The latest quarterly CIPD Labour Market Outlook survey of more than 1,000 employers found that those expecting to make a pay award between March 2016 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 has anticipated a figure below the government’s official inflation target of 2%.
Expectations are higher among SMEs (2%) than larger organisations (1%), which the CIPD suggests could be the result of large employers feeling the effects of additional labour costs more strongly than smaller firms.
Mark Beatson, CIPD chief economist, said that the findings show employers remain confident about short-term job prospects. “For now there’s no sign of the economy running out of jobs, or out of people to fill those jobs,” he said. “However, the UK is now in its eighth year of productivity ‘go-slow’, which continues to limit the scope for employers to pay more. Recruitment and retention problems have so far proved manageable without across-the-board pay rises. This survey provides no indication of that situation changing any time soon."
He warned that on top of this employers have 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,” he said. “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.”
As such, Beatson predicts that inflation-busting rises will continue for the foreseeable future. “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," he explained.