Why record high job-to-job figures may be pushing up salaries
When Bank of England boss Andrew Bailey told workers that, in order to prevent further inflation rises, they shouldn’t ask for a pay rise, there was outrage.
As the cost of living increases dramatically – and is due to rise even further when the energy price cap lifts in April – many feel that Bailey’s comments were insensitive and completely out of touch, particularly coming from someone with an annual salary of over £500,000.
What he has also failed to take into consideration is how current market forces are pushing salaries up.
Labour shortages prompting salary rises
The Office for National Statistics (ONS) found that job-to-job moves yet again reached record numbers from October to December 2021, driven by resignations as workers strive for greater opportunities, including salary.
Combine that with a labour shortage that is forcing employers to raise salaries to retain staff (WaveTrackR data continues to show incredibly strong jobs numbers, with January’s jobs figures 22% above the 2021 monthly average) and it’s clear that many recruiters and employers feel they have no other option but to increase wages to tackle labour shortages.
Decreases in real wage growth
According to the ONS, pay growth accelerated in January. Median monthly pay increased by 6.3% compared with the same time a year ago and was up as high as 10% compared with February 2020, suggesting that employers are raising salaries as a recruiting tactic as well as to retain staff as an increasing number job hop.
This has left many employers and recruiters struggling to understand why, despite offering increased salaries, they are still experiencing hiring issues. The issue is that, while this is costing businesses more money, real wage growth has fallen by 0.8% from last year thanks to rising inflation and the cost of living. With the Bank of England warning that inflation is set to rise above 7% this year, this will only get worse.
Economic inactivity skewing unemployment numbers
Meanwhile, vacancies rose to a record high of 1.3 million in January and payrolled employees increased by 108,000 (leading to another record of 29.5 million workers on UK payrolls).
We are experiencing our tightest labour market in nearly 50 years, with nearly as many vacancies as there are unemployed – just under 1.1 unemployed people per vacancy.
And yet there are now nearly 600,000 fewer employed people than on the eve of the pandemic. So why is unemployment so low?
The answer to that is largely due to people dropping out of the labour market entirely – economic inactivity is 400,000 above pre-pandemic levels. The current drivers of economically inactive figures are those with long-term illnesses (we are yet to know how much of this is caused by Long COVID) and older workers taking early retirement.
A risk of faltering recovery
The combination of rising inflation, skills shortages, the struggle to hire pushing up wages, and a rising cost of materials in many industries is a real problem for employers.
The economy is strong enough to still be creating jobs but without the labour to fill those vacancies and the risk is that recovery could falter.
Further, many of the industries that are finding it particularly difficult to recruit are those that are essential to keep the UK running.
WaveTrackR data consistently flags Health & Nursing for posting amongst the highest numbers of jobs of any industry and yet it frequently receives low numbers of applications, resulting in the industry receiving the lowest numbers of average applications per job by industry for the past 12 months.
The recruitment struggles Transport & Logistics have had have been well publicised, as have the offers of eye-watering salary increases for HGV drivers in the latter quarter of the year.
Increasing access to work is key
Of course, businesses have to find ways to recoup the extra expenditure of higher salaries and that often falls onto the consumer, leading to higher prices in the market and higher inflation – it is a dangerous loop.
What other tactics can recruiters and employers use to fill vacancies?
What seems to be needed is a way to access and encourage those who can work amongst the growing number of the economically inactive. We need to find ways to increase participation, appeal to those who have left the labour market but would like to re-join it if conditions were different.
A continued focus on inclusive recruitment, flexible work opportunities, in-work skills training, and increased wellbeing and caring support in the workplace will all help to attract talent that may be holding back returning to work. These are all also factors contributing to workers wanting to move from job to job. A need or desire for a more flexible working arrangement, greater training opportunities, more of an emphasis on wellbeing and support in the workplace, a move away from a negative experience with a manager – all of these are reasons to search for another job and therefore also ways in which employers and recruiters can attract talent to their jobs.
There will always be a need for job-to-job recruitment but it won’t help tackle the labour shortages marring market recovery.
To reduce resignations and reach out to those growing numbers of people who have left the labour market entirely for reasons that could be rectified, employers need to make access to work easier.
In certain sectors, businesses still recovering from the pandemic are struggling to match salaries that are being pushed up both as a way to retain talent and in order to win new talent. This apparent correlation between an increase in job-to-job moves and a rise salaries is something that recruiters and employers alike need to be mindful of in the current market.