UK employers expect to raise wages as recruitment challenges persist

UK employers are willing to increase pay to find people with the right skills who can fill the high number of job openings, while workers show signs of savings stress from the increased cost of living, according to the latest Labour Market Outlook from the Chartered Institute of Personnel and Development (CIPD).

Vacant jobs are plentiful, but available workers are scarce, the CIPD's report said. Forty-seven per cent of employers addressing hard-to-fill vacancies have responded by upskilling existing staff, and 43% have raised pay — up 14 percentage points since the 2022 summer report.

Fifty-seven per cent of all employers currently have hard-to-fill vacancies, and 29% anticipate significant problems finding workers for those openings over the next six months, the report said. The most affected sectors include primary and utilities (82%), healthcare (78%), and education (77%).

The latest survey, based on the findings of over 2,000 employers, found that more employees have reduced contributions or opted out of pension schemes entirely since the start of 2022. Part of the increase is probably linked to the rise in the cost of living since last year, the report said.

Meanwhile, pay is increasing in some sectors, the report said. "Expected pay awards have risen to 5% overall, the highest level since we started tracking in 2012, with the private sector reaching this level in the last quarter. With the highest levels of inflation seen in 40 years, this is more of an inevitability at this stage," the report said.

But public sector pay award expectations "stand at a measly 2%", the report says. In education and healthcare, employers are increasing the duties of existing staff to mitigate staff shortages. The pay and additional duties "are driving the widescale striking we're seeing".

The survey also suggests that further pay increases could be in store this year, with 55% of employers saying they expect to raise base or variable pay further in 2023 to better recruit and retain staff, the CIPD said in a press release. However, median anticipated public sector pay rise expectations of 2% lag those in the private sector at 5%, with the gap providing the context for ongoing discontent and strikes amongst key public sector workers.

In real terms (adjusted for inflation), total and regular pay fell on the year in October to December 2022, by 3.1% for total pay and by 2.5% for regular pay, according to the latest data from UK Office for National Statistics.

It is imperative that wages can accommodate the cost-of-living pressures facing today's workforces, according to UK economist Lauren Thomas of Glassdoor, an employment-focused website.

"Salaries are always a hot topic for workers, but there's no doubt employees are concerned about their pay keeping up with today's rising prices — discussion of inflation surged 188% from January 2022 to January 2023. And with salaries continuing to fall below inflation despite highs in nominal growth, it's no wonder they're worried," Thomas said in a news release.

UK Glassdoor research found an increase in employee complaints around burnout and overwork since coronavirus restrictions ended in the summer of 2021. The research also found that industries with significant strike action appear to have particularly low employee satisfaction, both before and after the pandemic. Thirty-six per cent of employers are increasing the duties of existing staff in response to shortages, the CIPD report said.

The CIPD's report also found that more employers are becoming open to hiring from more diverse talent pools and demographics prone to employment barriers in order to fill roles. This includes people with a long-term history of unemployment, refugees, ex-offenders, and young people with few or no qualifications, the report said.

"Many employers are recognising the potential to attract certain groups to fill vacancies — particularly older workers, carers, and those with health conditions — but this also requires a focus on improving job quality, particularly flexibility," CIPD labour market economist Jonathan Boys said in the press release.

— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.