The latest Jobs Confidence Index (JCI) from Robert Half, produced in collaboration with the Centre for Economics and Business Research (Cebr), highlights ongoing challenges in the UK labour market.
Despite broader economic concerns, nearly 60% of UK workers are optimistic about their job security over the next six months, while pay optimism has also rebounded. However, the report warns that skills shortages, coupled with wage growth, are putting increased pressure on employers and could pose long-term economic risks.
The JCI, a key economic confidence tracker, suggests that the UK labour market is grappling with a combination of economic inactivity, declining productivity, and stubbornly high wage growth. These factors, according to Robert Half, are creating a “perfect storm” that could complicate the Bank of England’s efforts to manage inflation.
Rising Job Security and Pay Confidence
The second quarter of 2024 saw a notable increase in worker confidence. According to Robert Half’s data, 60% of the UK workforce feels secure in their jobs for the next six months, marking the highest job stability rating since the first quarter of 2023. This boost in job security is mirrored by a significant increase in pay confidence, which jumped by 23.1 points, returning to positive territory. The JCI itself rose by 5.3 points, reaching 51.6 – the highest reading in almost two years.
A reading between -30 and 30 is considered normal for the JCI, meaning the current level indicates stronger-than-usual confidence among UK workers. Robert Half attributes this to persistent skills shortages, which have given workers more bargaining power in salary negotiations and career progression.
The Impact of Skills Shortages
The report outlines how skills shortages, a lasting effect of the pandemic, continue to dominate the labour market. Matt Weston, Senior Managing Director for UK & Ireland at Robert Half, explained that these shortages are driving worker confidence and keeping wage growth elevated, despite a slight decline in unemployment.
“Labour market tightness remains unchanged as a slight decline in unemployment was matched by a continued decline in vacancies. Much of this tightness can be attributed to high levels of economic inactivity since the pandemic creating a dearth of much-needed skills,” Weston stated.
This lack of skilled workers has two primary consequences. On one hand, employees with the right skill sets are in a strong position to demand better pay and conditions. On the other, employers are struggling to fill vacancies, which is negatively affecting productivity and national growth prospects.
Wage Growth and Inflation Risks
While wage growth has declined slightly, it remains above the rate of inflation. This is placing further pressure on businesses, particularly those already navigating tight margins in a competitive market. According to Weston, the current labour market dynamics could lead to wage growth outpacing productivity gains, which in turn may contribute to inflationary pressures.
“Skills shortages harm employers, and hinder company – and therefore national – growth prospects, productivity, and innovation. Conversely, the demand for skilled talent continues to keep the ball in workers’ courts where bargaining power is concerned,” Weston noted.
This mismatch between wage growth and productivity raises concerns for the broader economy. Without addressing the root causes of these skills shortages, the UK risks a situation where inflation remains persistent, undermining long-term economic stability and growth.
Looking Ahead: The Role of Government and Businesses
Robert Half’s report calls for increased support from both the government and businesses to mitigate the effects of skills shortages. Without significant intervention, these shortages could continue to fuel wage growth and reduce the competitiveness of UK companies. The report suggests that coordinated action is needed to address the labour market’s structural issues, including enhanced training programmes and initiatives to bring economically inactive individuals back into the workforce.
Weston highlighted the need for a strategic response, saying: “Without increased support from the Government and businesses, systemic skills shortages combined with the tight labour market risk wage growth that could see inflation creeping back up once again.”
As the UK navigates this delicate balance between maintaining wage growth and controlling inflation, addressing the skills gap will be critical to ensuring a sustainable economic recovery.
Managing Labour Market Challenges
As the labour market continues to evolve post-pandemic, the challenges highlighted in the JCI underscore the need for employers and policymakers to adapt. The future of work in the UK will likely be shaped by how effectively these labour market pressures are managed, particularly the ongoing skills shortages and the corresponding wage demands.
For employers, this means navigating a tight labour market while also fostering an environment that encourages productivity and innovation. For policymakers, the task will be to implement measures that support economic activity without fuelling further inflation.
The findings from Robert Half suggest that the UK is at a critical juncture in terms of its labour market and economic trajectory. How businesses and the government respond to these pressures will be key to shaping the future of work in the country.
