A tightening labour market and an increasingly mobile workforce is driving up bonuses to hire and retain staff, but the wage squeeze for the wider workforce continues to deepen off the back of rising inflation, the Resolution Foundation said today (Tuesday) in response to the latest labour market statistics.
The UK labour market continues to tighten, with unemployment falling to 3.7 per cent (the lowest since 1974) and the number of vacancies rising to almost 1.3 million, taking vacancy numbers above unemployment levels for the time ever.
Workers are taking advantage of this tight labour market by moving jobs – almost a million did so in the first three months of the year. There are signs firms are using bonuses to respond to the hiring and retention challenges posed by this mass movement, with total pay including bonuses rising 7 per cent. Bonuses are up 30 per cent on last year, but remain concentrated in finance and business sectors which account for almost 60 per cent of all bonuses.
There is less good news for those not receiving bonuses, with regular pay not responding to rising inflation. Real regular pay growth has fallen sharply by 1.2 per cent – the fastest rate in almost a decade. The Foundation notes that the true scale of Britain’s real wage squeeze is likely to be even deeper as the headline rate is flattered by the effects of last year’s furlough.
Finally, the Foundation notes that the UK labour market remains smaller than it was pre-pandemic.
While long-term unemployment is falling, there are no signs that the pandemic-induced rise in inactivity is reversing, with half a million people – largely older workers – having completely disengaged from work. As a result, we are working 10 million fewer hours a month than before the pandemic, which will lead to a smaller economy overall.
Hannah Slaughter, senior economist at the Resolution Foundation, said: “The UK labour market continues to tighten, with the number of unemployed people having fallen below the number of job vacancies for the first time ever. People are taking advantage of these conditions to move jobs, and employers are responding by paying bonuses to hire or retain key staff.
“But for the vast majority of the workforce, the labour market may feel far less hot. There is little sign of wider pay pressures building and real wages are getting squeezed even tighter.
“With inflation having shot up in recent months, the scale of Britain’s wage squeeze is going to get far worse.”