Real wages and employment are likely to fall during 2017

UK businesses will find it hard to employ European talent and give appropriate wages to employees, a new study reveals.

A hard Brexit is unwanted by many UK employers, as real wages are harder to increase

A hard Brexit is unwanted by many UK employers, as real wages are harder to increase

While employment growth looks set to continue in the UK, there are signs that this growth is beginning to slow and that real wages are likely to fall during 2017 for many employees, new research shows.

Concerns are also emerging over the implications of Brexit for employers’ access to migrant labour and a reduction in employer investment intentions.

This is according to the latest quarterly CIPD/Adecco Group Labour Market Outlook, which shows that the net employment balance, while remaining in positive territory at +22 – based on the difference between the share of employers expanding their workforce and the share of employers reducing their workforce – has shown a slight negative decline from the previous quarter’s figure of +27.

At the same time, real wages look set to fall during 2017 as, for the second quarter running, employers anticipate median basic pay settlements of just 1.1 per cent for the 12 months ahead, against a backdrop of anticipated higher inflation.

Furthermore, although 42 per cent of employers believe that future restrictions on EU labour could damage their UK operations, just 15 per cent have started to prepare for this eventuality.

Hard Brexit hard to swallow

In this context, it is not surprising that just 6 per cent of employers said they favour a ‘hard Brexit’ which would see the introduction of World Trade Organisation rules. The majority of employers broadly favour existing trading arrangements (16 per cent), a European economic area type arrangement including free movement of labour (26 per cent), or negotiated bilateral free trade arrangements (10 per cent).

Gerwyn Davies, labour market analyst at the CIPD, thinks the report points to the UK economy beginning to face some likely headwinds following the UK’s decision to leave the European Union and he impact of potential restrictions to migrant labour will be exacerbated by the fall we’re seeing in business investment intentions.

Davies continues, ‘Given the current level of uncertainty and the projected increases in costs as a result of a weaker pound, it’s not surprising that employers aren’t currently persuaded to respond to likely controls on migration by investing more in skills. However, this will put further pressure on the UK’s productivity growth potential, which is critical to employers’ ability to afford more generous pay increases. Pay expectations are already weak, and as inflation moves up we can expect a period of low or negative real wage growth for the squeezed middle.’

Migrant workers are harder to acquire

The survey also shows that employers are already reporting that it will be harder to recruit and retain EU migrant workers even before the UK officially leaves the UK.

Of the two thirds (62 per cent) of employers that employ migrant workers, almost a quarter (23 per cent) of employers say they have evidence that EU migrants are already considering leaving the UK in the next 12 months as a result of Brexit.

Furthermore, more than half (54 per cent) of those who have intentions to recruit EU migrants over the next 12 months believe it will be harder to recruit EU migrants in the year ahead.

Among the 15 per cent of employers that have started planning for the likelihood that it will become harder to recruit EU nationals in the future, 43 per cent say they have started strategic workforce planning, 39 per cent report they are undertaking a review of the organisation’s resourcing strategy, while 22 per cent say they are planning to start investing in or increasing their investment in apprenticeships, and a similar proportion report they are looking to build closer links with schools and colleges.

John L Marshall III, CEO of Adecco Group UK & Ireland, believes that the UK has been one of the most attractive countries for EU workers, benefitting from easy access to a large, European talent pool, but the Brexit vote is now seeing UK employers look increasingly concerned about their access to the single market.

Marshall continues, ‘The Brexit decision should therefore serve as a wakeup call for employers who need to adopt a more strategic approach to workforce planning, investing more in their own staff real wages and engaging with educational institutions to improve the UK’s domestic pipeline of talent.’

The Labour Market Outlook also finds that almost a third of employers (30 per cent) expect that the UK’s vote to leave the EU will increase their costs over the next three months, which may partly explain why employers are more likely to be planning to reduce (15 per cent) rather increase (9 per cent) investment in skills and the continued squeeze on real wages.

When asked to choose whether free access to the single market or continued easy access to EU migrants is most important to their organisation, 25 per cent believe both were equally important, 19 per cent of respondents thought free access to the single market and 19 per cent opted for continued easy access to EU migrants.

Less than a third of employers (31 per cent) say neither free access to the single market or the ability to recruit EU migrants is important to the success of their organisation.

Further reading on the consequences of Brexit

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