Businesses will face job cuts when implementing the new national living wage if they do not adapt to current economic conditions, according to the CIPD.
Mark Beatson, chief economist at the CIPD, warned that the recession has left businesses too cautious to take advantage of better economic conditions.
“The recession has cast a long shadow over many British businesses and residual fears about a future downturn have left many organisations with a ‘glass half empty’ mindset which has held them back from investing, despite improved economic conditions,” he said. “We need these businesses to recognise the current opportunities for growth, innovation and investment, to raise their sights and break through their ‘ambition ceiling’."
He added: “Unless they can do this, it’s questionable how many companies will be able to absorb the planned National Living Wage without an adverse impact on employment levels."
The CIPD’s report, Investing in Productivity, found that despite two years of solid economic growth, a fifth (21%) of organisations are still stuck in survival mode and aren’t making the necessary investments in equipment or people to boost their productivity.
The researchers identified five distinct mindsets when it came to investing for the future.
‘Balanced investors’ – 25%
This group said that they have ‘continued to invest in equipment, technology and people and have increased their productivity significantly’ over the last two years. This group is most likely to have increased investment on the previous two years. Over half (53%) have increased expenditure on capital equipment, 43% increased expenditure on learning and development (L&D) and 72% had increased their output in the previous 12 months.
‘Survivors’ – 21%
These organisations felt that their business had been ‘in survival mode for a long time and had not been able to invest in major improvements to the business’. This group is most likely to have reduced investment in the previous two years - 22% reduced expenditure on capital equipment and 30% reduced expenditure on L&D.
‘Cost-cutters’ – 19%
Some respondents said that they are ‘a leaner business now because they took cost out during the recession and the productivity of their workers has improved as a result’. This group is most likely to have maintained a stable level of investment.
‘People-focused investors’ – 16%
This group said that their business ‘has continued to invest in its people, but they need to invest more in equipment and technology to see real productivity improvements’.
‘Capital-focused investors’ – 13%
The smallest group said that their business has ‘continued to invest in equipment and technology but they haven’t invested enough in staff to maximise the value of this investment’.
CIPD chief executive Peter Cheese said business needs a stronger focus on improving workplace productivity if it is to sustain real wage increases.
“The National Living Wage could ‘pay its way’ if employers increase the productivity of their workers,” he explained. “However, if businesses fail to provide better training and redesign jobs and adopt better systems and equipment, so they add more value per hour, it’s likely that the UK’s productivity problems will persist and companies will struggle to deliver improved wages without making some job cuts.”
