Inflation & impact on employees
Inflation drives the fastest fall in real pay on record, but what does that mean for business?
Inflation rates have driven the fastest fall in real pay on record, with wages falling behind the rising cost of living, the latest Labour market overview from the Office for National Statistics (ONS) has revealed. Despite some positive developments, such as the growing number of people in work and redundancies remaining at very low levels between April and June 2022, the drop in pay dominates the headlines, with Darren Morgan, director of economic statistics at the ONS, confirming that “excluding bonuses, it is still dropping faster than at any time since comparable records began in 2001”.
Fall in real average weekly earnings
As the country faces double-digit inflation, real average weekly earnings fell by 3 per cent in the three months to June, the biggest drop since 1977, according to the Resolution Foundation. “This squeeze has come about despite robust pay growth and a lively jobs market, with pay settlements strengthening slightly, and almost a million people moving jobs in the last three months,” says Nye Cominetti, Senior Economist at the Resolution Foundation. The foundation also warns that with the effects of last year’s furlough, adding around 0.5 percentage points to measures of annual pay growth, “the true scale of Britain’s pay squeeze is even deeper than official figures suggest”.
Soaring number of job vacancies
Jane Gratton, head of people policy of the British Chambers of Commerce, highlights that despite a small increase in employment levels, the number of job vacancies in the economy remains around the highest on record. “Skills and labour shortages have reached crisis point for many firms. The impact is being felt on their ability to meet customer demand and forcing some to turn away new business, because they simply do not have the human resource,” she warns. While emphasising the urgency of the problem, which is restricting growth and business confidence, Gratton says that, with the largest spike in interest rates in three decades, ongoing supply chain disruption and eye-watering energy bills, “there is a limit to how much additional cost business can absorb”.
In relation to employer efforts Gratton says that “businesses must be part of the solution” by creating the right workplace conditions; for example, by securing training opportunities and a wider focus on workplace healthcare and support.
Carberry says as employment is still much lower than pre-pandemic, with the number of people out of work and not looking for a job being much higher, “firms need to think carefully about their offer to potential staff in this environment” and they need to work with their recruiter – “as flexible forms of employment have a big role to play in closing the gap” he adds.
Similarly, Steve Smith, president of international at Sterling, highlights the importance of businesses putting their best foot forward when it comes to recruitment and attracting talent while skills are still in short supply across most of Europe. “Particularly in a competitive recruitment environment, ensuring applicants have the best possible experience with a brand remains of paramount importance and will be for the foreseeable future,” Smith says.
He believes it is essential for organisations to understand their weakness and, for example, to understand why candidates are dropping out of their hiring process, adding that “in the current economy, it’s simply not a viable option to overlook how important it is to provide an efficient and engaging experience for candidates throughout the entire hiring process”.
Money worries amid cost-of-living crisis worse than pandemic, research finds
Further studies highlight women and over-50s are most concerned about rising costs, while poorer households will have to cut spending by three times as much as the richest. Money worries have been worse during the cost-of-living crisis than the coronavirus pandemic, with women more concerned than men about their finances, research from Aegon has found.
The study of 2,000 adults this month found that two-thirds (63 per cent) of adults were worried about their finances now, compared to one-third (36 per cent) during the pandemic. Sixty-nine per cent of women said they were concerned about their finances, compared with 56 per cent of men. Of those with money worries, a quarter (25 per cent) were concerned about their short-term finances, while 27 per cent were concerned about their long-term finances. Nearly half (45 per cent) said they were concerned about short and long-term finances.
It comes as separate research from Glassdoor found that the cost of living is affecting the over-50s, with three-quarters (76 per cent) saying they prioritise salary the most when choosing a place to work, more than any other age group. In the survey, carried out in April, a third (32 per cent) said they haven’t applied for jobs where salary wasn’t listed. A fifth (20 per cent) said they were worried about finding a job that supported the cost of living, and more than half (57 per cent) prioritised the job security of a role when applying. Meanwhile, around three in five (61 per cent) said they prioritised work-life balance and job location when applying for a role. The survey also found the top barrier for jobseekers over 55 was finding jobs that matched their level of experience and skills, with 22 per cent reporting this.
Lauren Thomas, Glassdoor’s EMEA economist, said “inflation emerges as the biggest winner” despite some wage growth and a tight labour market. While vacancies have started to fall after several months, hiring will remain difficult, she said, especially in hospitality and healthcare, where employee Glassdoor reviews show employees feel overworked and underpaid.
Responding to the statistics, Nicola Hemmings, workplace scientist at Koa Health, said addressing the mental health issues that can arise from the cost-of-living crisis was “imperative”. She added that employers should become a ‘knowledge hub’ for financial information and resources, providing employees with access to “trusted third-party sources”.
Management teams must also offer “preventative care solutions right across the mental health continuum”, she said. “What's required is comprehensive care that is tailored to the individual, against the backdrop of an open and supportive culture.”
Challenging times at the moment – please feel free to get in touch if you want to discuss any of the above in terms of recruitment and/or supporting your employees.