Basic pay expectations rise in private sector

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Skills shortages have put pressure on wages and upped starting salaries in the private sector, while the public sector struggles to keep up

Basic pay expectations in the private sector have increased from 2% to 2.5%, the highest registered figure since tracking began in 2012, according to the latest Labour Market Outlook (LMO) from the CIPD and The Adecco Group.

Meanwhile, basic pay award expectations in the public sector have fallen from 2% to 1.1%, widening the gap between private and public sector pay.

The LMO surveyed 1,254 employers on their pay, recruitment and redundancy intentions for the first quarter of 2019. It found that overall employers’ intentions on basic pay awards remain stable at 2% for the sixth successive quarter. With inflation forecasts currently below 2% this will mean a real-term pay rise for many in 2019.

For employers expecting to increase pay by 2% or more, inflation remains the driving factor for this (42%), followed by the need to pay the going rate of pay elsewhere (38%).

Jon Boys, labour market economist for the CIPD, said that HR should focus on the barriers preventing boosts to productivity and pay at their organisations.

“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 people's skills at work our businesses will be much more productive. Productivity is 22% lower than it would have been if the pre-financial crisis trend had continued. As a result pay growth is woefully behind,” he said.

“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.”

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.

However, the research also highlighted the effects of a tighter labour market on skills shortages, with seven in 10 (71%) employers with vacancies reporting that at least some were proving hard to fill, compared to 64% in the same quarter last year. Overall, employers in the public sector are more likely to have hard-to-fill vacancies than the private sector (77% compared with 69%).

Skills shortages are also putting pressure on wages, in particular on starting salaries.

Two-thirds (66%) of private sector firms have increased starting salaries in response to recruitment challenges, up from 56% in the previous quarter. In contrast 27% of public sector employers are taking this approach, down from 43% in Summer 2018. Private sector employers are also far more likely to raise overall salaries (62%) than public sector employers (34%) in response to retention pressures.

Alex Fleming, president and country head of The Adecco Group UK and Ireland, said that employers have shown resilience as skills become harder to find: "The UK recruitment market maintains positive levels of demand despite the imminent uncertain future. Even though there has been a fall in the net employment balance, employers seem to be adapting to the idea that a skills-short market is a fact of life, and they are getting on with things regardless."

She added: “Raising wages to attract or retain staff is certainly one option and a short-term fix, but the employers that will excel in our current environment will be the ones that think more holistically about their talent strategies. Organisations that identify the skills and traits they need to prosper, streamline their process for attracting talent, and build an environment that allows talent to thrive will be the ones who succeed.”

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