Pay settlements to rebound as recession ends: Study shows most deals beat inflation and predicts higher labour turnover

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The Independent Online
PAY settlement levels have stabilised and are about to rebound as the recession comes to an end, according to research published today.

Fewer wage freezes are being recorded and the vast majority of deals are above the present inflation rate of 1.3 per cent, Income Data Services finds in its latest report.

Two-thirds of pay agreements are being struck between 2 and 4 per cent in the private sector with a significant minority of firms awarding rises above that level, it says.

The study concludes: 'Managing recovery will require at least as much skill as managing recession.

'With inflation forecast to rise over the second half of 1993 and some expansion stirring in the economy, we may see stronger upward pressures on pay over the next 12 months.'

A number of prominent businesses are granting staff rises appreciably above inflation.

Marks & Spencer, a company with considerable influence on retail sector pay awards, is to give a 4.5 per cent average award to 50,000 retail staff from Thursday. Eagle Star awarded performance-related rises from 1 May out of a pool worth 4 per cent, and a 4 per cent deal has been concluded at Rhone-Poulenc Rorer's Dagenham site.

Companies insisting on wage freezes are MFI, Mount Charlotte Thistle hotels and Christian Salvesen Distribution.

Some deals, however, are running at three or more times the inflation rate, IDS says. Even the 1.5 per cent upper limit in public services is ahead of the increase in the Retail Price Index, the researchers point out.

City economists expect a gradual increase in inflation throughout 1993, despite the sharp fall in the RPI in April to 1.3 per cent.

More optimistic forecasters such as Chase Manhattan expect the rate to stay at, or below, 1.5 per cent until November. All forecasters, however, are predicting sharp rises in December and January, when alcohol and tobacco duties are due to rise. James Capel predicts that inflation will be 4.8 per cent in January, rising to 5.3 per cent by April 1994.

The IDS report also warns that labour turnover is likely to increase as the economy becomes more buoyant.

The Institute of Manpower Studies has reported a 'recessionary time bomb' in which many employees have become frustrated with the way change is managed in their organisations and the lack of scope for career advancement in 'leaner' companies with a flatter hierarchical structure.

IDS comments: 'The length of the recession has locked people into organisations who would otherwise have left in more buoyant economic conditions.'

Many employers have seen 'normal' levels of 10 to 20 per cent staff turnover 'drop towards zero'.

IDS Report 643, Incomes Data Services, 193 St John Street, London EC1V 4LS.