Wage growth is affected by strong labour supply, CIPD research reveals

The continuous improvement in employment prospects, a strong supply of labour and low inflation rates are likely to keep wage growth down over the next quarter, recent research released by the CIPD has been able to reveal.

Given the aforementioned conditions, basic pay is expected to grow by just 1.8 per cent this year, down from 2 per cent in the previous quarter.

When asked why employers were unable to meet the Bank of England’s inflation rate target of 2 per cent in their pay awards, private sector employers were more likely to cite having no recruitment or retention pressures (25 per cent), the national minimum wage (20 per cent) and the low rate of inflation/cost of living (15 per cent), as reasons why wage growth remained weak.

Gerwyn Davies, labour market analyst for the CIPD said: “The proportion of people switching jobs remains well below pre-recession levels despite recent increases, while labour supply remains strong, especially from migrants, welfare claimants entering the labour market and older workers staying in work for longer.

“In addition, word has spread that inflation is expected to remain very low this year so it’s no surprise many employers are hitting the pause button on pay.”

The CIPD is calling on the newly elected government to encourage employers to invest in skills and improve workplace productivity.

“More employers need to re-allocate spending towards workforce development in order to deliver the productivity improvements that are essential to achieve higher levels of pay growth” said Davies.

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