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Low pay growth sparks productivity worries

The latest jobs statistics show that employment is up but the Chartered Institute of Personnel and Development is warning that low wage growth is a symptom of poor productivity.

Figures from the Office for National Statistics (ONS) show that employment rose by 44,000 in the three months to March 2016, compared with the previous three months. In the same period, average earnings (in cash terms) rose by 2% including bonuses compared to a year earlier.

However, the HR professional body the CIPD, has warned that the "jobs-rich, pay-poor" economy is set to continue with pay awards expected to rise by just 1.7% in the next year. This is the second quarter in a row when the CIPD's survey of employers has anticipated a figure below the Government's official inflation target of 2%.

The CIPD's Labour Market Outlook shows that median basic pay expectations are higher among SMEs (2%) than larger organisations (1%); and they are also higher in the private sector (2%) than in the public sector (1%) and voluntary sector (1%).

However, pay growth for most employees will be "stuck in the slow lane" until the end of the decade according to the CIPD; "low inflation, expanding labour supply and the lack of productivity growth are working in combination to reduce the economic pressure for employers to pay their staff more".

In addition, it finds that increases in labour costs, such as the National Living Wage, are reducing the scope for employers to raise pay for other workers.

Mark Beatson, CIPD Chief Economist, said: 

"For now, there's no sign of the economy running out of jobs, or out of people to fill those jobs. However, the UK is now in its eighth year of productivity 'go-slow' which continues to limit the scope for employers to pay more. On top of this, employers are having to manage the consequences of Government-imposed increases to the cost of employing people."

The CIPD is calling on the Government to offer more support to help businesses improve productivity. Beatson said: 

"If the Government is going to intervene in this way, these policies have to be accompanied by a more active approach to helping businesses cope with these changes and improvements to their productivity; for example by providing more practical advice and support for businesses."

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