Are pay rises covering the cost of living – or are they merely cloaking it?

Rising living costs have had a noticeable impact on our daily lives, but to what extent have increased salaries balanced the burden?

According to our UK Salary & Recruiting Trends 2024 guide, 85% of employers say they have increased staff pay over the last 12 months – slightly higher than the previous year (83%) – with 40% increasing pay by over 5%. However, rising salaries are an uneven picture, and cost of living concerns have not subsided for everyone.

Have salaries really caught up with the cost of living?

Average pay growth rose above inflation for the first time in almost two years, signalling an ease in tightening living costs. Figures from the Office of National Statistics (ONS) revealed that wages rose at an annual rate of 7.8% between June and August – one of the highest annual growth rates since 2001. 

It’s clear that the economic climate has had a significant influence on higher salaries: research from our latest salary guide revealed that over two-thirds (70%) of employers accredit staff pay rises to the increased cost of living, jumping from 54% the year prior. 

But how far have these pay increases helped alleviate rising living costs? Of the employees we surveyed who received a cost-of-living pay rise over the last 12 months (26%), just over a third (36%) say this has had a noticeable impact on their life. There’s a clear industry disparity between pay increases, meaning certain workers and their families may be left more vulnerable to rising costs as a result.

Lower-paid workers are feeling financial pressures more keenly

Average pay increases may have overtaken inflation, but this trend could be benefiting certain industries and income levels more than others, and not everyone has benefited from a cost-of-living wage rise.

Wage growth has been partly driven by growth in the City of London, with finance and business services receiving particularly sharp pay rises – some roles in the double digits. However, rising costs are most keenly felt by low paid workers, who may be required to pay a larger portion of their income on necessities, such as food and energy expenses. 

Half of low-paid workers (50%) are financially worse off than a year ago, suggests research by the Living Wage Foundation, and while the latest instalment of government payments to low-income households – along with a planned national living wage increase – may help ease the burden for some, many salaries are still struggling to reconcile cost-of-living pressures. 

Pay transparency – or the lack of – is an added pain point

With salaries and inflation rates constantly shifting, it’s already a difficult enough task for professionals to accurately determine the ‘real value' of their wage. However, employer inconsistencies regarding pay transparency could be complicating the situation further.

Although 60% of the employers we surveyed say they are transparent regarding pay, two in five (40%) admit their organisation isn’t consistently transparent with staff about how pay levels and pay rises are set. Mirroring this, 44% of professionals believe their employer isn’t transparent when it comes to pay – a potentially costly mistake for talent attraction and retention efforts. Pay transparency is not only an important way of building employee trust and helping to close pay gaps, but could prove decisive when securing candidates with more pressing financial targets.

Rising living costs are pushing people to move jobs – mostly

In reaction to rising living costs, many professionals are looking for new jobs in order to cover their living expenses. Our latest data revealed that nearly half (42%) of employees say the current cost of living is making them more inclined to change jobs; mainly due to their current salary being unable to cover their living expenses (58%).

Contrary to other periods of economic uncertainty, such as the 2008 recession, it appears that the cost-of-living crisis is acting as a catalyst for job movement. Although job vacancies have dropped in recent months, the total still remains significantly higher to pre-pandemic figures, with many skills-short industries being candidate-led. 

However, leaving the security of a current role is a luxury that not everyone can afford. Almost one in five employees (17%) say the cost of living is making them less likely to want to move job, with the main concern being leaving a secure position (42%). 

It remains the case that rising costs are still weighing heavily on the collective conscience of organisations and staff alike. Employers able to strike the right balance between business costs and employee pay will be more likely to attract and retain the talent needed to stay ahead of the hiring curve and see success in the coming months.

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