While widespread reports of acute staff shortages across sectors such as hospitality, construction, logistics and more have raised concerns about economic recovery, new research from Capital Economics has suggested that most of these shortfalls should prove temporary.

The monthly jobs report released last week by the Recruitment and Employment Confederation (REC) and accountancy firm KPMG found that staff availability fell at the quickest rate on record in June, creating what was described as the worst labour shortage since 1997. The lack of recruits has been driven by the rush to re-open as pandemic restrictions ease, fewer workers from the EU, and the impact of furlough weighing on the number of jobseekers available.

Similarly, the RBS Report on Jobs – also issued last week – found Scottish firms reporting a rise in starting salaries as the supply of job candidates fell away in some sectors. Shortages were reported for both permanent and temporary posts which some of those surveyed attributed to “a reluctance among candidates to switch roles due to Covid-19 related uncertainty”.

Such findings have raised alarm bells, but in his analysis for Capital Economics, assistant economist Kieran Tompkins concludes that most of the underlying causes of these shortages will unwind within the next six to 12 months.

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“That doesn’t mean there won’t be faster wage growth in some sectors,” the report states. “Those sectors where activity rises furthest above the pre-crisis peaks and where EU migrants make up a high share of employees, such as manufacturing and construction, will probably experience the fastest rates of wage growth.

“But as labour shortages ease elsewhere, we doubt the overall economy will experience a persistent rise in pay growth for a couple of years yet.”

Official figures show that about 1.5 million UK workers remain furloughed after the date for dropping nearly all restrictions in England was postponed to the 19th of July. It is currently expected that the whole of Scotland will move to Level Zero on that date, which involves some continuing restrictions.

Capital Economics said furlough has effectively frozen the available supply of labour, with relatively few new prospects entering the market. But with the scheme expiring at the end of September, the impact of this “will soon fade”.

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A further significant proportion of the fall in labour supply is linked to economic inactivity among students who moved back home as universities were forced to close or severely curtail activity. The report notes that with lower expenses, many of them didn’t look for work, though this will change with the start of the new term in the autumn.

“In a similar vein, many other young people probably left their flats or shared houses in the big cities to return to their family homes during the pandemic,” the report adds. “This boosted economic demand away from the big cities, but without boosting the supply of labour as they either already had jobs (they may be working remotely) or didn’t need a job.

“This may explain why job vacancies are around pre-pandemic levels in London, but are well above pre-pandemic levels in other regions.”

The one factor that will prove “stickier” is migration.

Capital Economics estimates that the overall supply of labour in the UK has fallen by about 215,000 since the onset of the pandemic, driven by a net outflow of migrants. Most of these have been EU citizens leaving the UK.

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Fewer EU citizens may want to come to the UK in the future, the report said, as there are more hoops for them to jump through. The Government is also planning to restrict the supply of visas to EU citizens, but at the same time is leaning towards giving more visas to non-EU citizens.

The economists noted that the five sectors that usually employ the highest share of EU migrants – transport, manufacturing, hospitality, construction and support services – currently have the highest number of job vacancies.

“This suggests that recruitment difficulties may prove more persistent in sectors that tend to employ a high share of EU migrants, such as manufacturing and construction, and that labour may be abundant in sectors that tend to employ a high share of non-EU workers, such as information services and health and social care.”