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Birmingham Post
Birmingham Post
Business
Tom Keighley

Labour shortages challenge North East companies but confidence remains

Staff shortages are among one of the main concerns for medium sized businesses in the North East and the issue could be around for some time to come, a business advisory group says.

Research from audit and tax specialist RSM suggests firms are holding on to employees longer, even when there is less work, and choosing to reduce hours rather than lay them off and have to recruit later as the labour market remains tight. And North East businesses gathered at RSM's Newcastle base this week for a roundtable discussion following the research reported that wage growth and hiring of the right skills could be constraining growth.

Tom Pugh, RSM economist, told BusinessLive the trend was being driven my a unique set of circumstances after the pandemic. He said: "Fundamentally there just aren't enough people. The UK is down something like 300,000 fewer people working now than there were before the pandemic. Some of that is because people are saying they're off sick and I'm sure there's also a little bit of early retirement in there, but certainly most of it seems to be people inactive because they're sick.

Read more: SMEs are key to reviving Northern economy, business leaders say

"You've sucked out a big chunk of the workforce, whereas you've more or less got demand at the same level it was before. That's what's then driving demand for labour and very strong wage growth because you've essentially got people moving around companies to get a decent pay bump. That might help individual companies but from an economy-wide level you're just passing one shortage on to another and generating wage growth and inflationary pressures because we're not actually becoming any more productive."

Hiring difficulties were said to be particularly pronounced for North East construction, hospitality and manufacturing firms that had previously employed significant numbers of people from the EU. Mr Pugh told firms that he believed the economy was now in a new era where labour is not as abundant as it had been.

And changes in working practices through the pandemic were also feeding the issue. Mr Pugh added: "There was also people talking about the impact of people working from home and training during the pandemic has had on the productivity of people coming through. Understandably if you've done the first couple of years of your training, or your degree, entirely from home through the Covid period they are behind in terms of productivity where you'd expect a similar cohort to be. Which is dragging on output productivity."

Despite those challenges and others in the market, RSM reported that business at the roundtable, and its clients more broadly, were showing confidence with demand for products and services high. That feeling was supported by separate research from Lloyds Bank's Business Barometer which showed North East business confidence rose two percentage points in March to 38%.

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