Dr Catherine Robinson: UK Salary Inflation Explained

Dr Catherine Robinson, Deputy Dean and Head of Kent Business School (Medway), explains why UK rates of pay are seemingly increasing faster than in other nations.

“Earlier this month the 12-month Consumer Price Inflation (CPI) rate for 2021 was published, reaching 5.4% by December (ONS, 2022) – the highest inflation rate recorded using this since around March 1992. Meanwhile, vacancies data (ONS, 2022) reveals there to be a shortage of labour.

For the first time in Autumn 2021, there were over one million vacancies. Openings are currently sitting comfortably above this level, even adjusting for seasonal fluctuations. The cause of this increase is likely to be a combination of:

  • Covid-19 – pent-up demand from what has been effectively two years of lockdown has led to an increase in demand for goods and services which producers are keen to meet.
  • Brexit – we have seen a reduction of European labour in skilled ‘blue collar’ occupations, such as HGV drivers, as well as healthcare professionals.
  • The great resignation – an idea that has gained considerable traction is the possibility that workers have found, during the Covid-19 pandemic, an appreciation of a better work-life balance, re-evaluating their life choices and choosing to move out of full-time employment roles.
  • Greater Covid-19 impact amongst senior workers – Covid-19 has particularly affected the working age population. Current evidence is focussing on the impact Covid-19 has had on the healthcare workforce, but ‘long Covid-19’ in particular has been acutely felt in the 40-55 age group, leading to increased staff absences and departures from the labour force.
  • Shifting workplace expectations – an indirect impact of Covid-19 is that workplaces across all sectors had to increase reliance on technology, particularly technology that enabled remote operations. Many older workers may not feel equipped for this new way of working.

In truth, all of these factors could create the prevailing labour market, but further data and evidence will be necessary to properly understand how the market is responding to radical changes precipitated by the global pandemic.

Non-monetary benefits such as flexible working, feeling valued and greater understanding in the workplace are seen as complementary but essential components to retaining staff.

Employers will need to invest significantly in less tangible conditions if they are to avoid driving up the pay of senior professionals and potentially exacerbating wage inequality in the UK.”

Dr Catherine Robinson is Deputy Dean (Head of Kent Business School [Medway]) and Senior Lecturer in Applied Economics and Business Statistics at Kent Business School. Dr Robinson’s research focuses on firm level performance and factors which influence it, ranging from foreign direct investment to social enterprises; technological change to skills and migrant workers.

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