CIPD: quarterly Labour Market Outlook Report shows short-term employment confidence is rising to record levels.
Employers planning for steady rather than spectacular job growth in the medium term, even if economic growth is sustained.
The short-term jobs outlook is increasingly positive, but over the medium term employers might be planning a more measured approach to increasing their overall employment levels as the economy improves. This is according to the latest CIPD/SuccessFactors Labour Market Outlook, and is explained by expected improvements in productivity as well as tight controls on total staffing budgets in some organisations.
The report's net employment balance, which measures the difference between the proportion of employers that intend to increase total staffing levels and those that intend to decrease total staffing levels in the fourth quarter of 2013, has increased to +24 from +14 over the past three months. The report also finds that optimism is highest in the manufacturing and production (+39) and retail (+51) sectors and among employers in the south east of England (+35). In contrast, employment looks set to contract in the north of England (-5) and the public sector (-19).
However, the findings of this survey of more than 1,000 employers, conducted by YouGov, suggest that most employers do not expect to see very substantial growth in employment over the medium term. Less than one in five employers (17%) report that they would increase their head count by more than two per cent if we were to see stable economic growth of two per cent or more. Meanwhile, more than two fifths (42%) said they would leave staff levels unchanged. Almost a quarter of those employers (23%) who say that they will not increase staff by more than two per cent would not require more staff because they expect productivity to improve when the economy picks up. A fifth suggested that labour costs would mean they were unable to increase the number of people employed – which is probably the effect of tight running cost budgets, particularly in the public sector.
Employers continue to focus on cost control and the report also finds that pay expectations have fallen marginally since the previous quarterly report. Excluding bonuses, the mean basic pay is predicted to increase by 1.6% over the next 12 months, down on the figure of 1.7% forecast last quarter. Excluding employers that are maintaining pay freezes, or expecting pay decreases, private sector employers expect to give an average increase of 2.8% to staff, which compares with 1.5% in the public sector and 1.5% in the voluntary sector.
Gerwyn Davies, Labour Market Adviser at the CIPD, said: "The relationship between pay, productivity and employment is key to understanding the performance of the labour market in recent years. Nonetheless, while it appears that low productivity and falling real wages have helped maintain employment levels, it seems that rising demand and restructuring have also been having an important impact on resourcing decisions in many firms. Now, with clear signs of further rises in demand for goods and services, it is unsurprising to see employers intend to take on even more people in the short term.
"However, our data on medium-term recruitment intentions suggest that stronger economic growth in the next few years will not be accompanied by big rises in employment. With many employers retaining knowledge and skills during the last few tough years while also restructuring and recruiting for the future, they seem confident that they will be able to deliver their business objectives without needing to dramatically increase staffing over the medium term. Instead, many employers tell us they are focused on the need to raise productivity. The prospect of better economic conditions might therefore persuade them to invest more in the business and make more intensive use of existing staff, for example, by increasing working hours.
"Many employers have told us they've implemented widespread restructuring during the last few years, partly to take advantage of new markets. The sharp rise in the number of managers and senior officials during the same period would also suggest that businesses have made broader efforts to stimulate demand in the face of challenging business conditions, which may partly explain the relative recent strength of the labour market.
"Employers will therefore now be looking to ensure that investments in physical and human capital are complemented by effective measures to maintain employee engagement and trust. This is essential if organisations are to get the best from their people, and consolidate the benefits of a more stable approach to workforce planning over the economic cycle."
Also commenting, James Reid, UK and Ireland Managing Director, SuccessFactors, said: "Despite positive expectations about sustained economic growth, medium-term employment confidence remains conservative and employers must utilise technology to help them maximise the potential of their existing workforces as a result. While traditionally HR applications have been confined to backend processes, used effectively they can deliver significant strategic value to the business and promote growth. This is critical as this quarter's report shows on-going cost control challenges. With pay freezes and restrictions on bonuses and new headcount, employers should be looking for alternative ways to motivate existing staff. Investment in employee development and up-skilling, as well as better performance management, helps to keep recruitment costs down and enables the retention of the best talent and we are seeing increasing demand for these services at SuccessFactors."
Other key findings from the report include:
• Rising demand for product/service (50%), increased market share (39%), longer-term staffing requirements (34%), entering new markets (33%) and restructuring (30%) are the main reasons for employment growth among private sector employers since 2010. Low productivity (5%) and low pay awards (13%) are also cited by private sector employers.
• 42% of employers report that they would leave current staff levels unchanged if the economy were to return to a consistent growth rate of 2%. Only 17% of employers say that they would increase levels by more than 2%, whereas 20% claim they would increase staff levels by 0-2%.
• When asked why they would not increase staff levels by more than 2% given this scenario, more than a third (36%) of all employers claim that 2% growth would not be enough to justify increasing staff numbers. Around a quarter (23%) say that they expect employee productivity to improve when the economy picks up, so we will not require more staff. More than a quarter of private sector employers cite this (28%). Other reasons include the expectation that demand would not increase in their sector (22%), labour costs (20%) and the expectation that the first step would be to increase the hours for existing staff (16%).
• The average basic pay award for manufacturing and production firms that are giving pay increases is 3.4%, which compares with 2.5% for private sector services firms.