‘Skills shortages boosting wage inflation’

SKILLS shortages across the North is creating a labour market that is driving up wage inflation, but could ultimately put the brakes on economic growth.

Analysis of data from the latest monthly survey of recruitment and employment consultants in the North of England has found that “demand for talent continues to outstrip the number of candidates seeking work”.

The supply of applicants for permanent jobs has continued to contract while the number of roles available has maintained its rise which has lasted for nearly two years.

The Report on Jobs: North of England, by KPMG and the Recruitment and Employment Confederation, has identified the tensions with the region’s labour market which is creating opportunities for individuals but pressures for businesses.

Jon Holt, office senior partner at KPMG in Manchester, said: “Recruiters are struggling with industry-wide skills shortages, as demand for talent continues to outstrip the number of candidates seeking work. This pervasive skills shortage could put the brakes on economic growth if it continues unabated.

“Nervousness in the run up to the election could be one factor seizing the market, as candidates seek certainty before leaving the safe haven of their current role. This tightening labour market is forcing up wage inflation as businesses bid for the best talent.

“Such a trend could cause a two-tier pay market, creating a significant divide between highly paid new starters and current employees receiving subdued pay increases. This dynamic will cause businesses problems in the long term as they struggle to keep hold of talented staff increasingly dissatisfied by their remuneration packages.”

Kevin Green, chief executive of the Recruitment and Employment Confederation, added: “Over a quarter of recruiters say that starting salaries have increased in comparison to last month, and we’ve seen another increase in the number of people that have found a new job via a recruiter.

“This suggests that labour market fluidity is returning – candidates are more confident about looking for work, and that there are opportunities to earn more for those that do. Employers need to realise that people are deciding to change jobs because they can earn more than in their current job.

“Increases in starting salary offers are being driven by skills and talent shortages across the economy, and businesses are going to have to think hard about retaining scarce resource.”

Permanent candidate numbers in the North continued to drop in March, extending the current sequence of contraction to 26 months. At the same time, the number of staff placed in permanent positions increased for the 23rd consecutive month. Having accelerated since February, the rate of expansion was sharp overall with around 45% of recruitment consultants signalled higher permanent staff appointments in the latest month, against 17% that posted a reduction.