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Employers are adjusting their staffing strategies in response to the recent increase in the National Living Wage, according to the CEO of one of the UK's largest recruitment firms.
James Reed, head of Reed, stated that the 9.8% rise in the minimum wage in April has already impacted hiring trends.
Some employers are altering their approach by hiring for shorter periods, fewer hours, or fewer employees due to the higher costs.
The National Living Wage, which increased from £10.42 to £11.44 last month, has particularly affected employers with a large number of low-paid workers.
This mandatory pay raise coincides with broader inflationary pressures that companies are currently facing.
Last week, a closely monitored survey of purchasing managers in the services sector revealed that the increase in wages had led to the most significant rise in cost pressures in eight months.
It was observed that some businesses have reduced their hiring in response to wage pressures.
Mr. Reed expressed concern that if minimum wage or entry-level jobs are priced too high, they may be replaced by technology.
This concern is highlighted by the recent use of robot welders by BAE Systems to address the shortage of steel workers in Glasgow.
According to Mr. Reed, many employers are already exploring ways to automate processes using artificial intelligence, particularly in areas such as accounting and IT where a significant amount of code is now being generated by AI.
Job postings for IT and telecom roles on Reed platforms have recently decreased by 36%, second only to the 44% decline in recruitment positions.
These sectors are typically sensitive to higher interest rates, but the recruitment leader suggested that automation may have also played a role in the decrease in tech hiring.
He also expressed concern that the significant number of people not participating in the workforce was creating “enormous strain on society” in the long run and was not sustainable.
His concern arises as the number of individuals leaving the workforce due to illness has reached a record 2.8 million, driven by an increase in mental health issues and musculoskeletal problems.
Mr. Reed emphasized the need for the government to develop a “workforce strategy” to understand the reasons behind the high number of non-working individuals.
He also pointed out that unemployment contributes to poor health, leading to anxiety and depression. Therefore, he believes that the solution to anxiety and depression is not simply being unemployed.
