Employers ‘cutting hours and hiring less to offset minimum wage rise’

Commuters make their way into work from Liverpool Street train station during the morning rush hour in the City of London

Employers are cutting back hours and hiring less to cope with the rise in the National Living Wage, the boss of one of Britain’s biggest recruiters has said.

James Reed, chief executive of Reed, said April’s 9.8pc increase in minimum wage was already being reflected in hiring patterns.

Mr Reed said: “We have seen some employers changing their behaviour.

“They might be taking on people for shorter periods or fewer hours or fewer of them because of the increasing cost.”

The National Living wage rose from £10.42 to £11.44 last month, while workers under the age of 21 and apprentices were given even larger boosts in relative terms.

The recruitment boss said that for employers with large numbers of low-paid staff, the rise was “very significant”.

He warned the mandatory pay increase was coming at a time when companies were also dealing with broader inflationary pressures.

A closely watched survey of purchasing managers in the services sector last week showed the wage increase had fuelled the sharpest uptick in cost pressures in eight months.

It noted that some businesses have reported hiring less to cope with wage pressures.

Mr Reed said: “My worry is that if those minimum wage level or entry level jobs are too highly priced, that will just lead to them being replaced by technology.”

His warning comes after defence giant BAE Systems recently revealed it was using robot welders to overcome difficulties in hiring enough steel workers in Glasgow.

The Reed boss said “pretty much every employer” he was in touch with was already looking for ways to automate processes using artificial intelligence.

Mr Reed said: “A lot of the early gains that they are beginning to experience are in processes that might have been done by people and are being replaced by machines. You see that in accounting and IT. A lot of code is now just being written by AI.”

Job adverts for roles in IT and telecoms have recently fallen by 36pc on Reed platforms, a fall dwarfed only by the 44pc contraction in recruitment roles.

These sectors are traditionally vulnerable to higher interest rates, but the recruitment chief said he believed automation had contributed to a hiring downturn in tech.

He also warned that the large number of economically inactive people was putting “huge pressure on society” over time and was “unsustainable”.

His warning comes after the number of people who have left the labour force because of sickness has hit a record 2.8 million amid a rise in poor mental health and musculoskeletal issues.

Mr Reed said the Government needs a “workforce strategy” to explore why so many people are not working.

Mr Reed said: “I do know that unemployment causes ill health. It causes anxiety and depression. So the sort of cure for anxiety and depression doesn’t seem to me to be being out of work.”

Play The Telegraph’s brilliant range of Puzzles – and feel brighter every day. Train your brain and boost your mood with PlusWord, the Mini Crossword, the fearsome Killer Sudoku and even the classic Cryptic Crossword.