While the short-term outlook for employment remains strong, labour and skills shortages are starting to bite in UK sectors that employ a high number of EU nationals, according to the latest Labour Market Outlook from the CIPD and The Adecco Group.
The report suggests that, despite a near record number of vacancies (748,000 according to the latest ONS data), UK employers are struggling to fill roles with the right candidates as a result of both labour and skills shortages.
Official ONS data and the Labour Market Outlook suggest that a fall in the supply of EU nationals may be playing a key role. The official data (ONS: Jan 2017) shows that low-skilled sectors that typically employ a large number of non-UK nationals from the European Union are facing particular recruitment challenges with vacancies in retail and wholesale, manufacturing, health and accommodation, and food services making up almost half (45 per cent) of all vacancies.
The Labour Market Outlook, a survey of more than 1,000 employers finds that that the most common response to labour shortages has been to leave the positions empty, reflecting the tightness of the domestic labour market and tentative signs that the UK is attracting and retaining fewer EU nationals.
The report also shows that as many as one in four employers (27 per cent) have seen evidence to suggest that non-UK nationals from the European Union consider leaving their organisation and/or the UK in 2017.
Number of EU nationals dropping
This is consistent with official data, which suggests that the growth in the number of non-UK EU nationals in employment in the UK has slowed sharply in recent months. The figures, which are not seasonally adjusted so some caution should be attached to drawing firm conclusions from the data, show that the number of non-UK nationals from the European Union almost halved from an average of more than 60,000 per quarter in the nine months to June 2016 to just 30,000 in the three months to September 2016.
The public sector is set to be severely impacted by the risk of a drop in EU labour, 43 per cent of education and 49 per cent of healthcare sector employers surveyed in the Labour Market Outlook say they believe EU migrants among their workforce consider leaving their organisation and/or the UK in 2017.
Despite there being a significant slowdown in the number of EU nationals coming into the UK, and the threat of some leaving, more than a quarter (27 per cent) of employers who employ EU nationals are still unsure of how many EU nationals they employ in their workforce.
Gerwyn Davies, labour market adviser for the CIPD, comments, ‘The most recent official data suggest that there has been a significant slowdown in the number of non-UK nationals from the European Union in work in the UK.
‘This is creating significant recruitment challenges in sectors that have historically relied on non-UK labour to fill roles and who are particularly vulnerable to the prospect of future changes to EU immigration policy. With skills and labour shortages set to continue, there’s a risk that many vacancies will be left unfulfilled which could act as a brake on output growth in the UK in the years ahead.’
Davies adds, ‘Employers need to start collecting data about their workforce and review their approach to workforce development and training to avoid a squeeze on skills and the workforce. Employers in sectors like retail, hospitality and care, will need to work much harder to attract candidates and combat labour shortages by improving the attractiveness of their jobs through better line management and job design, developing closer links with local educational institutions and improving pay and employment conditions where possible.’
Businesses want to keep on EU workers
The report also asked employers that employ EU nationals how they would respond to migration restrictions. A quarter (26 per cent) say they would ‘pay the difference’ and absorb the extra cost of recruiting EU nationals, whilst others say they would seek to retain older workers (19 per cent), invest more in training and up-skilling (17 per cent), recruit more apprentices (17 per cent) and look for UK-born graduates (16 per cent).
John L. Marshall, CEO of The Adecco Group UK & Ireland, says, ‘The big decisions that Britain took last year are beginning to show in the UK labour market. It is encouraging that some employers are beginning to look to new solutions for their future workforce with investment in retraining and apprenticeships, but many more need to begin this planning and investment in their workforce.
‘Whilst the outcome of Brexit negotiations is still uncertain, employers’ access to EU migrant workers is likely to change. Investing in young people is a solid long-term strategy, but employers also need to face the facts and prepare for a situation where they might lose access to significant numbers of skilled EU workers in the near future.’
Despite challenges with labour shortages, this has not acted to push pay up significantly. However, there have been modest signs of improvement. According to the Labour Market Outlook, median basic pay expectations have risen to 1.5 per cent from 1.1 per cent, compared to last quarter, for the year ahead. The recent rise in inflation is one of the key reasons that seems to be putting pressure on employers to improve pay.
This was a key factor for 28 per cent of employers awarding a basic pay rise of 2 per cent or more, compared to just 17 per cent in the previous quarter. Long-awaited productivity improvements and the National Living Wage are other factors that are boosting basic pay awards of some employers (these were factors for 34 per cent and 21 per cent of employers respectively).
Pay expectations are highest in manufacturing and production (2 per cent) and services (2 per cent) and lower in the public sector (1 per cent) which is still experiencing pay restraints.