EY ITEM Club Winter Forecast 2014
Headline employment levels have increased significantly reflecting an unemployment rate of approximately 7.4%, the lowest level since 2009. Over the same period, wages have by contrast fallen in real terms with the impact focused disproportionately on the low skilled and those under 35.
Will supply outstrip demand?
Net increases in inbound immigration, extension of the statutory pension age, reductions in the public sector and tougher benefits eligibility criteria have all contributed to an increase in the number looking for employment as well as older workers voluntarily working for longer. Our strengthening economy has more than accommodated these increases, however, assuming these changes continue we are likely to see the supply of suitable candidates, substantially outstripping demand.
The average wage has increased by around 7.5% since the beginning of 2009; however, the cost of living has risen by over 15%. Low skilled immigrants, those transitioning from unemployment benefits and those leaving education appear to be most impacted. A significant number of those were born after 1990 entering the jobs market during the recession. Compounding the impact of tougher competition for jobs and lower wages, they have had to pay for university, are struggling to get a foothold on the housing market (particularly in London) and will need to save a greater percentage of their income to ensure any security in older age. If the supply of talent continues to outstrip demand, the laws of market forces will dictate organisations’ responses — in the absence of other external forces, wage pressures are going to remain pretty subdued.
A need for action
The current signs of economic recovery have to be viewed as good news in the context of employment opportunities and stability. In the mid-term however, policy makers and employers will need evolved approaches to address these emerging challenges. Some leading organisations have already established partnerships with learning institutions in order to secure a pipeline of talent. Others are refreshing their resourcing strategies ranging from revised approaches to apprenticeships through to the creation of global employment organisations to support the development of mobile talent. The competition for talent, and those with significant potential, will continue to increase. In addition to resourcing and development initiatives, businesses will need to focus on the totality of the employee vale proposition in order to remain competitive.
Stuart Steele, EY Partner, Human Capital Consulting