CIPD forecasts warn of rising pay threat to employment prospects

The year to come will be another good one for job creation, but the overall economic outlook hinges on the crucial winter pay round that is now upon us, according to Dr John Philpott, Chief Economist at the Chartered Institute of Personnel and Development (CIPD).

According to Dr Philpott, a failure on the part of employers to maintain pay restraint could push interest rates above 5%, triggering a dip in demand for labour and an increase in unemployment over and above the recent, relatively benign, supply driven increases.

His analysis is contained within the CIPDís Barometer of HR Trends and Prospects 2007, an annual review of the CIPDís extensive survey and research data for the year just gone, and outlook for the labour market in the year ahead.

The economy and jobs
Dr Philpott, author of the review, comments:
ìThe economic outlook for 2007 is on balance positive. Fear of continued above target consumer price inflation should start to ease as winter turns to spring ñ by which time the weight of opinion about the prospects for economic growth will probably grow more pessimistic, with steadily creeping unemployment at home, combined with the global knock-on effects of a dip in the United States economy, leading to talk of a possible cut in interest rates.

ìAssuming interest rates do not rise above 5% the CIPD estimates that there will be a net increase in total UK employment of 195,000 in the year to December 2007. This is slightly less than enjoyed in 2006, primarily as a result of reduced hiring and job cuts in the public sector plus greater efforts to curb labour costs in commercial organisations.

ìDespite this, with the inflow of workers from central and Eastern EU countries moderating, the level of unemployment should eventually stabilise in 2007 though measured unemployment will also be affected by the degree of success the government achieves in helping more people on welfare benefits, notably Incapacity Benefit claimants, into the labour market.

ìHowever, the winter pay round will be the pivotal domestic economic event of the year. If this triggers a rise in interest rates above 5% the resulting dip in demand for labour would add a more worrying flavour to the relatively benign labour supply driven rise in unemployment witnessed in recent years.

ìThe encouraging news from the most recent CIPD/KPMG quarterly Labour Market Outlook survey is that employersí pay intentions remain modest. But intentions are not the same as pay outcomes ñ it is therefore vital that employers remain as disciplined as they say they intend to be in the coming months.î

The HR agenda ñ closing the trust deficit
Employers, working with HR practitioners, senior managers and line managers, need to make tackling the ìtrust deficitî between managers and the managed an urgent priority for 2007, according to the report. A recent major study from the CIPD, Ipsos MORI, and Kingston University, revealed high levels of dissatisfaction with managers, and a depressing failure on the part of bosses to listen to the views and opinions of their employees.

Dr Philpott said:
ìThe annual CIPD barometer clearly shows that successful organisations are those that can translate their HR policy goals into practice with HR practitioners working in partnership with senior management and line managers so that employees experience the benefits and voluntarily commit to ëgo the extra mileí and raise their performance.

ìIn view of this the findings of the large scale 2006 CIPD/Ipsos MORI/Kingston University survey of employee attitudes offer a serious indictment of the state of people management in UK organisations. It is extremely disconcerting that 1 in 3 UK employees are dissatisfied with the way their organisation is managed, while a massive 43% are dissatisfied with their relationship with their manager. It is also depressing to find that two-thirds of employees donít feel able to feed in views or opinions to ëthe powers that beí at work, while two in five are not well informed about what is going on.

ìThis points to a worrying ëtrust deficití that is harming organisational performance and raises staff turnover. But closing the deficit needs more than HR simply coming up with a broader range of practices and a more sophisticated battery of human capital metrics. What is needed is a new approach to developing relationships in our workplaces. A good New Yearís resolution for HR would be to work on opening up internal lines of communication and killing off incomprehensible management speak so that managers and employees can talk sensibly about what they jointly aim to achieve.î