Written by, Jason Kilbride
Amidst a backdrop of slowing inflation and ongoing increases in bank interest rates, the second quarter of this year bore witness to an astonishing 7.8% surge in wages across the UK. While the influence of inflation and its subsequent economic ripples cannot be underestimated, it’s important to recognise that this remarkable upswing in wages is also being propelled by talent shortages and a growing realisation among employees about their value to organisations.
To put it plainly, a scarcity of talent is palpable across the entire spectrum of the workforce, spanning from low-skilled positions to the C-Suite level. The battle to attract and retain talent is proving to be more challenging than ever. Companies are finding themselves compelled to pay higher wages to retain existing staff and to entice new talent, a struggle that’s exacerbating the difficulty of recruitment and ultimately leading to heightened remuneration packages. All of this is happening while companies are grappling with pressures on their bottom line from multiple directions. This presents a dilemma: should remuneration be increased, even if it adds strain to the bottom line? Is it justifiable to onboard recruits with higher salaries? Or should companies opt for leaving vacancies, thereby shifting pressure elsewhere?
This complex situation is particularly evident in specific sectors, where wage increases are surging at a rate that often doubles or even exceeds the aforementioned 7.8%. With inflation and talent shortages as driving factors, candidates are strategically negotiating for higher compensation, capitalizing on the challenging positions that companies currently find themselves in. Essential roles that have suffered from talent shortages for years are witnessing regular wage hikes, often outpaced by competitors, and the demand for young, skilled talent is simply outstripping supply. The urgency to acquire these skills is undeniable, leading companies to opt for immediate salary increases rather than waiting to invest in training and development that would yield returns several years down the line.
As people contend with rising utility costs (though there’s a positive trend), food prices (which might have been undervalued for years), and evolving mortgage rates, businesses have a responsibility to offer support.
However, as the need to attract talent grows, there’s a threshold that cannot be crossed. While there’s no magical solution to the talent shortage, and inflation is here to stay for the short term, millions of individuals are yet to be affected by mortgage rate changes, and their financial strain is yet to be fully felt. In short, wage increases are likely to persist for a few more quarters, although not necessarily at the same level.
The pivotal question emerges: What’s the remedy? Although I lack a definitive answer, I believe several strategies can contribute. Companies should consider a broader pool of candidates, potentially embracing transferable skills, less experienced individuals, or even flexibility in terms of location. These adjustments can grant access to a broader talent pool, alleviating the pressure to rely on salary increments solely. Focusing on non-monetary benefits can also prove advantageous; cultivating an environment where individuals feel valued through initiatives like summer hours, team outings, training, career development, and even schemes like electric car incentives can provide a competitive edge, reducing the sole emphasis on salary.
While long-term solutions like apprenticeships, graduate programs, internal development plans, and engaging with younger audiences hold potential, they won’t provide an immediate fix for the current wage and talent challenges. The prospect of automation has shifted from being a long-term investment to a medium-term one, and in some cases, even a short-term solution. Despite rising interest rates affecting businesses with limited cash flow, the timeline for automation implementation has still been shortened.
Of course, there could be many more strategies to consider, but the key is to nurture creativity. With salary increases unsustainable at their current pace, finding innovative approaches becomes imperative.
In a landscape characterized by uncertainty, it’s essential for all stakeholders to carefully balance the equation between salary hikes and adjustments to hiring strategies. What’s clear is that the challenge posed by wage increases isn’t going away anytime soon.