UK Labor Market Tightens as Europeans Leave, but Wages Remain Stagnant

UK Labor Market Tightens as Europeans Leave, but Wages Remain Stagnant

The latest labor market bulletin from the UK Office for National Statistics, released on Tuesday, shows that the number of citizens of other EU countries working in the UK has declined in the past year by the largest amount since the government began collecting comparable records two decades ago. Between April and June 2018, approximately 2.28 million EU nationals were employed in the country: 86,000 fewer than in the second quarter of 2017. In the same period, the number of employed UK nationals increased by 332,000 to 28.76 million, while the number of non-EU foreign workers increased by 74,000 to 1.27 million.

Gerwyn Davies, senior labour market analyst at the CIPD, comments on the report to Personnel Today:

“Today’s figures confirm that the UK labour market has suffered from a ‘supply shock’ of fewer EU-born workers coming to live and work in the UK during the past year, compared with previous years. This has contributed to labour supply failing to keep pace with the strong demand for workers; which is consistent with another welcome fall in unemployment.” …

“The tightening labour market is putting modest upward pressure on pay, but this still isn’t leading to more widespread pressure due to ongoing weak productivity,” said Davies.

New employer survey data released on Monday by the CIPD and the recruitment firm Adecco showed that UK employers were experiencing staff shortages due to the low-unemployment environment and a decline in migration from the EU. The survey found that the number of applicants per vacancy had dropped across all roles since last summer, while 66 percent of employers said at least some of their vacancies were proving difficult to fill.

Nonetheless, this tight labor market isn’t translating into higher wages for most UK employees.

While starting salaries have increased and companies are paying more to retain key staff, wages are growing slowly overall: Median basic pay increase expectations for the 12 months to June 2019 held steady at only 2 percent. In the CIPD’s released of that study, Davies again attributed this to low productivity:

Despite the declining unemployment rate, it seems that the downward pressure of persistently weak productivity growth is dominating any upward pressure on pay from labour and skills shortages. The battle for productivity growth and higher wages in the UK will be won or lost in our workplaces. Poor skills development, skills mismatches, lack of worker autonomy and inadequate management all have a significant impact on people’s productivity at work, which affects organisational performance and employers’ ability to increase wages.

Meanwhile, the UK business community remains concerned over labor shortages caused by the decline in EU workers and the slowdown in migration from continental Europe. On Friday, the Confederation of British Industry urged the government to drop its plan to severely reduce net migration after leaving the EU, Bloomberg reported. Noting that EU workers make up between 4 and 30 percent of the workforce in every sector of the UK economy, the CBI warned that without a system to enable foreign talent to legally emigrate and work in the UK, the country would face serious shortages in key industries like health care and agriculture.

The Home Office, however, responded to the CBI by saying it had no plans to drop its immigration target, which envisions reducing net migration from around 240,000 currently to the tens of thousands. Former Conservative Party leader Iain Duncan Smith also argued that many businesses have not tried to find UK nationals to perform the jobs that are currently being filled by European immigrants, and that employers must try to fill vacancies with citizens before seeking out foreign workers.