CIPD predicts tough year for HR as upward pressure on wages grows

The Chartered Institute of Personnel and Development (CIPD) has predicted that a tight labour market and upward wage pressures will bring new challenges for HR this year.

In a detailed analysis of the world of work in 2004 and a forecast of what 2005 has in store for employers, the CIPD found that although employment growth will be slower in 2005, the labour market will remain tight, ensuring employers will have to continue to work hard to drive up productivity. They will also have to look to migrant labour and those on long-term incapacity benefits to resist upward pressure on wages.

The report pulls together the results of five annual tracking surveys covering different aspects of people management, along with a series of four quarterly surveys of key employment data and a further five individual surveys.

Taken together, the surveys secured responses from more than 10,000 employers, between them employing millions of employees across the UK.

Commenting on the key trends in 2004, on which his predictions for 2005 are based, CIPD chief economist John Philpott said: “Low unemployment and ongoing high levels of demand for labour are focusing the minds of employers on workforce issues. Recruitment and retention have been big problems this year, so employers have adopted a combination of measures to hang on to existing staff, while widening the net when recruiting, often bringing in overseas workers to fill vacancies.

“It is unusual that wage inflation has remained steady in these circumstances, suggesting employers are turning to other HR solutions to attract, retain and motivate the people needed to deliver their business objectives.”

Looking ahead to 2005, Philpott predicted that:

  • the prevailing economic climate will see a rise in the total level of employment of between 150,000 and 200,000 – less than in recent years

  • manufacturing job losses will fall, but there will be no net job creation

  • ongoing record low levels of unemployment will ensure that even the moderate growth in employment forecast will increase pressure on an already tight labour market, leading all employers to seek to adapt their people management practices to increase productivity to contain rising cost pressures

  • the increased emphasis on productivity and performance will be most noticeable in the public sector, as employers seek to deliver the efficiency savings identified by the Gershon review published in June 2004

  • higher productivity will curb net job creation in the short-run, but this trend may well be countered by greater job creation as employers tap new sources of labour supply, such as immigrant labour and the economically inactive – both of which have the capacity to limit wage pressures.

Philpott also outlined the biggest challenges for HR as:

  • obtaining greater value for money from reward budgets

  • improving recruitment and retention practices without increasing costs

  • shifting the balance of training activity from programme delivery to supporting and facilitating the learning process

  • more effectively reorganising working methods, and helping line managers get better at delivering on a high-performance people management agenda

  • increasing the efficiency of HR systems and processes

  • better measuring the effectiveness of HR policies and the HR contribution

  • raising the standards of employee communication, involvement and engagement.


By Quentin Reade

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