Effect of living wage ‘is slowing salary growth’

Employers are expecting to award average pay rises of just 1.7 per cent this year, according to the latest CIPD Labour Market Outlook, which suggests government-imposed increases in labour costs such as the national living wage (NLW) and the apprenticeship levy are weighing on balance sheets.

The survey of more than 1,000 employers – covering the 12 months from March 2016 to March 2017 – found that around a third expected the NLW to raise average salaries by 2 per cent. But 21 per cent said the wage would be a factor in weaker pay awards.

Pay rise expectations are slightly higher in SMEs and the private sector (2 per cent), but the outlook for larger organisations and the voluntary and public sectors averages just 1 per cent.

Almost half (49 per cent) of respondents said that they have vacancies in their organisation that are proving difficult to fill. Among these businesses, the average proportion of all vacancies proving hard to fill is 23 per cent.

The net employment balance for this quarter, which measures the difference between the proportion of employers expecting to increase and decrease staff levels, has risen to +28, up from +21 in the previous quarter, as the ‘jobs-rich, pay-poor’ economy continues. Overall, 22 per cent of employers plan to make redundancies in the second quarter of this year.

The report suggests that the apprenticeship levy, auto-enrolment and increases to the NLW will continue to impact on the likelihood of employers raising pay across the broader employee base. By some measures, pay growth will remain sluggish until the end of the decade.

Mark Beatson, chief economist at the CIPD, said: “Employers are having to manage the consequences of government-imposed increases to the cost of employing people. The national living wage and auto-enrolment were introduced to improve the living standards of low-paid employees, but this can only happen without significant job losses if the productivity of low-paid employees also increases.

“Simply making low-paid labour more expensive is not the answer and the government shouldn’t be surprised if some employers choose easier options, such as reducing hours, chipping away at other benefits or making a less generous pay award the next time pay is reviewed.”

Beatson said it was not enough for the government to “make these changes and say ‘over to you’”. Instead, he argued that the government needed to “play a more active role in supporting businesses, particularly given that we are likely to see further inflation-busting increases in the national living wage in 2017, 2018, 2019 and 2020.

“The government needs to provide greater support, and employers are going to have to become more and more creative in how they manage reward and motivate employees.“

Story via – http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2016/05/16/effect-of-living-wage-is-slowing-salary-growth.aspx

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