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A tale of two workforces: UK starts to see a new pay divide

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The latest ‘Labour Market Outlook‘ found that almost half of the UK workforce has seen either a pay freeze or a pay cut in the 12 months to December 2014. In contrast, 40 per cent have received a pay increase of two per cent or more. 

More than a third of manufacturing and production firms froze pay. However, almost half of private sector firms said that they gave a basic pay increase. 

The services sector portrays a very similar hour-glass figure in terms of the distribution of basic pay awards. While almost half of services companies awarded a basic pay increase, 35 per cent imposed a pay freeze.

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Gerwyn Davies, labour market analyst for the CIPD said: “The figures show a clear gap between employees that have comfortably exceeded the current inflation rate in their pay packets and those who haven’t seen any increase at all. What’s interesting is that this gap exists within sectors, with a significant proportion of employers able to afford a two per cent or above pay increase and a significant proportion of organisations in the same sector imposing a pay freeze. 

“It comes down to what businesses can afford, and productivity lies at the heart of an organisation’s ability to increase real wages above the rate of inflation. Evidence in our report shows a clear correlation between employers that state they have adopted a high value business strategy (as opposed to a low cost strategy) and those that were able to afford to pay a pay increase of two per cent or more.

“Our report implies that the difference within sectors between companies that can afford to pay a decent pay rise and those that are continuing to freeze pay lies partly in the quality of leadership and management and level of workforce investment,” Davies said. “There is evidence that organisations that have more sophisticated product market strategies are more likely to have adopted more advanced human resource management strategies characterised by more progressive people practices and greater workforce investment.

“Therefore, the role for government is not to cajole business into giving more generous pay awards on the back of stronger economic growth and lower costs, but to understand the levers that can help more firms increase their workplace productivity and move up the quality chain. This includes supporting businesses to improve management practices and encouraging greater investment in skills and the effective utilisation of skills.”

Looking ahead, the anticipated median basic pay award in the 12 months to September 2015 remains unchanged, although public sector predictions continue to lag behind at one per cent, compared to 1.5 per cent in the voluntary sector and two per cent in the private sector. 

This static picture highlights that there is still little overall upward pressure on salaries, but encouragingly, more employers expect to at least match the inflation rate target in the year ahead.  However, employer uncertainty about future pay growth is underlined by the relatively high proportion of employers that are not able to make a prediction about the year ahead.

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