Pay growth for most employees likely to remain stuck in the slow lane

17 May 2016

Many employees are unlikely to see much of a boost to the real value of their pay until at least the end of this decade, according to results of the latest CIPD Labour Market Outlook survey.

The latest quarterly survey finds that employers expecting to make a pay award during the 12 months between March this year and March 2017 plan to award a median pay increase of 1.7%.

The survey of more than 1,000 employers identifies a number of factors that are combining to keep pay growth low, even though hiring intentions remain strong. In response, the CIPD is calling on the Government to be more interventionist in its support and work in partnership with business to help improve organisations’ productivity so they can improve salaries.

This is the second quarter in a row when the CIPD’s survey of employers has anticipated a figure below the Government’s official inflation target of 2%. It highlights how low inflation, expanding labour supply and the lack of productivity growth are working in combination to reduce the economic pressure for employers to pay their staff more. In addition, the report finds that government-imposed increases in labour costs – such as the Apprenticeship Levy and increases to the National Living Wage will continue to reduce the scope for employers to raise pay for other workers, while the public sector continues to see wage rises kept to 1% or less.

Key findings from the survey results include:

  • Median basic pay expectations in the 12 months to March 2017 are 1.7%. Expectations are higher among SMEs (2%) than larger organisations (1%) – large employers are feeling the pinch of additional labour costs
  • Median basic pay expectations are higher in the private sector (2%) than in the public sector (1%) and voluntary sector (1%)
  • This quarter’s net employment balance – which measures the difference between the proportion of employers who expect to increase and those that intend to decrease staff levels – has increased to +28, up from the +21 since the previous report
  • Almost half (49%) of employers say they have vacancies that are hard-to-fill. Among these organisations, the average proportion of all vacancies proving hard-to-fill is 23%.