The CIPD’s latest quarterly Labour Market Outlook has found that employment intentions are at their highest level for six and a half years, but pay remains subdued.

The report finds little evidence that the buoyant jobs market is feeding through into recruitment difficulties for the majority of employers in the short term, but some sectors are struggling to fill high-skilled vacancies. The CIPD is therefore urging employers in all sectors to start planning ahead to mitigate the risk of widespread skills shortages in the longer term.

The Spring 2014 Labour Market Outlook net employment balance* has increased to +26 from +16 since the Winter 2013/14 report. This is the highest score since autumn 2007.  Meanwhile, median pay expectations, excluding bonuses, are unchanged at 2%.

Just two in five employers report that they currently have vacancies that are hard to fill, which is broadly consistent with previous Labour Market Outlook surveys. Recruitment difficulties are higher in the public sector than in the private sector and employers report that the majority of vacancies they find hard to fill are highly skilled or skilled (71%). Engineering roles are the hardest to fill, followed closely by management and executive roles, and the most common reason for difficulties filling vacancies is a lack of technical or job specific skills.

Encouragingly, more organisations plan to invest in their talent pipeline than in previous years, with around three in ten (31%) employers that currently have hard to fill vacancies intending to hire more UK graduates, around one in five (22%) planning to hire more apprentices and half (50%) of such employers planning to up-skill existing staff in the next two years. The report concludes that employers need to ensure that they deliver on these intentions to invest in their talent pipeline in order to help offset future skills shortages.

Gerwyn Davies, labour market adviser at the CIPD, comments: “The UK jobs market looks set to continue its remarkable post-recession performance.  However, while skills shortages are still relatively concentrated in particular sectors and occupations in the domestic labour market, and pay continues to perform well below pre-recession levels, there is a danger that this may change if the labour market continues to tighten.

“Against the backdrop of the prediction of strong employment growth, now is the time for employers to ensure that any future plans to increase business investment prioritises investment in training.  This will not only help stave off the threat of recruitment difficulties increasing sharply in the future, but also help to boost productivity levels that we know are essential to the nation’s overall economic performance and therefore pay prospects.”

Davies continues, “Employers have all too often blamed government policy for skills shortages, when they often have more control and power over the future needs of their workforce. It’s therefore encouraging to see so many employers planning to invest in their workforce now, rather than risk paying a premium for talent when the economy picks up further and skills shortages begin to spread. But investing in your workforce is not all about recruitment – employers should also be thinking about how they design job roles that will meet the changing needs of the business and up-skill existing staff to fill those roles. Where new recruits are needed, employers would benefit from working more closely with education providers to ensure that school leavers, apprentices and graduates entering the labour market have the skills and capabilities businesses need.”

Davies concludes, “Employers have perhaps too often conflated recruitment difficulties with skills shortages and ignored some of the other key reasons behind their recruitment difficulties. Employers would therefore also do well to look at the pay and employment conditions they offer, as well as the organisation’s brand and reputation, as this may also affect applicant numbers, which is reported to be another key reason for recruitment difficulties”.

Other findings include:

  • Private sector firms are driving much of the predicted upturn in employment prospects, with the net employment balance improving to +37 from +27
  • SME employers are significantly more positive about their employment prospects than large employers (net employment of +52 for SMEs compared with +11 for large employers)
  • Recruitment intentions are strongest in the following sectors:
    • education (77% of employers plan to recruit)
    • human health and social work (72%)
    • financial, insurance activities and real estate (70%)
    • information and communications (70%)
    • Expected median basic pay increases (excluding bonuses) for those employers planning a pay review remains at 2% in the private sector (as per last quarter) and 1% in the public sector. The expected mean basic pay increase (also excluding bonuses) decreased to 1.5%.

* The Labour Market Outlook net employment balance measures the difference between the proportion of employers who expect to increase staff levels over those who expect to decrease staff levels in the second quarter of 2014