Employers have been warned they may have to make better use of migrant labour and those on long-term incapacity benefit if they are to resist increasing upward pressure on wages next year.
The Chartered Institute of Personnel and Development said, in its forecasts for 2005, that the two main challenges for next year will be a tight labour market and upward wage pressure.
Employers, it argued, are already experiencing significant problems recruiting suitably qualified and experienced candidates, with 85 per cent reporting such difficulties in 2004.
The proportion experiencing problems retaining staff jumped from 72 per cent in 2003 to 77 per cent in 2004.
Employers responded by improving induction processes, enhancing learning and development opportunities, with just four out of 10 – 38 per cent – using higher wages to tackle retention problems.
The number of redundancies fell in 2004 compared with 2003, indicating, again, how tight the labour market had become, it added.
Short periods of absence were also adding up to a real headache for employers, with nearly two-thirds of all absence made up of spells lasting fewer than five days.
Looking forward, therefore, to 2005, the CIPD predicted that there will be a rise in the total level of employment of between 150,000 and 200,000, less than in recent years.
Manufacturing job losses will fall, but there will be no net job creation. Ongoing record low levels of unemployment will ensure even the moderate growth in employment forecast will increase pressure on an already tight labour market.
This will lead all employers to seek to adapt their people management practices to increase productivity in order to contain rising cost pressures, it suggested.
The increased emphasis on productivity and performance will be most noticeable in the public sector, as employers seek to deliver the efficiency savings identified by the Gershon review published in June 2004.
Higher productivity will curb net job creation in the short-run, but this trend may well be countered by greater job creation as employers tap new sources of labour supply, such as immigrant labour and the economically inactive - both of which have the capacity to limit wage pressures.
CIPD chief economist John Philpott said: “Employers are having to work hard to prevent the tight labour market forcing up wages. With no sign of an easing in the labour market, better people management, bringing improved productivity is the key to resisting upward pressure on wages.
“Immigrant labour and efforts to get more people off long-term sickness absence and back to work also offer a safety valve, allowing continued growth in employment and output without forcing up wages and prices,” he added.
”Although the increase in employment in 2005 will be slower than in recent years, there is no sign of a contraction in the economy,” he concluded.