Labour shortages pushing up wages


Skills shortages are causing increasing problems across the UK economy with the limited availability of staff pushing wages up sharply.

The latest Report on Jobs from the Recruitment and Employment Confederation (REC) and Deloitte and Touche reports that strengthened demand for staff from employers underpinned a further sharp increase in the number of permanent staff placements and temporary staff billings in February.

The report, which draws on original survey data provided by recruitment consultancies and employers, as well as data on national newspaper recruitment advertising, found that with the pool of available candidates falling for the fourth month running, staff pay rates rose markedly on the previous month.

This was particularly evident for permanent staff, where average starting salaries rose at a sharper rate since that recorded in January.

Measured on an index where all above 50 denotes growth and below 50 contraction, the figure for permanent placements demand in February sits at 60.8 while temporary placements registers 61.1 – up from 59.5 in January.

However, while demand from employers is strengthening, the pool of available labour is poor and weakening. The index reading for permanent staff fell 2.5 during February to 45.5, while temporary worker availability growth also fell further into the contraction zone at 45.7.

Rising staff placements contributed to an expansion of private sector employment for the seventh consecutive month in February. Although still modest, the rate of growth of employment picked up slightly from that recorded in January.

The increase in employment was driven by a sharper rise in service sector staffing levels, but also reflected higher levels of employment in the manufacturing and construction sectors.

As Brett Walsh, head of UK human capital at Deloitte pointed out, the basic economics of supply and demand are leading to accelerating wage increases, particularly among permanent staff.

"Permanent staff starting salaries, which are a key leading indicator of overall future pay growth as they are particularly sensitive to skills shortages, rose at the fastest rate since April 2001," he said.

Meanwhile Gareth Osborne, Managing Director of the REC called for the UK to encourage greater immigration of workers from the ten new EU members in Eastern Europe to stave off the growing labour shortage

Earlier this week in a report by the economic forecasting group the Ernst & Young Item Club claimed that an increase of 70,000 economic migrants would boost UK GDP by £10 billion over the next decade.

"Skills shortages continue to be a major issue, creating huge resourcing problems for UK companies and pushing up pay levels," Osborne said. "This demonstrates why its necessary to have a proper debate about how we allow workers from the EU accession countries to come and work in the UK.

"The REC has welcomed the Government’s commitment to a flexible but regulated migration policy and believes that the recruitment industry can play a key role in maximizing the benefits of free movement provisions within an enlarged European Union."