Good news for workers – wage increases ahead

Published: Posted on
Waitress carrying a tray with cocktail on
Waitress carrying a tray with cocktail on.

By Professor Stan Siebert, Professor of Labour Economics
Department of Management, University of Birmingham.


Job vacancies have hit a record high as the economic recovery continues. High vacancies are normal in a dynamic, large economy such as the UK which normally runs with 600-700 thousand vacant jobs as workers change jobs and search for new matches. But now we have over a million vacancies. Will there therefore be an “acute hiring crisis”, as the British Chambers of Commerce says, as Brexit and Covid-19 drive a decline in labour supply?

In fact, this is wonderful news for workers who will have more choice and can expect higher wages as employers compete for their services. Lower paid workers in retail and hotels in particular will benefit. Prices will need to go up too, but fortunately savings have increased over the lockdown making it more affordable, and eventually things will settle down.

The UK’s employment scene is extremely dynamic. About 4 million people change jobs every year, and another 4 million leave for unemployment or inactivity, and are replaced. This means about one-quarter of the workforce turn over each year. People are continually looking to better themselves, and firms are opening and expanding with vacancies – or closing with redundancies. It is the wage system that enables these many (mostly) happy matches.

Graph showing sector vacancies by monthly pay change
Graph showing sector vacancies by monthly pay change

The graph gives a view of how wages increase to meet vacancies. It is drawn to show changes to date since the lockdown began in April 2020. We see a massive 400% increase in vacancies in the hotel sector which is matched by a 25% increase in wages, attracting fresh workers. The public sector and health are at the other end of the scale, with less vacancies and so less extra pay. The jobs market is working as it should.

The future is bright, though of course we can expect shocks and inefficiencies. A good example is the current shortfall of lorry drivers, estimated at 100,000, due to fewer foreign drivers and the Driver and Vehicle Licensing Agency backlog in testing. But fortunately the high vacancy sectors such as hotels and retail do not need special training, only motivated workers and good management. These sectors also tend to be lower paid, so the extra impetus to higher wages is welcome. The “hiring crisis” will be an opportunity for those at the bottom.

Birmingham Business School Blog


The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.

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