employment & skills

Labour Pains

Currently, one of the big challenges for businesses is the shortage of labour with low unemployment rates and a high number of vacancies.

Harry Sherrard

Principal, Sherrards Employment Law Solicitors

Among many pressures faced by businesses at the present time, labour shortages present unprecedented challenges. The UK’s unemployment rate of 3.7% is the lowest in nearly 50 years. And it is now believed that the UK economy has more job vacancies than unemployed people for the first time since records began. In April 2022 the number of vacancies rose to a record 1.29 million. By way of example, the Goodwood Estate in West Sussex in May 2022 is advertising in excess of 60 vacancies, a mix of full-time, part-time and casual posts.

The record unemployment rate has led to businesses in all sectors struggling to recruit workers. The worst labour shortages are in healthcare, education and hospitality. Many organisations report that employees are accepting posts, signing contracts of employment, agreeing start dates and then pulling out, having received a better offer elsewhere.

A number of events have led to this recruitment crisis. The combination of the pandemic and Brexit is a major factor. Many EU workers who qualified for settled status in the UK, and were therefore entitled to live and work here, chose not to do so for a number of reasons, including disruption by the pandemic, improving economies in their home countries and a poor Sterling to Euro exchange rate.

The abolition of freedom of movement within the EU as a result of Brexit makes it much more costly and difficult for UK employers to employ staff from EU countries. It is worth noting however that the Republic of Ireland is within a common travel area, and UK employers have no restrictions in employing individuals with Irish passports. I know of at least one organisation that is actively recruiting in the Republic of Ireland for UK based staff. The candidate does not need to be physically based in Ireland at the time of recruitment; the key factor is the possession of an Irish passport. However, the Irish economy is suffering similar, though less acute, labour shortages and attracting quality candidates to make the move to the UK is not easy.

Post Brexit, the process for employers recruiting staff from the EU is the same as recruiting from any other part of the world. No preference is given by virtue of a candidate being from one of our European neighbours. The first step is for employers to apply for a sponsor’s licence, which is linked to a specific vacancy that the employer seeks to fill with an overseas candidate. Matters have been made easier by reducing the skill level required by overseas candidates. Previously the skill level was set at the equivalent of degree, but this has been reduced to RFQ level 3, broadly equivalent to A-levels, meaning that certain “blue collar” roles can in theory now be filled by overseas candidates. However, minimum salaries required to be able to recruit an overseas candidate may make appointments uneconomic.

What was known as the resident labour test has also been abolished. This required employers to demonstrate that they had advertised the UK and unsuccessfully sought to recruit a UK citizen, before being able to look overseas. That said, in light of the current recruitment crisis, employers can all too easily demonstrate that recruiting a candidate within the UK has not been possible. Returning to domestic issues, whilst the focus for discussion is usually on the unemployment rate, the employment rate in the UK also needs to be considered. The Office for National Statistics (“ONS”) reports that the employment rate is 75.7%. In terms of number of employees, there are approximately 600,000 fewer people in work than in 2019. Worse, the ONS estimates that the workforce is 1 million smaller than if it had continued to grow in line with pre-pandemic trends. This is partly explained by many older workers, after the stresses experienced during the pandemic, opting to retire early, and by the exodus of workers from EU countries. However, with the cost of living crisis beginning to bite, there is evidence of this trend reversing. Approximately 10,000 workers re-joined the job market in February, but this rose to about 83,000 in March, driven in part by a requirement for households to increase income. If this continues, labour shortages may reduce, but with inflation at historic highs, and a disrupted world economy, the Treasury and Bank of England have a challenging a few months ahead.

Website: www.sherrardslaw.com