Wage growth of permanent and part-time staff slowed in July and demand for workers steadied with the number of vacancies declining, new figures show.
The research, by KPMG and the Recruitment and Employment Confederation, gives weight to forecasts for further interest rate cuts by the Bank of England.
Despite making fewer appointments in July, companies continued to raise permanent staff salaries. The effects of inflation were clear, though less so than in June and below the survey average, the figures showed.
The more people are unemployed, job vacancies are still abundant, and yet there seems to be a shortage of suitable talent. This is because there is a significant flaw in the current hiring processes” – Tom Cornell, HireVue
Businesses were found to be willing to raise pay to attract workers “amid a dearth of suitable candidates”, according to the report. Temporary staff pay also increased, although higher temp staff availability weighed on pay rates.
Vacancy numbers in the UK labour market continued to decline during July extending the current period of contraction to nine months. The pace of reduction was marginal and slower than in June, however. Temp staff demand saw a slight growth, but a modest contraction was seen for permanent workers.
Higher staff availability reflected a combination of increased redundancies at firms and a reduction in demand.
The permanent staff salary index fell to 56.5 last month from 57.1 in June, still above the 50-point threshold that separates growth from contraction. The temporary salary index dropped to 50.9 from 53.7 in June.
Hiring intentions
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The figures, which are closely watched by the Bank of England owing to accuracy issues with official labour market estimates, demonstrate that pay growth was descending from record highs, said researchers, partly because tight monetary policy was squeezing demand in the economy. The Office for National Statistics has seen a decline in response rates to its labour force survey leading to doubts over its accuracy.
Kate Shoesmith, deputy chief executive of the REC, said: “The weaker growth in both salaries and temp pay suggests that employers are keeping pay in line with inflation as the Bank of England wants and the interest rate cut is welcome. Employers will need more of the same to maintain confidence.”
The Bank of England cut the base rate by 0.25 percentage points to 5% this month.
Tom Cornell, senior psychologist at recruiting firm HireVue, said the REC/KPMG figures revealed a paradox at the heart of the current job market. He said: “The more people are unemployed, job vacancies are still abundant, and yet there seems to be a shortage of suitable talent. This is because there is a significant flaw in the current hiring processes, and the solution lies in broadening the talent pool to identify more suitable candidates with better-suited skills.”
Cornell said university degrees still held significant weight in the recruitment process, despite HR professionals recognising the value of non-academic attributes such as soft skills and experience. Most HR professionals, he said, admitted they still couldn’t do without “zoning in on academic achievement” before they make hiring decisions – despite claiming their organisations offered equal opportunities for candidates without degrees. “The picture is clear,” said Cornell, “there is a marked unconscious bias towards candidates with university degrees.”
Businesses needed to integrate skills-based assessment into the core of their recruitment process, he said, with only 14% having dropped degree requirements from their job listings.
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He added: “There is still a long way to go in employment equity”.
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