New report shows skills shortages in the UK have become more acute for fourth consecutive year. UK labour market under strain as talent mismatch exacerbates productivity issues. Inflationary wage pressures significantly increased from last year as companies struggle to find the right people.

UK employers are facing even greater skills shortages and rising wage pressures, according to a new report from Hays plc, the global professional recruiting group. Since 2012 the UK’s talent mismatch level – the gap between the skills people can offer and the skills employers are looking for – has increased every year. The UK now has a talent mismatch score of 9.7 out of 10, among the worst in Europe. The UK’s widening skills gap is highlighted by the Hays Global Skills Index 2015, a report published today by Hays in collaboration with Oxford Economics. The report, ‘Labour markets in a world of continuous change’ is based on an analysis of professional employment markets across 31 major global economies. Wage pressure in the UK has also increased significantly since last year as the economy returns to health. This reflects the war for talent in certain industries, including engineering and technology, which is forcing companies to pay a higher premium for the best people.

The report outlines the need for UK and global businesses to work closely with respective governments to find long-term solutions to current talent shortages and faltering productivity. Otherwise long term growth will be at risk. Commenting on the findings of the report, Hays’ Chief Executive Alistair Cox said: “This year’s report offers grounds for optimism but none for complacency. UK growth prospects are better than they have been in a long time but employers are facing ever-greater challenges to find the talent they need. This can only mean that the productivity challenges we face as a nation will become even more severe.”

“We need to resolve the UK’s productivity puzzle and the current skills gap is clearly a big part of the problem. The answer does not lie in working longer hours, but in developing and using the right skills for the job. Better training for UK workers, attracting highly-skilled workers from overseas and investing in better technology are all part of the solution and will be critical in shifting the economy into the next gear.” The pressure on wages is not unique to the UK, with this indicator worsening in 21 of the 31 countries examined by the report. Labour markets around the world are also struggling to shake off the after-effects of the financial crisis, in particular the ‘employment gap’ – the jobs lost since the start of the crisis.

Cox continued: “Economic growth in the last year has boosted employment and given businesses new opportunities to grow. However, with this growth comes new challenges in the form of a mismatch of talent with the skills business needs, further wage inflation and stagnant employee productivity. The result unfortunately is many people working longer hours but not getting more done. Only by addressing these skills shortages – through flexible employment regulation and skilled migration policies in the short term and an education system more tuned to business needs in the long term – will we ensure a strong recovery for 2016 and beyond.”