"The most confusing economic period".

​“We are in the most confusing economic period anyone has ever passed through”

This was the opening statement from Chris Williams, Partner – Economic Consulting at Grant Thornton at a recent APSCo members meeting.

He explained that pre-pandemic, the economy was good, growth was slightly above normal, we had full employment and prices were stable. All economic forecasts were for continued steady growth.

Then Covid-19 hit, the economy shrank by 20%, and lockdowns hampered recovery.

He said that the Government's action with furlough and loans was the best economic strategy ever seen.

Many economists predicted unemployment to rise by 10% or more. It has fallen, and the size of the available workforce has shrunk with global staffing firm Adecco, reporting that vacancies are 50% above pre-pandemic levels and the number of people who are neither in work nor seeking employment is 400,000 higher. A result of people re-assessing their lives, considering if they want to return to work. Williams said, the last quarter has seen a reversal of this trend and maybe the increased cost of living is what’s pushing people back into work.

There are multiple causes of inflation and the pandemic created perfect conditions which have been magnified by Russia’s invasion of Ukraine.

Quantitative easing places more money in the economy which pushes up prices.

With factories and other workplaces closing with lockdowns, supply chains became less reliable with the right things, in the wrong places, at the wrong time.

There were few wage increases during the pandemic, a limit on immigration, and we were at full employment. Wage inflation is inevitable.

International trade turbulence and Brexit created more complexity in doing business.

Geopolitical pressures saw gas prices trading at 30% higher on the futures market pre-Russia’s invasion. Since the invasion, trading was at 120%.

Russia and Ukraine produce 28% of the world's wheat. The UK is 95% self-sufficient, but we buy food products from abroad and the cost of our wheat will inevitably arise.

The Chancellors Spring statement showed that there is little he can do about inflation which is forecast to peak at an average of 10%. That is an average, and the food and beverage, and energy sectors will see far higher inflation.

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So what does this mean for recruitment?

Firstly, let’s look at the demand for staff. At present, Aspire is seeing continued ongoing high demand for staff. This is partly due to the continued growth in the economy and our clients needing more people to manage increased demands for their products and services.

It is mainly due to churn. I was recently interviewed for a podcast on ‘The Great Resignation’ https://www.linkedin.com/feed/update/urn:li:activity:6912331780754702336 and whilst I don’t like that label, it’s easy to recognise the perfect recruitment storm created by the pandemic that is now being accelerated by the sharp increases in the cost of living.

For about 18 months, many people who were thinking of leaving their employer stayed put, fearing job insecurity and ‘last in, first out’ concerns.

As people recognised that the jobs market was booming, those insecurities have dissipated and candidates are now presented with a wide choice of new opportunities.

Of course, as people start to move jobs, their colleagues start considering their own positions, and a snowball effect can build.

To consider moving, employees need significant ‘push’ factors. These may include money, job content (what you do day to day), your relationship with your manager, with your team, corporate values, company culture, equity, diversity and inclusion practices, training and development, career progression, location, flexible working, and many other considerations personal to you.

When you have this sharp rise in the cost of living, you see people considering a change, purely for more money. If inflation reaches an average of 10%, then unless your salary rises by that much, you will be worse off. Simple maths.

Employers seeking staff need to ensure their ‘pull’ factors match the candidates ‘push’ factors. If it’s just money, it potentially makes it easier. But in reality, it’s not just about money. That becomes the red line and all the other considerations then come into play.

Assuming salary levels are the trigger, it creates a significant challenge for employers. In general, employers lack transparency over salaries. They don’t like to advertise them concerned that existing employees will consider themselves underpaid. Is it right that someone joining your organisation employed to do the same job as you, with the same levels of experience and competence as you, is being paid more than you? Is it right that a colleague who resigns is counter-offered and chooses to stay is now paid more than you, having shown disloyalty?

With such a shortage of candidates available, employers need to do everything to attract the talent they need, and transparency over salary levels is an issue so far avoided by many.

How long this talent squeeze will last is challenging to predict. Logically, higher inflation will put up costs, consumer demand will weaken and so will output. Therefore, the jobs market should slacken off.

Yet, although the GfK consumer confidence index showed a sharp fall in confidence in January, and all the forecasts show slower growth in the year, UK spending in February rose sharply and was 13.7% higher than the pre-pandemic level.

We are indeed in the most confusing of economic times.