UK wages are rising at last, but for how long?

Supermarkets are promising UK truck drivers pay of £60,000 or more a year as they try to stem an exodus from the sector that is disrupting deliveries. Care providers are offering signing-on bonuses to lure nursing staff away from rivals, and building contractors say labour costs are rising as the housing boom drives up demand for brickies and carpenters.

Mounting evidence of labour shortages has fuelled talk of a new era of worker power, in which scarce employees will finally be able to name their price after a decade of wage stagnation. It has also put officials at the Bank of England on high alert, since a pick-up in wage growth could lead inflation to remain high for longer than policymakers anticipate.

“Large numbers of people are finding new work post-pandemic as the economy reshapes. But that realignment will take time, and there is good evidence to suggest that the market will remain tight for some years to come, even if the current crisis passes,” said Neil Carberry, chief executive of the Recruitment & Employment Confederation.

But although employers are still hiring at breakneck pace — with almost 200,000 new job ads posted last week, according to the Rec — steep pay rises are so far confined to a few occupations with longstanding skills shortages and a previous reliance on EU migrants, where it will take time to train new recruits for highly specific roles.

Despite the staff shortage seen across hospitality earlier in the summer, employers such as Pret A Manger — which is hiring as office workers start to trickle back — are offering entry level jobs at the statutory minimum of £8.91 an hour — with pay for team leaders a little higher.

While some economists think pay pressures will strengthen and spread across the economy, others say they could just as easily subside as hiring bottlenecks clear, up to 2m people come off furlough and people who left the labour market during the pandemic start job-hunting again. Tight public sector pay deals will also hold down the economy-wide average.

“I’m sceptical about wage inflation becoming very widespread,” said Pawel Adrjan, economist at Indeed, the job search site. His research shows that advertised pay rates for certain roles in construction, transport, manufacturing and hospitality rose sharply between February and July.

But these increases were concentrated in areas that needed specialist skills. Pay rates for HGV drivers, for example, had risen by more than 10 per cent — but despite the huge expansion of online shopping, pay for “last mile” delivery drivers was flat, Adrjan added.

Meanwhile, pay growth for white-collar jobs in accounting, finance or marketing was much more muted, he said, and posted wage rates for all jobs had risen just 0.8 per cent — compatible with annual growth in nominal wages of around 2.5 per cent.

These findings are consistent with the trends underlying official data on wages — although the headline figures have been heavily distorted by the large numbers of low-paid workers who fell out of work at the start of the pandemic, or were furloughed on 80 per cent pay.

The Office for National Statistics measured annual growth in average regular pay, excluding bonuses, at 7.4 per cent in the three months to June, or 5.2 per cent after adjusting for inflation. But it estimated underlying growth in nominal pay — accounting for some of the pandemic-induced distortions — at between 3.5 per cent and 4.9 per cent.

The Bank of England has reached a similar conclusion, estimating that underlying annual pay growth has averaged around 2.75 per cent during the pandemic, and was above 3 per cent in the three months to May.

This is already stronger than the paltry pay growth seen for much of the period since the financial crisis, in which pay barely outstripped inflation. “Any growth in pay at all is already outperforming large parts of the last decade,” notes Hannah Slaughter, economist at the Resolution Foundation, a think-tank.

But Fabrice Montagné, economist at Barclays, thinks this growth rate, while “fine” as the economy recovers from its deep slump, shows “we are in the territory of catching up, not of overheating”.

The BoE, which thinks unemployment has already peaked, expects wage growth to strengthen further over the course of the year as the labour market recovers.

Economists say a clear sign that wages really were on the rise across the UK economy would be a pick-up in pay settlements for existing employees. In normal times, much of the growth in average wages reflects people securing a pay rise when they move job, but in a tighter labour market, employers have to raise pay across the board to stop staff leaving.

Figures on pay awards collected by the HR consultancy XpertHR showed that while pay freezes were becoming rarer, and the top pay awards more generous, the median pay award remained stable at 2 per cent in the three months to July. Sheila Attwood, XpertHR’s pay and benefits editor, said this was likely to continue as employers were still “regrouping”.

Even where employers are clearly having to raise pay sharply, the offers dangled before potential recruits are often not as good as they first appear, unions warn.

Adrian Jones, national officer for the haulage sector at Unite, the union, said that rather than a permanent increase in the basic rate of pay, many employers were offering one-off bonuses or short-term increases — or were simply expanding their fleets of vans to get around the lack of HGV drivers.

In several cases, pay talks were breaking down with drivers considering strike action because offers to existing staff did not match those extended to new recruits, he said. Yet the headline rates of pay cited in job ads were often unrealistic, he added.

“One of our members saw an ad for £62k as a driver. He applied — it turned out to get that, you had to work nights, weekends, overnight. Every possible minute you could work you’d have to work . . . To get that money you’d have to push very close to the edges of the law and max out everything.”

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