Company bosses believe employees feel more secure at work for the first time in four years but skill shortages have become dramatically worse.

These are the main findings of a survey of employment trends by the Confederation of British Industry (CBI) and William M Mercer, the human resources and employee benefits consultant.

Twenty seven per cent of respondents said employees thought jobs were more secure in 2000, 21 per cent said less secure. The resulting balance of plus 6 per cent compares with minus 15 per cent in 1999 and minus 25 per cent in 1998.

On skill shortages, 39 per cent of firms said this had a significant impact on competitiveness compared with 23 per cent in 1999 and 14 per cent in 1998. Skill levels were the biggest factor affecting competitive advantage and firms responded by investing in training.

Sixty one per cent reported a rise in training expenditure compared to 49 per cent in 1999 and 44 per cent in 1998. Most gave financial help for individual study (72%), time off for independent study (64%) and training beyond the needs of the current job (62%).

Susan Anderson, CBI Director of Human Resources Policy, said: "The economy has been in good shape in recent years and that has led to increasing job security, despite the global slowdown.

"But rising skill shortages are a worry. Firms are responding to the challenge by spending money on training and now is time for the government to do its bit by delivering higher educational standards. Otherwise, we could be storing up problems for the future."

Almost half the respondents introduced changes to work organisation and culture to improve productivity. Of these, 51 per cent raised performance with policies like redesigning jobs, giving employees more control over the organisation of their work and creating a learning culture.

Employers are also offering increasing opportunities for flexible working, helping to improve employees' work-life balance – a key objective of recent government labour market policy.

Firms offering flexible hours rose to 51 per cent from 44 per cent in 1999. Eighty one per cent of respondents offered part-time work, 57 per cent emergency leave in excess of legal requirements and 39 per cent job sharing.

There was a big rise in firms offering paid parental leave. Thirty nine per cent offered paid time off this year compared with 14 per cent in 1999. Nearly all large firms offered this facility but many small firms found it difficult to do so, probably because of difficulties covering absence.

Mark Edelsten, European Partner at William M Mercer, said: "What is emerging – and quite rapidly – is a change in British work culture. Many employers have introduced new working practices beyond the current statutory requirements, recognising that productivity increases and competitive advantage can be gained, especially from flexible working.

"British employers are beginning to evolve a new approach to people management. Driven by competition to attract and retain skilled workers, a unique British model is being moulded that combines key elements of employment practice from the US and continental Europe while retaining features of traditional UK people management."

Around half of companies (47%) had a permanent mechanism for informing and consulting employees, such as a staff council. Large firms were more likely to use a formal process than small firms where employees can often feed in views informally.

Following introduction of statutory trade union recognition in 1998, approaches for union recognition fell from 13 per cent last year to 9 per cent this year. Only 7 per cent of firms expect an approach over the coming 12 months, with large firms the most likely targets.

Numbers of firms with an equal opportunities policy rose for the third consecutive year. Eighty nine per cent of respondents said they had a policy compared with 83 per cent in 1999 and 79 per cent in 1998.

There was a fall in companies reporting an increase in the administrative burden caused by employment regulations. Seventy two per cent said burdens rose last year compared with 84 per cent in 1999 and 85 per cent in 1998.

Performance-related pay appears set to become more prevalent. While only 13 per cent said linking pay to performance contributed to competitive advantage, twice as many (26%) thought it would in future.

The survey covers more than 670 firms employing some 2.8 million people.