The recent increase in the minimum wage is putting significant pressure on employers, leading to a sharp decline in employment in the summer.
New figures suggest employers are cutting back on seasonal hiring amid broader concerns about labor shortages in vital sectors of the economy.
Data released by the Recruitment and Employment Confederation (REC) reveals a significant decline in job advertisements for temporary summer jobs in the hotel, restaurant, tourism and construction sectors during April and May, compared to the same months last year. This trend comes on the heels of the recent hike in the minimum wage.
Separate data from Make UK, a lobby group representing manufacturing companies, highlights persistent skills shortages that limit expansion potential. The latest quarterly index from Make UK shows that hiring intentions in the manufacturing sector increased from 8% to 26%, reflecting the industry’s recovery. However, the struggle to employ skilled workers remains a major challenge.
Labor shortages in certain parts of the economy contribute to sustained wage growth, complicating efforts by the Bank of England to lower interest rates. The bank’s monetary policy committee is expected to keep its key interest rate at 5.25% this week, citing concerns that rising earnings are hampering efforts to lower inflation to the 2% target.
Overall job listings across the economy fell 0.7% last month, bringing their total to 1.7 million, while new job listings fell 1.1% between April and May, according to the REC. This indicates a cold labor market.
REC chief executive Neil Carberry explained that employers’ need to fill seasonal vacancies is outweighed by the 9.8% increase in the minimum wage from April 1, taking it to £11.44 per hour. Companies are trying to manage rising wage bills by reducing employees’ working hours.
“The second significant increase in the national minimum wage has impacted employment levels in key sectors,” Carberry said. “We can see some evidence of this decline in the seasonal decline in hiring demand in the summer. Reducing working hours or roles while working shorter shifts are all decisions businesses may feel forced to make in difficult times.
The data shows that job postings in the hotel and accommodation sector fell by 45% in April and May compared to the same period in 2023. Likewise, restaurant and catering jobs fell by 38%, and chef and chef jobs fell by 33%. Tourism and events roles also saw declines in most regions.
The increase in the minimum wage contributed to overall wage growth in the economy, reaching 6% in the three months to April, according to official figures released last week. The pace of earnings growth is a crucial factor in influencing monetary policy, with the Bank of England’s Monetary Policy Committee suggesting that signs of slowing earnings are necessary to justify big interest rate cuts this year.
Despite the challenges, there are signs of recovery in some sectors, such as manufacturing, which has been in a nearly two-year slump. Output in the manufacturing sector rose from a balance of 5% to 9% in the second quarter, with expectations for a 30% rise in the three months to September, driven by lower inflation, energy prices and interest rates, according to Make UK. .
