Employees’ real pay has fallen by 2.2% in a year, despite an increasingly tight labour market that has made it more important than ever for employers to attract talent.
The June 2022 UK labour market figures from the Office for National Statistics show that growth in regular pay, which does not include bonuses, was 4.2% in February to April 2022, compared to the same period a year ago.
However, when adjusted for inflation – which was 9% at the consumer prices index (CPI) measure in April – wages were actually lower than in February to April 2021, when some employees were paid less due to furlough.
Strong bonus payments, however, drove a higher level of growth in average total pay, which reached 6.8%.
Jonathan Boys, a labour market economist for the CIPD, said: “We’re seeing some of the highest nominal pay rises in recent history, but the same can be said for inflation which is eroding these gains.
“Whether pay is beating inflation – resulting in a real pay rise – depends on who you are, and often whether you are paid a bonus or not. Total pay in the private sector rose by 8% compared to just 1.5% in the public sector. When including bonuses real pay rose by 0.4% but without bonuses it fell by 2.2%.”
Real wages in 2022
Melanie Wilkes, head of research at the Work Foundation at Lancaster University, said that more than six million UK workers experienced low pay, uncertain hours and reduced employment rights.
“In the context of a cost of living crisis, insecure workers are most at risk from rising inflation and a slowing economy,” she said. “The government cannot level up the country unless it introduces new legislation to deal with work insecurity.”
Anthony Painter, the Chartered Management Institute’s director of policy and external affairs, said the drop in real wages in 2022 meant many people were now facing a choice: work longer hours or find other ways of increasing pay.
“More hours are being worked and we know more broadly many are shifting work internally and externally to improve compensation,” he said.
“There is a divide in today’s tight labour market between those who have scarce skills or work in industries that pay bonuses and those who don’t. For those who don’t, the options are more hours where available and hope that basic pay plus government policy support helps meet living costs. Millions of public sector workers will be in this position.”
Some organisations have paid one-off bonuses to help staff with the rising cost of living. Its been reported that Lloyds Banking Group will pay all staff below executive and senior management level an additional £1,000 in August to help offset rising bills, while law firm Irwin Mitchell awarded a £900 payment in April.
The CIPD’s Boys noted that the inability to recruit staff was holding some organisations back. He advised employers to consider how they might attract people who are economically inactive, and suggested that they look at flexible working options for older workers to ensure this group can stay in work for as long as they wish.
The number of job vacancies reached yet another record of 1.3 million in March to May 2022, however the rate of growth in job openings has continued to slow down.
The employment rate increased by 0.2 percentage points on the quarter to 75.6%, which was still below pre-Covid levels. The number of full-time employees increased to a record high, but this was partially offset by a decrease in the number of part-time employees.
Total weekly hours work rose by 12.2 million hours to 1.04 billion hours in February to April 2022, compared with the previous quarter. This was also behind pre-pandemic levels.
“These latest figures show what a great time it is to be looking for work. We [have] another record number of vacancies, and pay is growing strongly as companies seek to attract people to work for them,” said Neil Carberry, chief executive of the Recruitment and Employment Confederation.
“But employment is still lower than pre-pandemic, and while economic inactivity is down this quarter, it is still much higher than two years ago. There is not yet any sign of the economic slowdown affecting the jobs market, but if we don’t address the fact that there are not enough people looking for work, this could put another dampener on the UK’s economic growth.
“There are three main things we can do. We have to improve our activation programmes to help Job Centres get people into work quickly, and radically reform the skills system to help fill some of the gaps. And we also need an immigration system that is flexible enough to address the really sharp shortages we’re seeing in some parts of the economy.”
The Work Foundation’s Wilkes said: “When it comes to tackling inactivity, blunt instruments like the Way To Work scheme or more draconian welfare policies that push job seekers into any job will not help those businesses struggling to fill 1.3 million vacancies. We need to see a proper plan for participation, with more tailored and specialist support for those who want a job but who face multiple barriers to doing so.”