London School of Economics and Political Science: Half of UK firms have difficulty recruiting new workers

Half of UK firms say they are having difficulty recruiting new workers, while around one in five are having issues retaining existing staff, according to new research from the Centre for Economic Performance (CEP) at the London School of Economics and Political Science.

The report analyses the state of the UK economy after the twin shocks of Covid-19 and Brexit, and finds that while the economy has been growing since the summer of 2021, business confidence is dipping as firms adjust to the economic aftermath of the pandemic and the UK’s departure from the European Union.

Real-time updates on the UK economy: trends, expectations and implications from business survey data, published today by CEP and funded by the Economic and Social Research Council as part of UK Research and Innovation’s rapid response to Covid-19, calls for policy-makers to encourage firms to invest in training workers through tax credits and changes to the apprenticeship levy scheme.

“Policies that provide incentives for human capital investments will support job transitions across sectors, occupations and firms”, report co-author Swati Dhingra said. “Improving skills will address labour shortages, although this may be a more long-term fix, promoting productivity, wages and social mobility.”

Analysing data from a monthly survey of firms* to October 2021, researchers Josh De Lyon and Dr Swati Dhingra find that:

The majority of surveyed firms had increased their volume of business every month since April 2021. But this trend has stalled, and in October, the share of firms that had increased or decreased business was about the same.
Firms’ average prices have grown, which reflects the average growth in wages.
Firms in all sectors of the economy report labour shortages, with at least half of all businesses in each sector experiencing a shortage of workers.
For some sectors, particularly those that rely on short-term or seasonal migrant workers, Brexit appears to be having an effect. But overall, migration is unlikely to be the main cause of labour shortages. Just one in 10 firms report that the UK’s immigration regime is causing labour shortages. While one in five businesses have reported that long-term skills gaps are affecting their ability to recruit workers.

Around a third of firms say that they have responded to labour shortages by raising wages, the survey finds. And nearly half of firms expect labour shortages to last more than one year, with 21 per cent predicting shortages will last more than two years.

Josh De Lyon, research assistant at CEP, said: “After the Covid-induced lockdowns in 2020, economic activity has been on the rise in 2021 as vaccines have been rolled out. Yet the recovery in the UK has been restricted. Global supply chains have been disrupted by factory closures, fractured transport networks, labour disruptions and rising energy prices.

“In the UK dealing with these issues has been made harder by Brexit, which significantly increased barriers to trade, investment and migration with its closest and largest economic partner. And now, the omicron variant is likely to increase uncertainty about the recovery, particularly in some sectors like hospitality.”