SKILL SHORTAGES IN THE UK ISSUES PROBLEMS AND

SKILL SHORTAGES IN THE UK ISSUES, PROBLEMS AND WAYS FORWARD Ewart Keep Deputy Director, ESRC Centre on Skills, Knowledge & Organisational Performance, University of Warwick, Coventry, CV 4 7 AL, ENGLAND E-Mail: skopeek@wbs. ac. uk

INTRODUCTION Skill Shortages and public policy ‘Moral Panic’ about VET Two Dimensions to Skills Shortages: § Employers’ difficulty in obtaining skills they need § International comparisons of stocks of skills The importance of defining what the problem really is The changing meaning of skills The UK’s threefold policy response on skills: § Boost publicly-funded VET § Targets § Forecasting, planning and matching Deeper tensions The dawn of a new approach – skills and what else…?

UK VET AND MORAL PANIC IN PUBLIC POLICY Skills as THE key to national competitiveness Skills as THE key to performance at firm level Skills as THE key to a host of problems: § Unemployment and social inclusion § Lack of strong sense of citizenship § Poverty and welfare dependency § Crime and drug abuse § Anti-social behaviour The current wave of UK concern started in 1976 and is ongoing. Bound up with visions of the Knowledge Driven Economy

AND IN THE USA TOO “The surge of global competition into our labor markets, sweeping technological change, and impending shifts in the demographic mix of our labor force call for a national campaign to improve the skills and professionalism of the American workforce. We must create new learning partnerships throughout our communities and workplaces to sustain the jobs that provide for our middle class, pay the social costs of health, education and retirement, and preserve capabilities necessary for our nation’s security”. Task Force on Workforce Development, Albert Shanker Institute/New Economy Information Service, Learning Partnerships: Strengthening American Jobs In the Global Economy, 2004: 2

SKILL SHORTAGES TWO REASONS TO WORRY 1. Skill ‘shortages’ as defined by international ‘league tables’. Here the focus of concern is that other countries appear to have workforces with a higher stock of skills (qualifications) than your own. The ‘shortage’ is comparative. 2. Skills ‘shortages’ as defined by employers who cannot recruit to fill vacancies (or who have concerns about the skills of their existing workforce). In the UK these two definitions have interacted to fuel public policy concern about skills supply and the operation of the VET system.

EMPLOYERS’ SKILL SHORTAGES UK EXPERIENCES § New Labour come to power in 1997 and start to worry about an over-heating economy and skill shortages as a cause of inflation and a block on productivity improvement. § The National Skills Task Force (NSTF) is appointed to investigate the scale and nature of the problem and to recommend what might be done. § The NSTF was made up of VET supply managers, employers, trade unions, with a secretariat from government. It commissioned a large programme of research.

DEFINE YOUR PROBLEM The NSTF swiftly concluded that vague and loose terminology made it very hard to categorise the nature and discern the scale of the problems that underlay the reported skill shortages. Their solution was to divide the problem into three different categories: EXTERNAL RECRUITMENT PROBLEMS – Hard to Fill Vacancies (Ht. FVs) – Skill Shortage Vacancies (SSVs) INTERNAL PROBLEMS – Skill Gaps Clearer definition was seen as the key to better targeted public policy interventions. Diagnose the problem accurately and then select an appropriate cure.

AND THESE MEAN? § § § Hard to Fill Vacancies are vacancies reported by employers to be hard to fill. Where Ht. FVs are due to a shortage of applicants with the required experience, qualifications or skills, they are regarded as Skill Shortage Vacancies. Skill gaps are defined as occurring when employers regard some of their staff as not being fully proficient to meet the requirements of their job. These definitions now operate within the UK’s four national VET systems and determine how data is collected and policy responses are formulated.

CLOSER DEFINTION OF THE PROBLEM MEANS THE PROBLEM DIMINISHES SHARPLY The NSTF’s work paid off. Once the new definitions were applied at a stroke about 80 per cent of the ‘skill shortages’ within recruitment vanished. Using large-scale surveys (the 2004 National Employer Skill Survey covering England had a sample of 70, 000 plus establishments), we now have a very accurate picture of Ht. FVs, SSVs and skill gaps, by: § § Sector Region Locality Occupation

THE PICTURE IN 2004 At the time of the survey: § 14% of establishments had vacancies § 8% of establishments had Ht. FVs § 4% of establishments had SSVs § Number of vacancies – 766, 000 § Number of Ht. FVs – 358, 000 § Number of SSVs – 159, 000 § Ht. FVs as a % of employment were 3. 7% § Ht. FVs as a % of vacancies were 47% § SSVs as a % of employment – 0. 8% § SSVs as a % of vacancies – 21%

NESS 2004 CONTINUED Skill Gaps § % of establishments with skill gaps – 23% § Skill gaps as % of employment – 9% Most skill gaps are transitory. They are caused by the arrival of new workers, who need training. Between 2001 and 2004, The level of SSVs stayed static. Ht. FVs increased by over 50%

Table A: Density of Recruitment Problems by Occupation Vacancies as %employment in occupation Ht. FVs as %age of all vacancies SSVs as %age of all vacancies Managers 35, 237 1. 3 34. 5 18. 2 Professionals 51, 835 1. 7 37. 1 24. 3 Associate Professionals 81, 142 4. 4 38. 8 23. 6 Admin. & Secretarial 84, 010 2. 9 23. 2 11. 1 Skilled Trades 63, 391 3. 3 62. 5 39 Personal Services 74, 169 6. 1 51. 4 23. 7 116, 662 3. 4 32 12. 4 57, 740 3. 4 50. 3 27 Elementary Occupations 107, 393 3. 5 40. 3 14 All Occupations 679, 072 3. 1 40 19. 9 Sales, Customer Service Operatives Source: IFF/IER National Employers Skills Survey, 2003 (LSC 2004) Survey, Base: Employee-Weighted

Skill Shortages as %age of Vacancies

GAPS MAY BE A GOOD SIGN Research (Mason, Zwick) suggests that skill gaps are associated with organisations that are seeking to: § improve their productivity § expand their product range § upgrade product or service quality § introduce new equipment (e. g. ICT) § develop new markets An economy with few skill gaps may be an economy with a lot of path dependent firms who are not responding to competitive pressures very well. As long as the gaps are transitory, they are probably a good sign.

