End of the ‘great resignation’ threatens to wipe out rising wages
Wage growth is likely to slow this year as the cost of living crisis puts more people off changing jobs, an economist has warned.
Job moves are likely to fall back to pre-pandemic averages following a surge last year, according to Gabriella Dickens at Pantheon Macroeconomics.
After a collapse in job-to-job moves at the onset of the pandemic, a tight labour market meant 3.2pc of workers changed jobs in the third quarter of 2021 – the highest since records began in 2001.
Switching jobs is a key driver of wage growth, as movers are more likely to move into higher-paid roles.
Ms Dickens said many workers delayed job moves in 2020 due to uncertainty, but that pent-up demand was now likely to have “washed through”. She added: “I think a lot of that’s just people having put it off the year before.”
Low confidence and a probable slowdown in the housing market are potentially further drags, Ms Dickens said. There is usually a close relationship between housing transactions and labour mobility, with the latter likely to suffer if housing is not available where people want to work.
“There’s going to be a big hit to real disposable income this year,” said Ms Dickens. “There’s the increase in the National Insurance contributions in April alongside the freezing of the income tax thresholds. All those things combined are going to weigh on consumer confidence and keep that fairly low.”
It comes as industries crippled by labour shortages were boosted by signs that almost half of staff that stopped working during the pandemic plan to return to the jobs market this year.
Research by Bank of America suggests that many students and temporarily sick workers will help fill record vacancies after the Covid crisis curbed the supply of staff for companies.
The ONS estimates that employment has fallen by 567,000 since the pandemic struck, worsening a scramble for staff during the economy’s reopening.
The hospitality, IT and construction industries are among those particularly hard hit by the shortfall with competition for workers pushing up starting pay for new staff.
Bank of America found 43pc of those who left the labour market since 2019 planned to return this year, while a further fifth still plan to eventually seek work again. Students and temporarily sick workers were most likely to look for jobs.
However, just over a third of those surveyed said they will not return to the jobs market.
Sanjay Raja, Deutsche Bank UK economist, said: “It will be, as we’ve long argued, a slow recovery, at least when it comes to the size of the UK’s workforce.”
