How are U.K. employers addressing labour shortages and the productivity slowdown?

In November, a report by the Resolution Foundation, a think tank, revealed that the number of economically inactive people in the U.K. — that is, not working or looking for work — has increased by 586,000 since the start of the COVID-19 crisis. People have left the workforce for various reasons, including health concerns, a desire to retrain and early retirement.This workforce participation reduction — combined with Brexit and economic growth in 2021 — has led to a widespread labour shortage. Employers compete fiercely for skills — especially in commercial finance and technology. At the same time, many employers continue to wrestle with negligible growth in productivity — a problem that has hampered the U.K. economy since the financial crisis of 2008–09.In a recent discussion with the U.K. Regional Advisory Panel for the Association of International Certified Professional Accountants®, I asked our members how their organisations were navigating the labour shortage and the productivity slowdown. These are my key takeaways:

1. Organisations are being inventive about retaining staff.
With the shift to remote working, people can often work for organisations that are based anywhere in the country. This gives them a huge choice in terms of the roles they can apply for and they can choose to work for organisations in areas where wages are higher.

With many employers reporting high staff turnover rates — some members on our call cited turnover rates above 10% — they must inventively attract and retain staff. Some are using ‘market supplements’ to top up existing pay bands while others are turning to retention packages. These retention packages might feature a one-time payment as a token of appreciation or a deferred bonus paid at a later date, along with a commitment to providing further training and development support to the employee.

Additional attraction-and-retention strategies employers use include referral bonus schemes to encourage existing staff to get involved with recruitment, as well as special incentives for employees considered to be of particular ‘flight risk’. Along with financial remuneration, employers are focused on career development opportunities — giving their people training to develop their skills and exposing them to experiences that will help them to be promoted.

2. Employers need to act quickly to secure talent.
Today, many job seekers will choose from two or three offers. Employers are therefore shortening their recruitment processes to avoid the risk of their preferred candidate accepting a job elsewhere before they have had a chance to make an offer. It is worth noting that job seekers expect hybrid working to be thestandard — often they will refuse to consider a job offer from an employer that expects presence in the office five days a week.

3. Well-being is a priority for employees.
As a health crisis, the pandemic has highlighted the importance of human well-being. It has also caused people to re-evaluate their lives and — in many cases — seek a better work-life balance. Additionally, burnout, stress and other mental health issues were problems before COVID-19 struck. But the crisis has accelerated them. For all these reasons, employers are prioritising staff engagement and well-being at work. Job seekers are more attracted to some sectors — for example, the government — as a result of the crisis because of the perceived flexibility they offer. Organisations have introduced well-being days and half-days as an additional staff benefit.

4. Interim staff are in high demand.

Contractors and interim staff are highly sought-after at present as employers look for short-term solutions to their skills shortages. As a result, contractors’ day rates are raising sharply and they often have multiple job opportunities. With interim work proving lucrative, some experienced professionals are choosing to leave permanent positions for interim roles. Contractors are not only in high demand in the U.K. but also in Europe and the U.S.

5. Employers are investing in automation.

To address issues around productivity, organisations are investing more in automation and digitalisation. They are also involving their finance teams in projects that aim to improve their productivity. One of our members cited the example of a new time sheet system, which enables his organisation to gain greater insights into its staff utilisation rates and identify employees who were potentially working overly long hours.

Outlook

As the battle against the pandemic continues, it isn’t clear how labour market trends will evolve in the short to medium term. Some workers may choose to return to the workforce as the health crisis recedes, which may help to alleviate the skills shortage. Alternatively, technological advances may reshape the structure of the labour market while enhancing the nation’s productivity. Regardless of exactly how the evolution unfolds, however, the skills and knowledge of management accountants are set to play a crucial role in defining the future of work.