Labour market tight as skills shortages and wages grow​

​

The combination of economic inactivity, falling labour productivity and stubborn wage growth are creating a potential ‘perfect storm’ according to the latest Robert Half Jobs Confidence Index (JCI) ()  – an economic confidence tracker produced in partnership with the Centre for Economics and Business Research (Cebr).

“Our research shows that the labour market tightness remains unchanged as a slight decline in unemployment was matched by a continued decline in vacancies.  Much of this tightness can be attributed to high levels of economic inactivity since the pandemic creating a dearth of much needed skills.  As a result, worker job confidence is on the rise and wage growth, although declining, is tracking above inflation.  However, the issue underpinning worker confidence is the ongoing skills shortages we are facing,” comments Matt Weston, Senior Managing Director UK & Ireland, Robert Half.

According to the latest edition of the JCI, skills shortages are fuelling bullish attitudes from workers, pushing up pay confidence as optimism in the macroeconomy increases, which is putting greater pressures on employers, and which could potentially signal trouble for the Bank of England.

“Skills shortages harm employers, and hinder company – and therefore national – growth prospects, productivity, and innovation,” continues Weston.  “Conversely, the demand for skilled talent continues to keep the ball in workers' courts where bargaining power is concerned.  Armed with confidence in their niche skill sets and experience, today’s confident workers can jump ship to pursue new opportunities if their employer doesn't meet their reward and career expectations.  Without increased support from the Government and businesses, systemic skills shortages combined with the tight labour market risk wage growth that could see inflation creeping back up once again.  This could cause a significant drag on economic prospects at odds with the growth agenda.”

The latest JCI recorded an uptick in job security confidence, with 60% of the workforce optimistic about their prospects in the next six months – the highest job stability reading since Q1 2023.  Meanwhile, pay confidence also spiked, up 23.1 points, bringing this pillar back into positive territory.  This represents the strongest quarterly gain of all four pillars in the JCI.

Overall, the JCI rose 5.3 points in the second quarter, up to 51.6 – the highest reported in almost two years.  According to Robert Half, these persistently high levels of job and pay security are reflective of the on-going impact of skills shortages that put workers in the driving seat.