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Poor productivity explains lagging pay growth

Gerwyn Davies

Figures published today by the Office for National Statistics (ONS) show that the demand for labour remains strong, which includes a relatively high share of permanent, full-time jobs. Gerwyn Davies, Senior Labour Market Analyst at the CIPD.

However, the CIPD today warns that poor productivity growth remains the underlying reason why earnings remain stuck around the 2 percent mark. The latest monthly figures show that the continued increase in labour supply, driven by a sharp increase in the number of 50-64 year olds (+210k over the past year), ex-welfare claimants in employment (-73k decrease in the number of long-term unemployed) and EU nationals (+126k) is also failing to put pressure on employers to put wages up in response to labour and skill shortages.

Responding to the figures, Gerwyn Davies, Senior Labour Market Analyst at the CIPD, the professional body for HR and people development said: “Predictions that wage growth would accelerate due to rising inflation and a low unemployment rate have still yet to bear fruit.

This is no surprise given today’s poor productivity figures, which continue to weigh on the pay prospects of UK workers. However, it also seems that employers are turning to under-utilised groups of the labour market, such as ex-welfare claimants and older workers, to help offset the relatively tight labour market conditions.

“Our Labour Market Outlook survey, published on Monday, showed that many employers are still receiving a relatively high number of suitable applicants for roles, especially for low-skilled vacancies.

However, we should not overlook the fact that the UK economy is currently generating a significant number of high-skilled roles, which could lead to rising skills shortages unless employers raise their game through investment in capital and machinery, improving workforce skills and adopting smart working practices. This threat will increase if skilled workers from the EU14 and EU8 decide to leave the UK to look for work elsewhere.”

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