They may not think so but in recent years British employers have had a relatively easy life.

The combination of Thatcherite labour market deregulation, globalisation, migration and a huge increase in the number of older people working have meant that compared with their predecessors in the 1960s or 1970s and indeed compared with their counterparts in Continental Europe, it has been surprisingly easy for employers to find the staff they need. And employees, knowing that they could be easily replaced, have been cooperative with their managers and shown considerable flexibility in the working conditions that they have accepted.

And employers have responded by creating jobs. From its low point of 23.7 million in 1983, UK employers have expanded their number of people in work (including self-employed) by 40%, creating more than 9 million additional jobs up to Q4 2019 before the pandemic struck. This is not unprecedented – from 1775 to 1925 the UK’s job creation was consistently at about this pace or faster, peaking in the period from 1819-1859 when the number of people in employment rose by 73%. The growth in the number of migrant workers is well known – the number of non-UK nationals working rose from 1.06 million at the beginning of this century to 3.75 million before the pandemic. But equally important has been the growth in the number of older workers in employment.  The increase in the employment of over 50-year-olds has boosted employment by 3.8 million from 1985 to 2015. Some of this is increased longevity and the aging population. But the bulk has been a rise in the employment rate, i.e. the proportion of the population in work.

But the combination of a number of factors mean that it is highly unlikely that there will be an increase in the labour supply on anything like this scale in the coming years. The major causes are of course Brexit and Covid. Post Brexit, free movement of labour for EU migrants has ended and although there might be an increase in non-EU migration (actually a larger source of migrant labour than the EU), it seems likely that in future years there will be fewer new migrants. Meanwhile, older workers have been hit badly by Covid, with employment levels dropping by twice as much as the average, while older workers losing their jobs typically take much longer and have to accept larger falls in pay to get new jobs. Meanwhile the skill requirements of an increasingly digital labour force mean that employers will increasingly want to employ younger workers. At the same time, many older workers will not wish to return to the labour force after furlough ends. According to the IFS 6% of the 66–70-year-olds who were working before Covid and 11% of those aged 71+ have retired, of whom about half had not intended to do so. Expect this figure to rise when furlough ends.

So, we expect employers to have to face an increasing shortage of workers and particularly those with digital skills as migration slows down and the boost to the economy from increasing numbers of older workers ends and is possibly reversed. A shift in the balance of power to employers that lasted two generations is now reversing.

What can employers do about this? First, they need to recognise the new reality that years when they had the upper hand in employee relations have come to an end. They will need to run faster just to stand still. Obviously, the simple thing to do is to offer higher pay and better conditions than rival employers. But that can only be a temporary solution until the rival employers catch up and can be at the expense of profits.

Long term they are going to have to be more creative. Cebr’s research for Openreach on full fibre showed some options – we estimated that there were at least half a million people who were prevented from working through being carers, new parents or from old age but who would be willing to work if they could do so from home. With remote working now a possibility, employers might want to use the opportunity to make use of pools of skilled labour in other countries – who can become digital migrants. The most important task for employers is to reduce their dependence on cheap labour by raising productivity using all the digital tools that are available or that will become available.

Most people are employees, not employers. And for them this change means they will have more choice of types of work and working conditions and probably better pay. But spare a thought for the employers who will have their work cut out, organising their businesses to make it happen while achieving sustainable profits.

Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652