Unemployment is going down, pay is going up – so why do businesses need to be careful?

Here’s why it might not necessarily be good news for businesses

The recession might have officially ended in 2009, but many people and businesses are only just starting to see an improvement.

Unemployment continued to fall between February and April by 43,000 to 1.81m, according to the Office for National Statistics.

Meanwhile, over the same time wages have improved by 2.7% - the fastest rise since June-August 2011.

James Sproule, chief economist at the Institute of Directors said falling energy prices and low inflation had eased the pressure on companies with some of these savings passed on to employees through pay rises and bonuses.

“During the downturn, businesses made the difficult decision to preserve jobs and asked that employees forsake pay rises,” he said.

“The strength of the recovery proves this was the right choice. Encouragingly, pay rises are being handed out in a manner which is both sustainable and in line with long-term productivity trends. As the labour market continues to tighten and competition for jobs heats up, real wage growth should remain entrenched for some time to come.”

Advice to businesses

Seb O’Connell, managing director for Europe at global recruitment firm Cielo, warned businesses they might need to work harder to retain staff.

“In a more buoyant job market, employees are more likely to feel the pull of greener pastures and may be tempted to move elsewhere by new opportunities and offers of higher remuneration,” he said.

“Companies need to ensure they double their efforts to retain their people by providing a visible career path and a thought through and authentic employee value proposition that appeals both to potential new employees and the critical existing employee base.”

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