With wages experiencing notable increases and inflation making its presence felt, it's crucial to examine the dynamics at play. Let's delve into the facts and implications surrounding this discussion.

Wage Trends and Inflation

Recent statistics reveal a notable trend in wage growth. In the last quarter, wages (excluding bonuses) rose by 6.2%, albeit slightly down from the previous quarter's 6.6%. Meanwhile, inflation stood at 4.2% for 2023, indicating that individuals, on average, secured a 2% pay increase when adjusting for inflation. This supports what we see as a talent acquisition business which is salaries (both internally and externally) have been steadily rising for some time now.

Supply and Demand Dynamics

A critical influencer in the wage equation is the interplay between supply and demand. As of January 2024, there were 14% more job vacancies in the UK compared to February 2020, pre-pandemic levels. While this marks a significant improvement from the peak of 60% more vacancies in January 2022, the numbers have yet to reach pre-pandemic norms.

A key observation is the scarcity of experienced professionals in various sectors, including pensions, wealth management, legal, and insurance. The persistent demand for these professionals contributes significantly to wage growth as demand is significantly higher than supply.

This explains why businesses are taking a much closer look at how they attract top talent and are keen to define and communicate their employer value proposition.

The Impact of Inflation-Beating Pay Rises

While inflation-beating pay rises may seem like a boon, their actual impact on individuals' financial well-being is nuanced. In 2022, wage growth was robust at 5.8%, yet inflation peaked at a staggering 11.1%. When factoring in taxation, the situation becomes even more complex. Despite wage increases, frozen tax bands and yet there is recent good news re National Insurance adjustments meaning overall, some of the gains are off set, leaving individuals with less disposable income.

Some economists argue that the influx of liquidity into the economy necessitates maintaining current interest rate levels, which presents challenges for individuals with mortgages and other debts.

What I do know is although talent acquisition is challenging in a candidate scarce market, I'd prefer to be here than than running the Bank of England or the Treasury.

Looking Ahead

Employees will always campaign for wage growth and who can blame them, you would be hard pressed to argue that individuals are better off now than they were pre-covid in real terms.

The question still remains: Can organisations sustain continued wage growth ranging from 5% to 8% annually?

Just because they have found a way so far, doesn't mean we can take it for granted that they always will!

With the budget coming next week, it will be interested to see if the government provide relief to households and companies alike by providing some 'give aways'.

If they do, it may mean businesses won't need to be as aggressive with the pay rises in 2024 as they have been in 2022 and 2023.

Watch this space!

Martin

Co-Founder