After exercising caution during the coronavirus pandemic, many companies have been on hiring sprees. But the search for talent has been difficult for many businesses in 2022.
Although companies in the wholesale, retail and service industries have experienced a decline in the number of people on the payroll, overall the economy has seen a jobs boom as the total number of jobs reached a record high of 35.8 million in June, according to the Office for National Statistics (ONS).
The UK vacancy rate mostly continued its upward trend in 2022, reaching a peak of 1.3 million in the March to May period. Alongside this, unemployment levels have remained at record low levels, remaining below 4% for the entire year – in comparison to the start of 2021, when it stood at 5.1%.
This combination of factors has made competition for talent fierce in 2022, much as it was the previous year. The effects have been felt across the economy, with the British Chambers of Commerce describing it as a “relentlessly tight labour market”.
As a consequence employers have had to step up their efforts to entice prospective candidates, with the Institute for Employment Studies advising that businesses “broaden and simplify recruitment, make work more flexible and secure, and improve access to workplace training and support”. Flexible hours, remote working, perks and learning and development programmes have all become potent tools in the war for talent.
But it has also put candidates in a strong position when it comes to negotiating salary. Amid the cost-of-living crisis, pay has become the most important talent attraction tool. Sainsbury’s, one of the largest employers in the UK, gave its 127,000 hourly-paid staff two pay rises over the course of 2022, while coffee chain Pret A Manger was forced to issue three pay rises this year because of the increased competition for talent.
These incremental rises in pay caused Bank of England chief Andrew Bailey to warn of a potential wage-price spiral earlier this year, as he feared people’s rising incomes ran the risk of pushing inflation even higher. But despite pleas for businesses and employees to show wage restraint, the annual growth in salaries has been stronger than at any point outside of the pandemic period. In the ONS’s most recent update, yearly growth in annual pay stood at 5.7% in the period July to September 2022 (6% once bonuses are included).
Although the number on people’s payslips has been growing, the figure has failed to keep pace with rampant inflation. In real terms, pay has been falling at a rate of 2.6% year on year. This is among the highest drops since the ONS started recording real earnings in 2001.
But even a faltering economy has struggled to tame the tight labour market. This unusual set of circumstances has led Reed CEO James Reed to declare it a “different kind of recession where there are still lots of jobs but the recession is around our wages”.
Another factor that is putting increasing pressure on the post-pandemic labour market has been an exodus of people from the workforce. The number of people described as economically inactive has increased by half a million, since 2019. Health issues, including long Covid, remain a leading cause. But the number of younger people citing mental health problems and neck and back pain was also on the up – a potential consequence of stooping over laptops and the feeling of isolation many have felt while working from home.
The number of over-50s opting to leave the workforce or taking early retirement has also had an impact. Since 2020, the number of economically inactive 50- to 64-year-olds has risen dramatically, with recent estimates placing the figure at 3.6 million. As a result, the year ahead is likely to see many companies try to entice such people back to the workforce as they look to fill open positions. EasyJet has already begun a recruitment drive targeted at the over-45s and retailer Halfords is looking to fill its 1,000 vacancies with recent retirees.
The recession is likely to further complicate matters for businesses. Economic headwinds have already caused several large companies to streamline their workforces, in particular in the tech sector. Elon Musk halved Twitter’s global workforce after taking over the company in October, while Meta has laid off 11,000 employees or roughly 13% of its staff.
The economic downturn has been reflected in the number of vacancies, which has recently begun to dip in the UK. But they are still well above pre-pandemic levels and the unemployment rate remains at a low not previously seen since the early 1970s, despite some notable layoffs. With a shrinking workforce, companies are likely to continue to find it difficult to recruit, even if the recession causes hiring at competitors to slow.