Almost everyone is talking about declining standards of living namely that inflation has outstripped pay rises and most people are, therefore, poorer (some say wages have fallen in real terms by 14% since 2008). If that is the downside, some might argue the upside has been fewer people lost their jobs than were expected during the period of austerity and some pay is better than no pay. At one time unemployment was forecast to exceed 3 million, but got nowhere near that number, in fact 500,000 less.
So will we see a correction in 2014? The answer is probably yes. There are certainly many employers who would like to see a continuation of a low wage economy as they believe that they can continue to hire cheap low-skilled foreign labour which has freedom to enter the UK. But there are a growing number of employers who are most concerned that they cannot hire sufficient numbers of competent staff to enable improvements in productivity and company growth and/or believe that unless pay increases, any form of consumer-led sustainable growth in the UK economy will fail and the period of austerity will be extended.
There will be all sorts of pressures, political, economic and social, affecting pay but the trend will be up. According to GDP data, wages and salaries rose roughly in line with inflation in the second and third quarters of last year and will probably be pretty much the same in quarter four. With unemployment continuing to fall and employment growing, we are starting to see a significant growth in skill shortages and the only real way to overcome those shortages is to increase wage rates and invest in training. This may even happen at the expense of productivity and Britain has traditionally been one of the lowest productive economies in Europe. If the latter happened, it would jeopardise long term sustainable growth as business and the economy would become less competitive.
The route forward, therefore, may be to recognise that pay will need to rise especially to overcome skill shortages, but to connect pay growth directly to increased performance, i.e. holding fixed pay to around UK inflation levels or less, but providing incentive arrangements whereby overall pay could increase, but only when performance increases so preserving or improving profitability and competitiveness.
Wherever there is a will there is a way!
Dr Hugh Billot, Deputy Chairman
HR GO Group of Recruitment Companies
HR GO Recruitment offers solutions to all your staffing needs, temporary and permanent, please call 0845 130 7000
Comments are closed.