UK labour experts caution politicians against regulation

THE United Kingdom based chartered Institute of Personnel and Development (CIPD) has cautioned politicians against either more or less employment regulation.

The group explained that more or less regulation is likely to have little impact on UK labour market outcome.

Meanwhile, they argued that the year 2014 delivered growth but 2015 must be a year of productivity to sustain growth and improve earnings.

According to United Kingdom based Chartered Institute of Personnel and Development (CIPD), the UK labour market will continue to expand at a strong rate in 2015.

 “it’s unlikely that we’ll see any real increase in wage growth until 2016, says   Mark Beatson, chief economist for CIPD.  

While improvements in the labour market are good news for jobseekers and good news for businesses, Beatson warns that the UK’s steady growth remains vulnerable to developments in Europe and that the UK’s ‘productivity puzzle’ is an urgent issue for policy makers and businesses to address in order to sustain growth.

In his annual analysis of the UK labour market for the year 2015 Beatson predicts:

•Employment may grow by as much as half a million in 2015, slightly more than the OBR forecast. This is due to the extra number of migrant workers seeking work, older workers looking to stay in work to strengthen their pension pots and more people leaving benefits and going into jobs under the Welfare to Work programme;

•Economic growth of around 2.4% is expected in 2015, slightly lower than in 2014;

•The Eurozone as a whole is still expected to grow by just 1.1% in 2015;

•Interest rates are expected to rise but any increases are likely to be small;

•Wage growth is likely to remain in the 1-2% range for most or all of 2015, although low inflation means average earnings may increase slightly in real terms. However, no significant increase in wage growth can be expected until 2016, and even then, it is not guaranteed

•Productivity needs to form the core of economic policy and employers need to raise their productivity – including developing their workforce – before skills shortages mount.

Beatson said: “By historic standards, 2014 has been a year of reasonable growth, but there are still some very significant challenges that the government needs to address to attain more productivity. We said at the start of 2014 that productivity needed to be at the top of the agenda for Government and the same is true for this year. As a country we are still producing less value today than before the recession, and the years preceding that. We need a massive step-change as without growth in productivity, we are unlikely to see real earnings grow for some time”.

Beatson warns that while hiring intentions remain positive, at some stage labour shortages will start to become more acute and that taking advantage of relatively cheap labour now could have an impact on business competition, particularly in international markets. In both cases, he suggests that employers can manage these risks by investing in productivity. This might include investments in capital equipment such as technology and machinery as well as investing in intangible assets, including people. 

He continues: “Upskilling the existing workforce is an insurance policy against future skills shortages, but these efforts will only be maximised through broader changes such as improved management practices and job design. We need to see a similar focus from policy makers. Higher productivity is necessary if living standards are to improve and economic policy in the next Parliament should focus on achieving it through creating an environment that supports productivity growth at a sector and local level. The UK’s productivity challenges are deep-rooted and require systemic change. We need government, employee representatives and business to come together and pinpoint where workplace practices are working, where they need to be challenged and how we can build a workplace of the future that really works and drives the productivity we need.”    

The CIPD has recently published research, which pinpoints the role of effective management in the workplace and how this contributes to business productivity and organisational resilience

Meanwhile, Gerwyn Davies, Labour Market Adviser at CIPD said:

“Headline employment figures provide a lot of festive sparkle given the improvement in the quality and quantity of jobs that have been created over the past year.  However, while average earnings have moved up a little in the last few months, this will not be sustainable unless we can improve our productivity.  

“CIPD research shows that the UK management is one area where we are falling behind our international competitors.  It shows that managers are failing to adopt many of the sophisticated management practices associated with higher levels of productivity. With anywhere between 30 and 45 per cent of employees having some type of managerial responsibility, there are many small but simple improvements each manager that can make a big difference to the growth prospects of UK organisations. If these practices were adopted more widely, the prospect of real wages accelerating sustainably against the backdrop of low inflation would offer a welcome change of fortunes for people in work in 2015.”

 Beatson said: “On paper, 2014 has been a good year for the UK economy but Autumn Statement and OBR forecasts make clear, finding long-term solutions to the UK’s productivity conundrum remains by far the greatest challenge facing our economy today.

“Despite the fact that the economy has grown faster than expected and employment growth is expected to be the highest we’ve seen since 1988, company profitability and productivity levels are, generally, still well below pre-recession levels and look set to stay there for some time. It’s only by boosting the UK’s productivity levels that we can deliver sustained improvements in wages and international competitiveness. 

“There is no silver bullet for the productivity puzzle the UK is currently facing, but one area where there is a blind spot in current policy thinking is the role that improvements in workplace practices can play in enhancing productivity. We need a fundamental review of UK skills policy to capitalise on current investment in skills, to better understand how to help boost demand among employers for greater investment in skills and to improve how skills are used in the workplace. 

“An essential starting point is closer collaboration between policy-makers, workforce representatives, employers and education in order to agree, disseminate and drive best practice. A focused forum or Workplace Commission that brings these stakeholders together to formulate a deeper collective understanding of challenges and how they can be overcome would be a valuable step in developing real and lasting solutions to the UK’s productivity problem.”

On pay, Beatson continues: “The OBR appears not to have made any change in its assumptions about the underlying rates of employment growth and labour force participation to take account of the increased dynamism we have seen in the labour market and unemployment is forecast to bottom out at 5.2% in 2016 before increasing slightly.  As a result, the forecast underestimates the amount of spare capacity there is in the labour market among those out of work and looking, such as benefit claimants, the over 50s and migrants. In addition, there are ‘underemployed’ people who are looking for a job with more pay. Due to this strong supply of labour at current salary levels, we think it will take longer than the OBR expects before enough employers feel compelled to pay more, and certainly before it begins to show up in higher average earnings growth.  If average earnings grow faster than inflation at all in 2015, it will be because inflation is below target, not because of higher pay growth”.

On economic growth, Beatson adds: “The OBR expect growth to slow down a little in 2015, in line with other forecasters.  Unsettled conditions in the Eurozone could act as a brake on UK firms because of our close trade links.  It might take longer for the Bank of England to start raising interest rates because there is still spare capacity in the labour market and any increases in 2015 are likely to be very small, but after such a long period of stability the effect on consumer spending is uncertain.  How many consumers have made their financial decisions on the assumption that interests rates have to go up at some point and how many haven’t?”

On the abolition of National Insurance contributions for businesses taking on apprentices, Katerina Rudiger, Head of Skills and Policy Campaigns for CIPD said: “We welcome the measures in the statement encouraging businesses to invest in apprenticeships. However, equally important as making any changes to National Insurance contributions is the need to incentivise schools to promote apprenticeships more strongly as a pathway into work, and more generally, to improve links between business and schools and colleges to help prepare young people for work. The CIPD’s Learning to Work programme does exactly that, making the business case for organisations to invest in young people and bringing HR practitioners with their knowledge of the workplace together with young people to improve their employability.”