Ken Mulkearn | 17 Jun 2019

Pay Climate 17 Editor's Viewpoint

Pay pressures pop up in surprising places

The labour market continues to break records but has yet to produce generalised upward pressure on pay. While employment is up and unemployment down, both to levels they have not reached in a long time, the median for pay awards across the whole economy has come back down to 2½ per cent, having ticked up in the first quarter under the influence of more higher-end pay awards in manufacturing. This year’s round of public sector pay awards might be expected to be in the same ballpark as well, though we may have to wait for these since other issues are currently preoccupying the Government.

Unsurprisingly, since budgets for pay rises remain constrained, organisations are having to look to other aspects of reward – notably benefits – in order to ensure that their focus on staff recruitment, retention and motivation is not lost. To help organisations look at ways they can improve their benefits package, we are launching a new benefits handbook (for details, see page 09).

Other aspects of the generally muted picture on pay highlighted in this issue include the slowdown in the labour market for traditional graduates, with only the civil service expanding recruitment in this area, mainly in preparation for Brexit.

Likely explanations for the overall pay situation include the global slowdown, the economic uncertainty being caused by the seemingly interminable Brexit discussions, and the fact that inflation – while it increased recently – is mostly at moderate levels and looks set to remain so, at least in the short term.

While the labour market is extremely robust on most measures, especially in terms of the fact that the latest rise in employment is down to more full-time jobs being created, there are potential areas of weakness. One is that the numbers of those who are working part-time because they could not find a full-time job rose in the latest figures. It had been falling but remains significantly higher than pre-recession levels. The other is that labour market flows are shifting under the influence of Brexit and this is leading to labour supply issues in many areas.

This may be a factor behind two other developments highlighted by our research this quarter. These are that pay for the new role of ‘degree apprentices’ appears to be rising rapidly. While employers may be looking to these as a cheaper alternative to traditional graduates, all the signs are that pay levels for the new type of trainee are picking up. We also underline how pay for staff whose wages are influenced by the National Living Wage (NLW) is rising at much faster rates than that for higher-paid employees. This helped the median pay rise in private services to increase a little ahead of the median for the whole economy.

At the moment, then, pay pressures seem to be greatest at the lesser-qualified and lower-paid end of the labour market. This seems to be so even in the light of relatively high year-on-year increases in the NLW. In such a context, politicians’ promises to raise the statutory minimum even higher – close to or equal to the levels estimated to be necessary for a socially acceptable standard of living – and to increase its coverage down the age scale are therefore likely to be welcomed by workers, whatever their employers’ worries about the labour cost effects of such a move. If and when this change in the wage floor takes place, employers may need to examine pay and productivity together, something that most have neglected until now.