Headlines: May 14th, 2004

Wage inflation and a buoyant economy will impact severely on an already tight labour market, leading to increasing pressures on organizations. The warning comes from the Chartered Institute of Personnel and Development and is based on a survey of public and private sectors organizations. These conclusions are supported by the latest labour market statistics for unemployment, vacancies and average earnings which show average earnings, including bonuses, are now increasing at an annual rate of 5.2%.Findings from the Recruitment and Retention survey show that 36.5% of people management professionals responding to the survey indicated that they had increased starting salaries or benefits packages during 2003 in direct response to recruitment difficulties – compared to 23% in the previous year. Skills shortages are fuelling wage inflation and 32.4% of employers believe this issue is of greatest concern. The survey also found that almost a third of employers had increased pay during 2003 specifically to try and hang on to existing staff, as competition to recruit makes retention a greater problem.

Rebecca Clake, Organisation and Resourcing Adviser at the CIPD, said:”Employers are wrestling with competing pressures. Significant wage inflation could damage growth in the private sector and the expected service improvements following government investment in the public sector. However, recruitment pressures and skills shortages are leaving some employers with little choice but to raise salaries to attract the best candidates in the short-term.