Why aren’t UK employers under more pressure to raise wages?

 

New Labour Market Outlook survey suggests most private sector workers are not pushing for pay rises, despite falling real wages and low unemployment. This is in stark contrast to public sector workers.

The latest quarterly CIPD survey finds only a quarter (24%) of employers in the private sector say they are under some or significant pressure to raise wages from the majority of their workforce, while almost four in ten private sector firms (38%) say they face no pressure at all to raise wages.

 

The CIPD/The Adecco Group Labour Market Outlook survey of more than 2,000 UK employers shows a slightly higher proportion of private sector employers (36%) cite either some or significant pay pressure to raise wages for certain roles, particularly among high and middle-skilled jobs.

 

In contrast, the share of public sector organisations that are under pressure to increase wages is much higher than in the private sector, which may partly reflect the recent debate about scrapping the public sector pay cap. Almost three-fifths (59%) of public sector organisations say they are under some or significant pressure to raise wages for the majority of the workforce. In addition, a quarter (25%) of public sector organisations say that they are under some or significant pressure to raise wages for certain roles.

 

The survey also suggests a significant majority of employers, apart from a few specific sectors, don’t face significant difficulties accessing the skills they need – only 13% of all current private sector vacancies are skill-shortage vacancies. Only a quarter (29%) of all employers with a vacancy report it to be from skills shortages, suggesting pay pressure is unlikely to come from a lack of skills in the current labour market.

 

The most common reason given by private sector employers (23%) for the lack of pressure to raise wages is a recognition among workers that the business cannot afford more generous pay increases, underlining the productivity challenge many firms face.

 

Together, these factors help explain why employers report median basic pay increase expectations for the year ahead of just 2%, which, while an uptick on the previous quarter’s figure of 1%, is still in line with official data which shows that basic wage growth has settled at between 1.8%-2.2% over the past six months.

 

Meanwhile, the short-term jobs picture remains positive. This quarter’s net employment balance – measuring the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels in the third quarter of 2017 – remains near record high levels at +26 compared to +27 for the previous quarter.

The survey also shows:

  • Employment confidence is high in the East Midlands (+38) and the South-West of England (+51).  Meanwhile, employment prospects are less buoyant in Scotland (+23) and London (+22).
  • From an industry perspective, employment confidence is high among the manufacturing (+38), technology (+43) and the professional, scientific, technical (+52) sectors
  • Consistent with the trend over recent years, the report’s median average basic pay increase expectations are higher in the private sector (2%) than in the public (1%) and voluntary (1.5%) sectors.
  • While overall pay pressure is subdued in the private sector, some parts are under more pressure. For example, 38% of construction employers say they are under some or significant pressure to increase earnings for the majority of the workforce.

 

Gerwyn Davies, CIPD Senior Labour Market Analyst, comments: “This survey provides further evidence that productivity has a far more significant bearing on pay growth than the tightness of the labour market. Over time we might expect low unemployment levels to lead to increased pressure on pay, as the Bank of England has predicted. However, it’s the UK’s ongoing poor productivity growth that’s currently preventing employers from paying more, not their inability to find or retain staff. This is why the Chancellor in this month’s Budget has to prioritise investments that will support workplace productivity improvements. For example, investing in support for small firms and skills development initiatives that can help to drive productivity gains over time.

 

“In terms of employment, despite the evident optimism in this quarter’s survey, it remains likely that the sharp increase in the number of people in work over the past year will ease during the course of 2018. This is due in part to the impact of continued slower economic growth, the uncertainties associated with Brexit and the prospect of further interest rate rises. However, employment prospects for the manufacturing sector look bright, perhaps buoyed by the benefit of a weaker currency and the strength of global demand.”

 

View the full report here

 

You can view the CIPD press release in full here.

 
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