Employer plans to take on more staff are being hit by worsening skills and labour shortages, partly as a result of a sudden reversal in the growth in the number of both EU and non-EU migrants in employment in the UK.
This is the conclusion of the latest quarterly Labour Market Outlook from the CIPD and The Adecco Group, based on a survey of 1,002 employers, which shows that while the short-term outlook for employment remains strong, labour and skills shortages are accelerating.
The survey’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 remained extremely positive at +22 (compared to +23 in Q3 2018).
However, among employers which currently have vacancies, seven in ten (70%) report that at least some of their vacancies are proving hard-to-fill, higher than in Summer 2018 (66%) and Spring 2018 (61%).
In addition, over two in five of all employers (44%) report that it has become more difficult to fill vacancies over the past 12 months at their organisation, while over a third (34%) of employers say that retention pressures have risen during the same period.
This situation is being exacerbated by a relatively significant drop in the number of both EU and non-EU migrants that are employed in the UK. According to the latest official data, the number of non-UK-born workers in the UK decreased by 58,000 between Q2 2017 and Q2 2018, compared with an increase of more than a quarter of a million (+263,000) from Q2 2016 to Q2 2017. Contrary to the popular narrative, the labour supply shock is being driven primarily by falling interest from migrants from outside the EU. The number of non-EU-born workers in the UK decreased by 40,000 between Q2 2017 and Q2 2018, compared with an increase of almost a quarter of a million (225,000) during the same period in the previous year.
Looking ahead, labour supply looks set to be further constrained from 2021 when migration restrictions for EU citizens are introduced, especially for lower-skilled workers.
In particular, employers express concern that the main route for recruiting EU citizens to fill lower-skilled roles that was recently proposed by the Migration Advisory Committee won’t be enough to satisfy their recruitment needs. One in ten (10%) employers that currently employ EU citizens report that extending the Youth Mobility Scheme to EU nationals post-Brexit would meet their recruitment needs to a large extent for medium and low-skilled roles.
In addition, a third (33%) of employers who employ non-EU citizens say that the administrative burden of using the current points-based system for non-EU citizens system, which will most likely be adopted for EU citizens from 2021, is too great. Around a quarter (26%) say that the salary threshold is too high and a fifth (20%) of employers say that the cost implications of the current system are also too high.
No movement on pay except for new starters and key staff
While demand for labour remains strong, overall, employers report median basic pay increase expectations for the 12 months to September 2019 of just 2%. However, the squeeze on skills is having a clear impact on many employers’ pay decisions:
• Around half of organisations (48%) that have experienced increased difficulty recruiting staff during the past 12 months have increased starting salaries in response. More than a quarter (27%) have done so for the majority of vacancies, while around a fifth (21%) have done so for a minority of vacancies.
• Among organisations that have experienced increased difficulty retaining staff over the past 12 months, just over half (51%) have increased salaries, with 28% raising salaries for the majority of staff and 23% doing so for key staff only. Almost half of employers (47%) have not raised salaries at all in response to rising retention difficulties, highlighting the wider productivity challenges and cost pressures facing many organisations.
Gerwyn Davies, Senior Labour Market Analyst for the CIPD, the professional body for HR and people development comments:
Alex Fleming, Country Head and President of Staffing and Solutions, The Adecco Group UK and Ireland, added:
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