Employment is on the rise but pay not matching the rate of inflation

The latest labour market statistics shows employment has continued to rise, but at a slower rate than seen last month. However, at 67.2 per cent, record-breaking numbers of women are now in work, the highest since records began. The figures published today by the Office for National Statistics (ONS) show the employment rate in the three months to December 2013 rose to 72.1 per cent, lower than the previous three months and with just a small rise in total pay of 1.1 per cent. This slower pace of growth in employment and pay is reflected in the latest CIPD/ SuccessFactors quarterly Labour Market Outlook survey, which reveals that, although recruitment intentions remain positive, the rate of increase has slowed significantly and the vast majority of organisations expect to give pay awards below the current rate of inflation.

Almost three quarters of employers (71%) say that they will be awarding pay increases of 2 per cent or less in the 12 months to December 2014 while CPI inflation is growing by 2 per cent. According to the CIPD, this reflects a “productivity hangover” affecting UK employers who have maintained and increased employment over a sustained period of falling output.

Recruitment intentions among LMO employers have fallen to 54 per cent from 65 per cent during the past three months. This is the lowest proportion planning to recruit staff since the LMO survey began. In addition, around one in five employers plan to make redundancies in Q1 2014, which is also equal to the lowest level since the survey began.

“Employment growth, normally a lagging indicator of recovery, seems to have preceded the stronger signs of growth we’re now seeing, said Gerwyn Davies, the CIPD’s Labour Market Adviser, comments. “So it is unsurprising that employment intentions are now dipping just as economic growth seems to be taking hold, with employers needing to tackle the major productivity hangover affecting the UK economy.

“Weak productivity partly explains why a majority of employers expect to continue awarding below inflation pay rises for their workforce. Sustainable increases in real wages can only be delivered if organisations can boost productivity, for example through smart investment in the training, development and management of their staff.

Davies continues: “However, although the immediate jobs outlook remains bright, it looks as though the vast majority of workers will at best experience a standstill in real earnings. The challenge for managers will be to find ways to continue motivating employees who find their pay lagging behind inflation, and in many cases are struggling to pay bills and mortgages.”