The latest research from a major think tank indicates that there is an incentive for workers to change jobs rather than stay loyal to their employer.
The proportion of workers who are choosing to change jobs is now well below pre-crisis levels yet pay growth for workers who switch jobs is at its greatest level for in over ten years, which suggests that there is a growing pay off for those who move compared to those who remain loyal to their employers.
According to the research, growth in pay for the workers who do choose to stay with their employers is at two point five percent, having failed to reach pre-crisis levels, where it hit a high point of four percent. In contrast, those who switch jobs are enjoying growth in pay in the realms of 11 percent – the most that has been seen for people switching employers in the UK since the turn of the millennium.
These findings are significant, as the BoE is paying close attention to trends in wage growth, as it is considering whether or not to raise interest rates this week, above 0.5 percent for the first time in almost a decade.
While there is some evidence that stronger pay growth may indeed be coming soon, the research has found that the number of people in employment who have switched jobs because of their own decisions has fallen by around one percent since the peak at the time of the financial crisis.
We have now hit the lowest level of unemployment since the mid-70s, with just 4.2 percent of people unemployed. An increase in the number of job vacancies, and a smaller pool of applicants, could be helping workers to command higher salaries, especially Marketing Director jobs. The think tank says that since there is less job switching, firms are under less pressure to pay their staff higher wages as a retention tool.
Underemployment – where workers want to work more hours than their employers have available to them – is nearing its mid-2000s low, at just over 3.7 percent, although women and younger workers still report that they are under-employed.
Weak productivity growth is also an issue, continuing to hold back the prospect of higher pay growth, and the foundation believes that it is likely that wage growth in the UK could remain at around the 2.7 percent point for several months, with the pre-crisis 4.5 percent out of reach for the time being.
Stephen Clarke, one of the senior economic analysts working for the think tank, says that evidence on pay pressure remains mixed, and that while overall pay growth is weak, it can be tempting to think that while it is not great, it is as good as it is likely to get in the near future.
Continuing Wage Growth
The BCC says that it has doubts about the pace of growth and whether or not is is really sustainable. The head of economics Suren Thiru says that achieving meaningful improvement in wage growth could be an uphill struggle, unless the underlying issues that are limiting pay settlements can be tackled – with sluggish productivity, high costs for businesses, and underemployment all being major points of concern.
The evidence shows that there are more people in full time work, and that there has been a fall in the number of people who are self-employed or working part time. This suggests that employers feel more confident when it comes to hiring staff, and that the trend is likely to continue as we see more job vacancies and fewer candidates. Employers are likely to face significant recruiting and retention challenges as the jobs marketplace becomes more and more competitive over the coming years.