SMEs react to latest labour stats – hiring boom but wages aren’t matching inflation

There’s good news and bad news when it comes to the latest UK labour market statistics.

On the plus side, the hiring boom shows no signs of stopping, with companies having to work harder than ever to woo candidates and salaries in some sectors skyrocketing.

However, on an overall basis, real wages are falling due to rapidly increasing inflation. As the cost of living crisis begins to really bite (and with the forthcoming national insurance increase looming large), most people have less money in their pocket at the end of each month.

Here, we’ll dig down into the stats, take a look at the roles where salaries are soaring, and share reaction from SMEs.

What do the February labour market statistics show?

The February 2022 Labour Market Overview from the Office of National Statistics (ONS) is based on Labour Force Survey estimates for October to December 2021.

This is of course now a few months old, but it’s the most recent reliable data that we have.

The key findings are:

Record number of job vacancies

Between November 2021 and January 2022, there were a record 1.3m job vacancies in the UK – this was 513,700 higher than the pre-coronavirus January to March 2020 level.

However, the rate of growth in these vacancies continued to slow, potentially indicating that the jobs market may be slowly heading towards some sort of equilibrium.

Another key indicator – the ratio of vacancies to every 100 employee jobs – also continued to rise, reaching a record high of 4.3. The ONS also noted that the majority of industry sectors continued to display record high ratios.

Real wages falling

When adjusted for inflation, regular pay fell by 0.8% as salaries failed to keep pace with inflation reaching the highest level since September 2008.

If end-of-year bonuses are included, then this fall is a more modest 0.1%, but these bonuses were concentrated in a small number of sectors (most notably finance, insurance and property).

How have experts reacted?

Jack Kennedy, UK economist at Indeed, notes that the fall in real wages looms large on what are generally very positive numbers:

Similarly, Paul Farrer, the founder and chairman of recruitment agency Aspire, describes the record number of vacancies as a “double-edged sword”:

What are SMEs saying?

The UK’s recruitment agencies are caught in a strange situation – loads of vacancies to work on but a dire shortage of good candidates.

“Retention could be a pyrrhic victory”

Sarah Loates of the Derby-based Loates HR Consultancy says that the understandable desire to retain employees at all costs could just fuel even higher inflation:

“Demand among employers for staff is obscenely high while supply is exceptionally low, due to low unemployment, low redundancies and simply fewer people in the labour market due to early exit retirements and Brexit.

“So, employers are retaining staff by raising wages, providing one-off rewards and offering existing staff increased job flexibility and additional training. More enlightened employers are shifting their focus to employee wellbeing, even conducting ‘stay interviews’, the antithesis of exit interviews.

“For many employers however, retention could be a pyrrhic victory, leading to spiralling inflation, with the Bank of England estimating this could reach 7.25% by April 2022.

My advice for employers is to access untapped areas of the labour market. For example, the over-fifties are finding it especially hard to gain employment so tap into that demographic. Also, always ensure you put flexibility front and centre of the advert, as employees now demand and expect it.”

“This situation is simply unsustainable”

Sandra Wilson, the director of the Ipswich-based recruitment and HR consultancy Cottrell Moore, says that the UK jobs market just can’t continue down the path it’s currently on:

“The talent is there”

Finally, Jessica Ross, the CEO of marketing agency Smashtag Social, had a bullish take on the situation – arguing that companies failing to find candidates just aren’t hiring efficiently:

“Companies are behaving like there’s not enough talent available, which is absolute nonsense. The talent is there, the problem is that their job adverts are boring, they take too long to make decisions or their corporate culture just isn’t appealing enough.”

Final thoughts

While there’s a lot of positive news in this data, the fall in real wages is a huge problem for the UK economy.

With inflation running rampant, companies still recovering from the impact of the pandemic simply can’t afford to raise wages to those levels.

It’s also hard to predict how the employment situation will evolve. On the one hand, as recruiters are pointing out – the current situation does feel unsustainable and companies can’t just keep increasing salaries to keep employees and lure new candidates.

On the other, Brexit has had a fundamental impact on the UK employment market, and we’re only just starting to understand what the long-term impacts of so many EU workers leaving the UK could be.