Wage growth could be sluggish due to increasing labour supply

Chris Papadopoullos
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Wage growth remains low despite rapid job creation
Employment intentions remain high but wages may not pick up due to an increasing supply of labour, an industry body has said.

Near-term employment expectations are at a seven-year high, according to survey results published yesterday by the Chartered Institute of Personnel and Development (CIPD), a human resources industry body.

This is reflected in the net employment balance – a measure of the difference between the proportion of employers who expect to increase staff levels and those expected to decrease staff levels in the fourth quarter of 2014 – which shows an increase from 23 to 30 since the August.

However, the jobs market remains challenging for jobseekers, especially those seeking lower skilled jobs. Employers reported that an average of 60 candidates applied for their last low-skilled or unskilled role advertised, compared with 50 applicants last year. A quarter of employers have reported an increase in applicants from Europe in the 12 months to September and while 23 per cent registered more interest from applicants aged 55-65 as people delay retirement due to earnings being hit by the recession.

Though an increasing labour supply may suppress money wages, it may actually lift real wages – money wage growth minus inflation. An increasing labour supply is a positive supply-side shock, which reduces prices in the economy. A larger labour supply can thus reduce inflation. Many survey’s have already pointed to money wage rises beating inflation.

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