Pay rises expected to remain below inflation for the next decade, says CIPD

Many employees are unlikely to see much of a boost to the real value of their pay until at least the end of this decade, according to the latest Labour Market Outlook published by the Chartered Institute for Personnel and Development.

The survey of more than 1,000 employers identifies a number of factors that are combining to keep pay growth low, even though hiring intentions remain strong. The CIPD is calling on the Government to be more interventionist in its support and work in partnership with business to help improve organisations’ productivity so they can improve salaries.

The latest Labour Market Outlook survey finds that employers expecting to make a pay award during the 12 months between March this year and March 2017 plan to award a median pay increase of 1.7%.

This is the second quarter in a row when the CIPD’s survey of employers has anticipated a below inflation figure. It says reasons for this include increases to the National Living Wage.

Mark Beatson, CIPD Chief Economist, says: “These findings show that employers remain confident about short-term job prospects, with many more expecting to take on new staff than expecting to shed staff as the UK ‘jobs miracle’ continues. For now, there’s no sign of the economy running out of jobs, or out of people to fill those jobs. However, the UK is now in its eighth year of productivity ‘go-slow’ which continues to limit the scope for employers to pay more and recruitment and retention problems have so far proved manageable without across-the-board pay rises. This survey provides no indication of this situation changing any time soon.

“On top of this, employers are having to manage the consequences of government-imposed increases to the cost of employing people. The National Living Wage and roll-out of pension auto-enrolment were introduced to improve the living standards of low-paid employees, but this can only happen without significant job losses if the productivity of low-paid employees also increases. Simply making low-paid labour more expensive is not the answer and the Government shouldn’t be surprised if some employers choose easier options, such as reducing hours, chipping away at other benefits or making a less generous pay award the next time pay is reviewed.

“If the Government is going to intervene in this way, these policies have to be accompanied by a more active approach to helping businesses cope with these changes and improvements to their productivity; for example, by providing more practical advice and support for businesses.”

The CIPD is warning that some businesses, especially SMEs, lack the knowledge and capability to raise their game and are stuck in a cycle of low investment, low training and low ambition.

Beatson continues: “The Government needs to provide greater support and employers are going to have to be more and more creative in how they manage reward and motivate employees. Without productivity improvements, organisations will be forced to keep pay budgets under ever tighter control, which is why we believe the current jobs-rich, pay-poor environment is likely to continue as these increased costs to business take effect.”

Other findings from the labour market outlook include:
– Median basic pay expectations are higher in the private sector (2%) than in the public sector (1%) and voluntary sector (1%)
– Almost half of employers say they have vacancies that are hard-to-fill.

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