Productivity only a priority for a third of employers as skills shortages persist

Despite its importance to the economy, productivity is only a priority for 36 percent of employers and only half (50 percent) use the term when discussing organisational performance according to the latest Labour Market Outlook from the CIPD and the Adecco Group. And LMO data suggests that employers are overconfident when it comes to assessing their own productivity, with just 7 percent believing their organisation’s productivity is below average.

The report also makes a link between high performance working (HPW) practices and productivity, as organisations that have productivity measures have a larger proportion of staff that received training and a larger proportion of staff that received a formal performance appraisal. Yet skills shortages will continue to put pressure on wages, and starting salaries in particular. Two-thirds (66 percent) of private sector firms have increased starting salaries in response to recruitment challenges, up from 56 percent in the previous quarter.

In contrast, just over a quarter (27 percent) of public sector employers are taking this approach, down from 43 percent in Summer 2018. Private sector employers are also far more likely to raise overall salaries (62 percent) than public sector employers (34 percent) in response to retention pressures.

After six years stuck at 2 percent, basic pay award expectations in the private sector have crept up to 2.5 percent. Meanwhile, basic pay award expectations in the public sector have fallen from 2 percent to 1.1 percent. The report highlights the effects of a tighter labour market on skills shortages as seven in ten (71 percent) of employers with vacancies report that at least some of them are proving hard to fill.

Jon Boys, labour market economist for the CIPD, the professional body for HR and people development, comments: “If we’re to see a sustained improvement to pay we must look at what is preventing individuals from being more productive at work. If we can improve how managers train, develop and apply peoples’ skills at work, our businesses will be much more productive. Productivity is 22 percent lower than it would have been if the pre-financial crisis trend had continued. As a result pay growth is woefully behind.

“While the private sector is more willing to spend money in response to recruitment and retention challenges, the public sector’s hands are tied. Employers will need to think far more creatively about how they attract, develop and retain their staff to boost both skills and productivity.”

Recruitment outlook

The report’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 – has fallen to +20 continuing a downward trend from a high of +26 in Summer 2018.

The tightening of the labour market can be seen in the fact that seven in ten (71 percent) of employers with vacancies report that at least some of them are proving hard to fill, an increase from 64 percent in the same quarter as last year. Overall, employers in the public sector are more likely to have hard to fill vacancies than the private sector (77 percent compared with 69 percent).