Firms 'can't retain staff for long without economic growth'

A third of firms are maintaining staff levels higher than they need, predominately to retain skills in the downturn, according to research by the Chartered Institute for Personnel and Development.

However, its Labour Market Outlook warns that companies will make redundancies if economic growth fails to materialise soon.

The survey of 1,000 employers revealed that 31 per cent of private-sector firms were keeping more staff on their books than their output required. Of those organisations, six in ten cited the mean reason as retaining a skills base.

However, 62 per cent of private-sector firms felt that they would be forced to cut back on headcount if output or service delivery did not pick up in the next year.

The number of organisations planning to make redundancies in the third quarter of 2012 had fallen to 29 per cent from 32 per cent in the past three months, found the research, conducted by YouGov for the CIPD.

The report also measured the UK’s net employment balance – the difference between the proportion of employers that intended to increase and decrease total staffing levels.

It found that optimism was higher among private-sector SMEs than in large private-sector firms, while the net score for the public sector remained negative.

Gerwyn Davies, labour market adviser at the CIPD, said that spare workforce capacity meant businesses were ready to respond to increased demand, but that employers could not hold on to workers indefinitely.

“The tenacity with which employers are hanging on to skilled labour is a reflection of the high value they place on it and the damage they fear will be done to their businesses if they are forced to start making more redundancies,” he said. “But there is only so long they can hold out for growth.”

He added: “Private-sector firms should be using any spare capacity they have to train, to innovate, or to focus staff in areas such as business development to help drive the medium-term prospects of their firm and the UK economy.”

The Labour Market Outlook also found that wage packets would continue to be squeezed this year, with a predicted increase of 1.6 per cent. But average pay awards of 0.2 per cent in public-sector organisations would continue to lag behind those in the private sector, forecast at 2.5 per cent.