The curious tale of labour shortages during a pandemic

Typical of the fickleness of the popular narrative, the dominant employment story has quickly turned from one of widespread concern about rising unemployment to a concern about of widespread labour and skills shortages. More curious still is that the sectors that are reporting labour shortages are those in low-skilled sectors such as hospitality, which have been most affected by the pandemic. So how valid are these claims and what may be driving these?

CIPD's Spring Labour Market Outlook report

There is little doubt that the demand for labour has gone from strength to strength. As the CIPD’s most recent quarterly Labour Market Outlook report showed, employment confidence is at a nine-year high. At the same time, the labour market has experienced a supply shock over the past year, mainly through a 7.4% fall in the stock of EU nationals in work in the UK. Contrary to some of the commentary, this is mainly due to the pandemic rather than Brexit. While border closures have slowed the inflow of EU workers to a trickle, the outflow of EU workers has increased against the backdrop of furlough, weak recruitment activity and large-scale redundancies.

This has hit industries like hospitality, construction and transport particularly hard given the high concentration of EU nationals in those industries. The impact is amplified by the fact that it follows 2 decades of fairly strong growth in immigration, which has helped prop up labour supply at a time of low unemployment. To complicate matters further, some furloughed workers have transferred to other employers and sectors, which has left some employers having to fill gaps with sometimes little notice.

At the same time, the data suggests that there is still some slack in the labour market; most notably the stock of young people not in work. As we know, young people have borne the brunt of the pandemic fallout; with the number of young people in employment aged between 16-24 falling by around half a million since the onset of the pandemic. There is thus a potential ‘coincidence of needs’, which could act as a catalyst for hiring and training more young people that can help offset rising labour and skill shortages.

Ways to help increase recruitment and retention

One obvious way of doing that is to increase apprenticeships that are aimed at young people. Indeed, it is curious that apprenticeships statistics fell in the years leading up to the ending of free movement of labour - with starts falling even prior to the introduction of the apprenticeship levy. What is perhaps even more surprising is that the number of apprenticeships starters fell within the hospitality sector to a greater extent than they did overall. To help with efforts to cajole employers to hire more young apprentices, there is an urgent case for the Government to provide more generous apprenticeship incentives aimed at 16-24 year olds; especially given the relatively high pro-portion of apprentices that go to existing employees.

Improving job quality is another tactic that can help with recruitment and retention; especially in lower-skilled sectors where labour turnover is high. Recent reports of shortages of chefs is a case in point example. Turnover in the profession is high, partly due to high work intensity, low pay and repetitive tasks. Job rotation or simply varying tasks could be used to make use of workers’ existing skills, which are often under-utilised. At the same time, the median annual salary for chefs is around £23,000; well below the UK’s median annual salary. Given that 15% of chefs are EU-born, the case for raising wages to attract more young school and college leavers to the profession is stronger than ever. These issues, along with staff burnout can be addressed by greater Investment in people management skills; which again could be helped by extra public resources through the business support system - mainly via growth hubs and local employment partnerships.

Additionally, recent talk therefore of golden hellos to attract staff can only take you so far. To offset the rising threat of labour and skills shortages requires a sustainable approach to getting more interest from local UK labour. Efforts to target specific labour pools need to be accompanied by an employer offer that provides choice to potential recruits; especially in relation to flexible working arrangements and employment contracts.

These ways will work

The current strong demand for labour offers employers a golden opportunity to invest in skills and apprenticeships, especially for young people. Together with the adoption of sophisticated HR practices, employers can deliver win-win solutions for them and the cohort of young people not in work.