Employment growth slowing - will it affect contractors?

Wednesday 19 February 2014

Employment growth in the UK is likely to slow over the coming months, according to new figures.

The latest Labour Market Outlook from the Chartered Institute of Personnel and Development (CIPD) and SuccesFactors showed that despite the fact the economy is picking up, recruitment fervour is easing - something that could cause concern for contractors.

Freelancers have enjoyed considerable demand over recent months, thanks to improved employer sentiment and a skills shortage.

However, as hiring needs slow, contractors fear their workload could drop off - albeit slightly.

While recruitment intentions are still positive, the rate of increase has begun to slow significantly.

What's more, many organisations intend to give pay awards below the current rate of inflation.

The CIPD claims this is the result of a "productivity hangover" among employers that maintained and increased their workforce at a time when output was falling.

Net employment has now fallen to a balance of +16 from +24 in November 2013. This reflects the proportion of employer intending to increase total staffing levels and those that intend to decrease their workforce in the first quarter of 2014.

Gerwyn Davies, the CIPD’s Labour Market Adviser, said: "Employment growth, normally a lagging indicator of recovery, seems to have preceded the stronger signs of growth we’re now seeing.  So it is unsurprising that employment intentions are now dipping just as economic growth seems to be taking hold, with employers needing to tackle the major productivity hangover affecting the UK economy.

"Weak productivity partly explains why a majority of employers expect to continue awarding below inflation pay rises for their workforce. Sustainable increases in real wages can only be delivered if organisations can boost productivity, for example through smart investment in the training, development and management of their staff."

The Labour Market Outlook also revealed that optimism remains high in manufacturing and production (+34), compared to the services sector, which recorded a net balance of +21.

Positivity can also be found in the north of England (+7) and the south (+10), while SMEs are more confident about their employment plans (+40) compared to larger companies (+5).

When it comes to pay, 71 per cent of employers claim they will offer increases of two per cent or less in the 12 months to December 2014.

Labour Market Opinion (LMO) employers are having a crisis of confidence, however. Recruitment intentions have declined to 54 per cent from 65 per cent over the past three months. This represents the lowest proportion of LMO employers intending to recruit staff since the survey began. What's more, one in five intend to make redundancies in the first quarter of the year.

So what does this mean for contractors? In some areas, demand may drop slightly. However, a broad lack of skills means talented professionals will remain highly sought after to plug gaps and support growth.

Smaller businesses are also likely to become greater sources of opportunities. "As these small firms seek to grow rapidly it is important they are equipped to hire the right people and to rise to the management challenges associated with growth," Mr Davies said.

Policy makers have recognised the crucial role small business play in the UK and there is now greater support available for these employers.

By Victoria McDonnell

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