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Wage stagnation threatens wellbeing of low-paid workers

While a short supply of candidates has driven up starting salaries to near-record levels, wages are still expected to fall behind the cost of living.

Strong demand for staff and a shortage of skilled candidates drove up starting pay rates in January at the third-sharpest rate since records began in October 1997, according to research published today (10 February) by KPMG and the Recruitment and Employment Confederation (REC).

Neil Carberry, chief executive of the REC, said: “With competition still hot, companies are having to raise pay rates for new starters to attract the best people. And the cost of living crisis means there is also more pressure from jobseekers who want a pay rise.”

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Despite the strong rise in starter pay, many people are finding themselves struggling to keep up with these rising costs.

Research by the Living Wage Foundation, released today, has shown that almost two fifths (38%) of workers earning below the real Living Wage (£9.90 per hour nationally, £11.05 in London,) had fallen behind on their household bills in 2021, up from 29% in 2020.

The number of those regularly skipping meals to save money has also increased from  27% to 32% of low-paid workers.

Katherine Chapman, director at the Living Wage Foundation, told HR magazine that while everyone is affected by the squeeze on household budgets, the lowest-paid are already seeing dire effects.

She said: “We’ve seen many have to turn off the heating in their homes and even skip meals, and this significantly impacts mental and physical wellbeing in an already difficult time.”

One solution, she said, is to pay employees a real Living Wage, as it is calculated to reflect trends in living costs.

She added: “In return, employers benefit from workers who are healthier, happier, more productive and less likely to move on from their employment”. 

Andrew Bailey, governor of the Bank of England, drew criticism earlier this month for asking workers not to ask for a significant pay rise – thereby risking an ‘upward spiral’ as wages and inflation push each other higher.

Frances O’Grady, general secretary of the TUC said that Britain needs a pay rise, not pay restraint. 

“Let’s be crystal clear,” she said, “energy prices are pushing up inflation, not wage demands.

“The last thing hard-pressed households need right now is for their pay to be held down.”

Chapman added: “This is a crucial time for businesses to step up and provide the workers who kept their businesses running over the past two years with a stable wage that better secures them against unexpected financial costs – a real Living Wage.”