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National living wage fuelling jobs uncertainty

The UK jobs market stands at its least optimistic level in three years, according to ManpowerGroup, the world’s workforce experts. 

After three consecutive quarters at +6 percent, job prospects are dwindling in the run up to Christmas and have reached their weakest point since the final quarter of 2012. The national Seasonally Adjusted Net Employment Outlook has dropped two percentage points to +4 percent. The Manpower Employment Outlook Survey is based on responses from 2,101 UK employers. It asks whether employers intend to hire additional workers or reduce the size of their workforce in the coming quarter. It is the most comprehensive, forward-looking employment survey of its kind and is used as a key economic statistic by both the Bank of England and the UK government. ManpowerGroup’s data suggests employers are already feeling the impact of the National Living Wage, scaling back their recruitment plans in the fourth quarter of 2015. The policy will see six million people receive a 6 percent pay rise each year until 2020, but the Office for Budget Responsibility estimates that the extra costs could mean up to 60,000 job losses.

James Hick, ManpowerGroup Solutions UK Managing Director: “The National Living Wage is sending shockwaves through the UK labour market. Support services firm Interserve has announced that the extra annual wage bill for its 15,000 cleaners could amount to as much as £15 million, or 12 percent of its annual profits. This sentiment was echoed by social care company Mears Group, which estimates the cost of meeting the wage hikes for its 4,000 care workers will be £5 million, or 10 percent of its annual profits. Faced with a wage bill of this size, some employers are thinking twice about taking on new workers.”

“An unintended consequence of the introduction of the new Living Wage is that firms might try to bypass the legislation altogether. We anticipate that some employers may look to mitigate the extra costs by taking on more younger or self-employed workers, who are not entitled to the National Living Wage. While on the surface this could be good news for youth unemployment, which currently stands at 16 percent, it could push a greater proportion of young people into low skilled jobs, resulting in an influx of less experienced workers into social care and other sectors hardest hit by the new legislation. Meanwhile, candidates under the age of 25 have been asking us why it is they will be paid less despite doing equal work,” adds Hick.

At +8 percent, optimism in the capital is twice the national average, despite the fact that employers in its largest industry – finance and business services – record their weakest Outlook for three years, at +4 percent. Hick comments: “It may be a surprise to see London thriving given the relatively lacklustre performance in finance and business services. But this is thanks to a number of growth industries in the capital where firms are keen to take on more talent, particularly in technology and the creative industries. It’s not just East London start-ups creating these jobs. New opportunities are being generated elsewhere in the capital in places like the old BBC Television Centre in White City which is to become a creative sector hub.” 

The job prospects in the north stand in stark contrast to London, with the North East (-2 percent), North West (0 percent) and Yorkshire and Humberside (+3 percent) all lagging behind the UK average. Hick continues: “There is a marked divide between job prospects in the north and those in London – a clear sign that the Government’s plans to rebalance the economy through the creation of a Northern Powerhouse have so far failed to ignite. We also see a connection between the drop in employment prospects in the north and the gloomy Outlook of -1 percent in the public sector, following the May election and the government’s renewed commitment to cuts. A fifth of North East workers are employed by the public sector, the highest proportion in England, closely followed by Yorkshire and the Humber and the North West. It follows that recruitment in these regions is bearing the brunt of public sector pessimism.”

It is not just the total public sector headcount which is being affected. Job reductions in the civil service, for example, have radically reshaped its age profile, storing up potential issues for the future. From 2010 to 2014 the proportion of civil service workers aged 20-29 fell from 14 percent to 9 percent whereas the percentage of 50-59 year-olds increased from 26 percent to 31 percent.[1] Hick again: “As recruitment wanes, there is a risk that increasingly few younger workers will enter the public sector. If this trend continues then the sector faces a future without the talent and skills that it needs to cope with the changing nature of work in an increasingly digital world.”


[1]National Audit Office report: Central Government Staff Costs, June 2015

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