Employment grows but wage growth to stay weak

Beckett Frith, AUGUST 14, 2017

Research suggests this could be the result of an increase in labour supply over the past year

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

The quarterly survey of more than 1,000 employers found that near-term employment expectations have risen compared with the previous report (May 2017). 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 the third quarter of 2017 – has increased from 20 to 27 during the past three months.

Despite this, basic pay award expectations for the next 12 months remain at just 1%. The research suggests this could be due to an increase in labour supply over the past year. It highlighted relatively sharp increases in the number of EU nationals, ex-welfare claimants and 50- to 64-year-olds as being behind the surge of available labour.

Gerwyn Davies, senior labour market analyst for the CIPD, said the report suggests current pay trends will continue. “Predictions of pay growth 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 situation changing in the near-term,” he said. “The facts remain that productivity levels are stagnant, public sector pay increases remain modest, and wage costs and uncertainty over access to the EU market have increased for some employers.

“At the same time, it is also clear that the majority of employers have still been able to find suitable candidates to employ at current wage rates thanks to a strong labour supply until now.”

Alex Fleming, president of general staffing at Adecco Group UK&I, said the report generally looks positive. “Overall our labour market picture looks promising, especially considering the unknown future impact of Brexit on the flow of talent in and out of the UK,” he said. “Strong labour supply is a key contributor: the long-term unemployed are finding work more quickly and the number of workers aged 50 to 64 who are in employment has risen by around 200,000 during the past year.

“Context is important here though; employers continuing to hire isn’t necessarily an indication that they are convinced of a bright economic future, rather that nothing significant has changed in recent months. Many employers are getting on with the day-to-day hiring required to keep their businesses ticking along until they have enough information to build concrete recruitment plans.”