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Will a lack of skilled and willing workers derail the UK economic recovery?
Sunday 1 August saw the last taper of the Government’s job retention scheme. For the final two months of furlough employers will have to stump up 20% of a worker’s salary as well as paying pension and national insurance contributions. We’ve been here before and the last go-around forced the hand of employers and the result was hundreds of thousands of redundancies.
This time is different. Restrictions have been removed in England and the vaccination programme is well underway with almost 90% of adults having received their first jab. This time the issue might not be too few jobs but too few workers, at least in the right geographical locations.
The latest data from the Recruitment and Employment Confederation shows the jobs market is stronger now than it was before lockdowns ravaged the economy. It tracks new jobs posted and found that in the week to 18 July there were 194,000 new advertisements compared with 179,000 in the first week of March last year. Cities, long silenced, are dusting themselves off, flipping the closed sign to open and discovering that finding staff is a struggle.
Strip out the temporary ‘pingdemic’ that’s disrupted businesses and decimated production lines and consider how Covid has upended the labour market. With shops and restaurants closed workers were either furloughed or sought employment in other sectors like manufacturing.
Some people moved either because they could no longer afford to pay the bills, or to take advantage of not having to go into the office, making it a pandemic perk.
THE FIGURES SPEAK FOR THEMSELVES
The latest PAYE figures illustrate the shift. Despite more than 200,000 fewer people being on payrolls in June than pre-pandemic, some parts of the UK actually have more workers than they did before the first lockdown.
Of those new job adverts analysed by the REC the lion’s share of demand comes from London boroughs. The bright lights of the city that used to more than make up for the lack of space have dimmed and wide open green spaces have become a precious bargaining chip.
Investors need to pay close attention to how different sectors and businesses deal with the labour conundrum. Areas to watch include construction companies as they cannot afford to deal with a skills shortage when demand is so strong. Hospitality chains will need to find ways to avoid cutting back on their service hours. Can they search out blossoming suburban high streets where staffing might be less constrained? City stalwarts may have to permanently embrace hybrid working as a hiring incentive which could be considered more lucrative to some employees than a hike in wages.
Tesco is so desperate for lorry drivers that it is offering a £1,000 joining bonus to lure people in. The Road Haulage Association (RHA) has estimated there is a 100,000 shortage in HGV drivers across the UK.
A tight labour market usually means wage rises and that has an impact on employer pension contributions and by extension Government coffers. There’s also the prospect that the spectre of stagflation could push the Bank of England to raise rates sooner rather than later, a major issue for firms carrying boat loads of Covid-related debt.
But recovery has slowed and the current hiring boom could fizzle out under autumn’s grey skies. Sectors like travel and events carry deep scars and the summer salve won’t be potent enough to overcome months of hardship. The latest figures from HMRC showed workers were still being added to furlough numbers in May as it became clear the season’s earnings potential would be curtailed.
It is important to consider how many of the circa 1.9 million workers still being supported by the scheme in June are in ‘zombie’ posts? How many will fall on the 1.57 million active vacancies currently available? That’s the calculation that every staff hungry company will be watching.
CONCERNS OVER JOB SECURITY
One must question if Covid restrictions are really gone for good. Anecdotally we’re told that a lack of confidence is preventing people from returning to sectors like hospitality because it still feels precarious.
Staff shortages weren’t part of the conversation a year ago when unemployment had been predicted to peak at 10% but then the whole pandemic has thrown our lives and our economies on their heads.
The hiring boom might be viewed as a good thing but if jobs remain unfilled and businesses can’t capitalise on what little reopening bounce remains then it could be just as costly as long lines at the job centre.
By Danni Hewson, AJ Bell financial analyst