CIPD Outlook: MAC plans ‘not enough’ to meet UK skills needs

A benchmark labour market study warns reversing EU and non-EU migrant labour trends are exacerbating skills shortages and pushing up wages for new starters as the UK heads towards exit from the European Union.

Publishing its quarterly Labour Market Outlook report today, the CIPD, the professional body for HR and people development, shows employers are experiencing worsening skills and labour shortages while for most pay is stuck in the "middle lane".The study shows employers' plans to recruit more staff are being hit by worsening skills and labour shortages, partly as a result of "skills shock" from the sudden reversal in growth in the number of EU and non-EU migrants in employment in the UK.

Recruitment intentions remain robust

The latest quarterly Labour Market Outlook from the CIPD and The Adecco Group surveyed 1,002 employers. Overall, it shows that while the short-term outlook for employment remains strong, labour and skills shortages are accelerating.The survey’s net employment balance –  the difference between the number of employers who expect to increase staff levels and those who expect to decrease staff levels – has remained extremely positive at +22 (compared to +23 in Q3 2018).

Skills shortages deepen

However, among employers with vacancies, seven in ten (70%) report that at least some of their vacancies are proving hard-to-fill. This is higher than in summer (66%) and spring 2018 (61%), continuing 2018’s uptick.Over two in five of all employers (44%) also report it has become more difficult to fill vacancies over the past 12 months, while over a third (34%) of employers say that retention pressures have risen during the same period.
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UK’s appeal to global skills and talent declines

This situation is being exacerbated by a relatively significant drop in the number of both EU and non-EU migrants that are employed in the UK. While this is good news for Theresa May's government, which pledged to reduce net migration to below 100,000 each year, employers are concerned about the impact this will have on skills availability.The latest official data shows the number of non-UK-born workers in the UK decreased between Q2 2017 and Q2 2018 by 58,000. This compares to an increase of more than a quarter of a million (+263,000) in the same period the year before.This drop is driven primarily by falling interest from migrants outside the EU. The number of non-EU-born workers in the UK decreased by 40,000 between Q2 2017 and Q2 2018, compared with an increase of almost a quarter of a million (225,000) during the same period in the previous year.Looking ahead, labour supply looks set to be further constrained from 2021 when migration restrictions for EU citizens are introduced, especially for lower-skilled workers.

Will the MAC proposals be enough?

Employers surveyed for the CIPD/Adecco study express concern that the main route for recruiting EU citizens into lower-skilled roles recently proposed by the Migration Advisory Committee won’t be enough to satisfy their recruitment needs.One in ten (10%) employers that currently employ EU citizens report that extending the Youth Mobility Scheme to EU nationals post-Brexit would meet their recruitment needs to a large extent for medium and low-skilled roles.In addition, a third (33%) of employers who employ non-EU citizens say the administrative burden of using the current points-based system for non-EU citizens system, which will most likely be adopted for EU citizens from 2021, is too great.Around a quarter (26%) say that the salary threshold is too high and a fifth (20%) of employers say that the cost implications of the current system are also too high.

Starting salaries increase

While demand for labour remains strong, overall employers report median basic pay increase expectations for the 12 months to September 2019 of just 2%. However, the squeeze on skills is having a clear impact on many employers’ pay decisions:
  • Around half of organisations (48%) that have experienced increased difficulty recruiting staff during the past 12 months have increased starting salaries in response. More than a quarter (27%) have done so for the majority of vacancies, while around a fifth (21%) have done so for a minority of vacancies.
  • Among organisations that have experienced increased difficulty retaining staff over the past 12 months, just over half (51%) have increased salaries, with 28% raising salaries for the majority of staff and 23% doing so for key staff only. 
  • Almost half of employers (47%) have not raised salaries at all in response to rising retention difficulties, highlighting the wider productivity challenges and cost pressures facing many organisations.

'UK immigration approach needs to be fairer and simpler'

Gerwyn Davies, Senior Labour Market Analyst for the CIPD, the professional body for HR and people development, comments: “The data implies that the pendulum has swung away from the UK as an attractive place to live and work for non-UK born citizens, especially non-EU citizens, during a period of strong employment growth and low unemployment.“This has heightened recruitment difficulties for some employers," said Mr Davies. "It also underlines the risk that more non-UK-born citizens and employers will be discouraged from using the post-Brexit system if more support is not provided and it is not made simpler, fairer and more affordable; especially for lower-skilled roles. “Against the backdrop of a tight labour market, failure to do this will heighten recruitment difficulties and could lead to negative consequences for existing staff, such as higher workloads, and loss of business or orders for firms.“It’s vital that businesses understand the workforce challenges they face, and make the relevant investment in skills and adopt the right people management practices to boost productivity in their organisation.”

Employers surprised at 'supply-shock' wage impact 

Alex Fleming, Country Head and President of Staffing and Solutions, The Adecco Group UK and Ireland, added:“The labour market in the UK is tight and this research is reporting increasingly high levels of recruitment and retention difficulties. While the data is not showing wages rising across the board, we are regularly seeing this pressure being exerted in the recruitment space."Our clients are often surprised at the market rates when they are making talent-attraction decisions," Ms Fleming continued. "This ‘supply shock’ and other pressures will only serve to increase these difficulties, which could easily flow out into the rest of the workforce. In turn, this could cause a wider upward movement on wages."Employers should be aware that wages are not the only answer – as for in-demand employees, marginal salary gains may not be what they most desire. We’ve seen wider benefits packages, which include flexible working and a good culture often win over a simple increase in salary.”Head to our HR section for more news and insight from the CIPD.  
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