Businesses are taking on part-time workers at the fastest pace in three years, as owners look to meet growing demand for workers without incurring the long-term costs of permanent employment.
The part-time employment index published by KPMG and the Recruitment and Employment Association (REC) rose to a three-year high of 52.7 in June, up from 52.2 in May and well above the comfortable 50-point margin that separates growth from contraction.
For SME owners, the logic is familiar. Strong economic activity is creating a need for more hands, but after two years of increased employer National Insurance, minimum wage increases and new employment rights, few are willing to cover the costs of fixed wages that would be difficult to offset if growth picks up again. It’s a strategy that small firms have resorted to in the past when the outlook turns uncertain.
Neil Carberry, chief executive of the REC, said: “After a long recruitment winter, these figures show some really hopeful signs. Temporary and contract work is once again leading the way, as firms respond when needed without feeling confident enough to commit to permanent recruitment.
There were clear signs among the data that the labor market is gaining strength after tax hikes and minimum wage increases have reduced the hiring appetite across the economy for SMEs.
The permanent hiring index jumped to 49.1 in June from 44.1 in May. That still marks contraction, and the average has now been below the 50 mark for 45 consecutive months, but the pace of decline is slowing for some time.
Lisa Fernihough, vice-chairman of advisory at KPMG UK, said: “While full-time employment is slowing, the pace of the decline is slowing and returning to the level we saw before the Iran conflict halted recruitment at many companies.”
The background remains strong. Office for National Statistics figures show unemployment reached 4.9 per cent in the three months to April, from 4.6 per cent a year earlier, while the number of vacancies fell to a five-year low of 707,000. As Business Matters reported in May, long-term unemployment has risen to a decade high, with small employers warning that successive cost increases are putting off new workers.
The supply of candidates, at least, is always plentiful. An index measuring full-time job seekers fell to 60.2 in June from 62.4, while part-time employment fell to 59.3 from 61.8. Both remain in a growth zone, meaning that recruiting firms are facing a deeper talent pool than at any time in recent years.
For owners budgeting for next year, separate figures from research firm IDR suggest the pressure on wages is high. Workers received an average wage increase of 3.5 percent in the three months to May, the fifth such reading in a row. Almost half of the residences stayed between 3 and 3.99 percent, just over a third exceeded 4 percent, and one in ten workers received more than 5 percent.
That source of income growth is more important than salary. Economists see the labor market as a key factor in the Bank of England raising interest rates this year. While the US-Iran war has put upward pressure on inflation, continued weakness in the job market may prompt ratemakers to leave borrowing costs at 3.75 percent for the rest of the year, welcome news for any small company that carries variable debt.
For now, the message from the data is one of optimism: labor demand is returning, but British employers are hiring one-handed at the exit.
