New figures from the Office for National Statistics (ONS) reveal record wage increases in February to April 2023, but these are still being outstripped by inflation.
The UK labour market report for June 2023 revealed a 6.5% growth in average total pay inclusive of bonuses. For regular wages excluding bonuses, the rise was 7.2% – the highest rate increase outside the Covid-19 pandemic, when it soared by 7.3% in April to June 2021.
Jonathan Boys, labour market economist for the CIPD, the professional body for HR and people development, warned that despite the wage boost employees are still struggling.
He said: “When it comes to the cost-of-living crisis, workers are swimming against the tide. Despite strong wages growth, prices are rising faster with the cumulative result that every month the average pay packet doesn’t go as far as it did the month before.
“The central bank will be considering today’s labour market stats next week when it makes an interest rate decision. Some heat is coming out of the labour market as evidenced by the continued fall in vacancies which is driven by economic uncertainty, but wage growth remains strong with regular pay growing by 7.2% meaning we are odds on for another rate rise.”
The figures also showed a record number of people in employment, which includes the self-employed. The rate increased by 0.2 percentage points to to 76.0%, but the unemployment rate for the period also rose by 0.1 percentage points to 3.8%.
Economic inactivity due to long-term sickness dropped by 0.4 percentage points to 21.0%, but those inactive due to a long-term health reached a record high.
Boys added: “The pandemic cast a long shadow over the UK labour market and only now have employment levels recovered. Record levels of inactivity due to long-term sickness should be sounding alarm bells for policymakers and employers, especially in the context of labour shortages. Removing barriers to work for this group should be a priority and often this means keeping people in employment. A stronger focus on occupational health, catching conditions before they become chronic, is essential. Reform of Statutory Sick Pay should also be a priority.”
Tania Bowers, global public policy director at the Association of Professional Staffing Companies (APSCo) APSCo, commented: “The growth in both employment numbers and the proportion of the workforce that have been out of work for a year or more – which is indicative of an increase in non-participation due to long-term illness – suggests that the dearth of talent that has been noted for most of this year is only going to increase. Across the public sector in particular, the continued loss of working days due to strikes and on-going unrest is a real concern for the stability of resources.
“The fact that pay also fell when adjusted for inflation, despite the growth in average pay that was noted between February and April, suggests that the economic climate continues to drive salaries up, with seemingly little return for households. UK employers are facing what is now a sustained period where they are inflating remuneration in response to demand from candidates who are aware of the labour shortages facing businesses – and are leveraging this to command higher pay. With salaries falling when adjusted for inflation, it is likely that employers will find staffing budgets increasingly squeezed.”
According to global employee pay company CloudPay, the pay inflation is “unsustainable” and is driving a need for better benefits and says more sustainable packages need to be adopted.
Its SVP payroll operations, John Pearce, said: “It’s clear that the rising cost-of-living is continuing to put significant pressure on businesses as staff and potential new recruits seek higher pay packages in what remains a tough economic climate. However, with inflation creating a scenario where this salary inflation is having little to no impact on household budgets, firms are seemingly facing an unsustainable level of demand for pay increases.
“The challenge, of course, is that employers are already struggling with skills shortages, meaning that many are having to use pay inflation as an attraction and retention tool. But this can only be sustained for so long and businesses will need to find an alternative soon. We do anticipate that benefits packages which are more cost-effective for businesses longer-term will be increasingly relied on. That includes flexibility around pay solutions that allow individuals to control when and how often they access their pay to help mitigate against some of the budget challenges that the UK population is facing.
“Whatever the solution, something does need to change to shift this heavy reliance on pay inflation to something that adds more value to employees without breaking the bank for businesses.”
In terms of those over 65, the statistics found a record number of this age group are in employment, with 1.48 million now in work. This surpasses the April to June 2022 peak of 1.47 million.
In the last quarter, 116,000 older workers have returned to employment, which Just Group believes suggests people may be looking to boost their incomes and pension pots due to the cost-of-living crisis.
Stephen Lowe, group communications director at retirement specialist Just Group, said: “We are starting to see the longer-term trend of more people working later, as the state pension age goes up combined with the shorter-term ‘great unretirement’ and, together, they are pushing record numbers of ‘silver workers’ into jobs.
“Both the number of workers aged over 65 and the employment rate in this age group were steadily increasing before the outbreak of Covid. We saw this trend plateau through the pandemic as many older workers took the opportunity to retire early – often on the back of being able to limit their expenditure in lockdown and increased house prices.
“Today’s numbers show things are now moving in a different direction. Older workers are returning to the workforce in greater numbers with the cost-of-living crisis likely to be a significant factor in driving this as, in the face of rising prices, people return to work to top up their income and pension.”