during the past three months.

However, while the UK labour market remains buoyant, basic pay award expectations for the next 12 months remain at just 1 per cent. The subdued basic pay award outlook can be attributed to a range of reasons. 

Against the backdrop of poor productivity growth, the report points to an increase in labour supply over the past year as a key factor behind the modest pay projection. This is driven by relatively sharp increases in the number of non-UK nationals from the EU, ex-welfare claimants and 50-64 year olds; although the report is keen to stress the future migration trends appear highly uncertain.

The increase in labour supply may explain why the jobs market remains challenging for some jobseekers, especially those seeking lower-skilled jobs. Employers report a median number of 24 applicants for the last low-skilled vacancy they tried to fill, compared with 19 candidates for the last medium-skilled vacancy and eight applicants for the last high-skilled vacancy they were seeking to fill. Overall, employers felt that around half of applicants were suitable for each role they were recruiting for. The variation across skill level is also consistent with labour market trends which show that high-skilled occupations account for a large share of the number of jobs created during the past year in contrast with the low proportion of low-skilled jobs that have been generated. 

Looking more closely at pay, in the private sector, almost a quarter of firms cite delivering the National Living Wage (23 per cent) as a brake on pay growth, a further fifth (21 per cent) cite uncertainty over access to the single market, and a fifth (21 per cent) reference the Government’s auto-enrolment pensions scheme as acting as a challenge. More than a fifth of firms (21 per cent) also report that affordability is weighing pay down, underlining the urgent need to address weak productivity growth in the UK. Meanwhile, around three quarters of public sector employers (72 per cent) say that restraint in the public sector is the main reason why they cannot match the inflation rate target of 2 per cent in their next basic pay award.

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