Rising unit labour costs and falling productivity will only put more pressure on employers to either restrict pay rises and cut working hours or start making redundancies, the CIPD has warned.
Figures published today by the Office for National Statistics revealed that the productivity of UK workers fell by 0.9% in the second quarter of this year on an output per hour basis.
The drop was particularly marked in the manufacturing sector, however, where productivity plummeted by 1.5%. This situation is consistent with CIPD research, which indicated that, over the last year, 43% of manufacturers had maintained higher staff levels than they required for current output rates.
The figure was more like one in four for private sector firms across the wider economy.
But, worryingly, the ONS also revealed that overall unit labour costs, which include employer social security and pension contributions, rose by 0.3% in the second quarter and were 3.2% higher than a year earlier.
Low demand for labour
Such figures would appear to confirm the findings of the CIPD survey, which indicated that two thirds of respondents would be forced to make redundancies if business did not pick by the first quarter of 2013.
Gerwyn Davies, the organisation’s labour market adviser, said: “Labour hoarding has to be a part of the explanation why productivity and unit labour costs are moving in the opposite direction desired by employers.”
But the introduction by the government of its auto-enrolment pension scheme next week was only likely to add to such labour costs.
“This will put pressure on employers that are increasingly facing a stark choice in response to lower levels of demand. Either they will continue to hold onto staff, and in many cases restrict pay rises and reduce working hours, or they will feel compelled to start preparing for redundancies,” Davies said.
Other possible reasons for productivity drops related to low levels of demand for labour given the weak state of the UK and European economies.
This situation was illustrated by the fact that there had been a sharp rise in the number of people on part-time or temporary contracts despite looking for full-time permanent work as well as a jump in the number of people who were self-employed on a part-time basis.