THE CHANGING MEANING OF SKILL A RISE OF GENERIC & SOFT SKILLS § Survey and case study data suggests that many SSVs occur because of problems with soft/interpersonal and generic skills. This is particularly so in the service sector. § There are many facets to this development as they impact on the ability of the VET system to respond: § Rise of generic skills, such as problem solving. Some of these generic skills may be less generic than assumed. Also the issue of where they are best created – education or the workplace in which they will be applied. § Rise of personal attributes (self-discipline, loyalty, punctuality, motivation) which may not be skills per se, and which may reflect employee relations conditions in the workplace. § Rise of aesthetic labour – looking right and sounding right!

SOFT AND GENERIC SKILLS FURTHER CHALLENGES FOR VET § Challenges for certification systems in the UK, where the demands of ‘rigorous’ public examination mean that soft key skills go uncertified. § Aesthetic skills are not traditionally part of VET. They pose a large challenge. Ensuring that candidates present themselves for interview in an hotel or fashion boutique as being, “passionate, stylish, confident, tasty, clever, successful and well -travelled” (Warhurst and Nixon, 2001) is tricky. § Quite a lot of these new skills appear to be proxies for middleclassness.

HOW HAS POLICY TRIED TO RESPOND ON LABOUR SHORTAGES AND Ht. FVs? Boosting already relatively high participation in employment: – Return to work for those on disability benefit – New Deals for the long-term unemployed – In work tax breaks to make low paid work ‘pay’ – Migrant labour (especially from New EU states) – Illegal immigrants – Treasury not too worried TENSIONS: – Department for Work and Pensions – “work first, any work’ – Department for Trade Industry – some jobs may not be worth having

LABOUR FLOW DIAGRAM The Labour Market The Educatio n System § 5% ‘Blue Chip’ jobs § 20% Professional/ Managerial § 10% Associate Professional § 15% Craft/Technician § 35% Clerical/Retail/ Production § 15% Awful Jobs

HOW HAS POLICY TRIED TO RESPOND ON SKILL? Given: § Beliefs about the role of skills in international competitiveness § International comparisons of skill stocks that showed the UK in a poor comparative light at some skill levels. § Modest levels of skills shortages and gaps in the economy How have the four UK national governments driven policy on skill? ANSWER: A threefold policy response on skills: § Boost publicly-funded VET § Targets § Forecasting, planning and matching England is the most extreme example of planning, Scotland of spending and supply.

BOOSTING SUPPLY TO MATCH OVERSEAS COMPETITORS Over the last 25 years England has: § Massively expanded post-compulsory participation among the 16 -19 age-group. § Massively expanded its higher education system § Increased government support for employer training, through apprenticeships and now through schemes for adult workforce. § Created a state of permanent revolution in the institutional structures that control, manage, fund, inspect and deliver VET. § Centralised the control of the VET system in the hands of central government and its agencies.

WEAKNESSES REMAIN § Relatively low participation post-17. Reflects structure of youth labour market and labour market regulation (e. g. licence to practice). § Adult literacy and numeracy (basic skills) problem are quite extensive.

TARGETS FOR EVERYTHING - NOT A HAPPY STORY § The English VET system is now managed via a range of national targets. Some are set by central government, others by the Learning and Skills Council (LSC). § The central government Public Service Agreement (PSA) targets are set without any consultation with external actors or users of the Vet system. § The LSC’s National Learning Targets (NLTs) are supposed to have secured buy-in from employers and others. § The PSA targets over-ride the NLTs in terms of priority for funding and other public resources. § It is far from clear that the PSA targets relate in any way to future projections of need for skills or qualifications. They appear to be driven (as are the NLTs) by international comparisons of skill stocks.

PROBLEMS WITH THE NLTs The NLTs are supposed to be ‘minimum international benchmark standards’ that must be met to ensure economic success. The NLTs have a long history of failure: § Of the 8 targets set by the Confederation of British Industry in 1991 for achievement in 1997, just 2 were met. § Of the 6 targets set by NACETT in 1994 for achievement in 2000, only 1 was met. § Of NACETT’s second set of 4 targets to be achieved in 2002, only 1 was met. § Of the 5 NLTs set by the LSC for achievement in 2004, only 1 was met in full, despite the fact that the 2004 NLTs were less ambitious than those set by NACETT for achievement in 2000. § No new NLTs have yet been set.

AN EXAMPLE OF TARGET VERSUS NEED One of the government’s key VET targets is one set by the Prime Minister himself – that England achieve 50% participation in HE by the 18 -30 cohort. This target was established without reference to need in the economy for graduate level skills. Given achievement patterns in England, this means that the vast bulk of those with intermediate level qualifications, academic and vocational, need to enter HE to meet the target. Sectors like engineering, that still need substantial numbers of young people to train as apprentices and technicians, and to fill intermediate level skill jobs, are faced with the prospect of big skill shortages. Employers complain the target is dangerous.

RE-ENTER THE DRAGON: THE RETURN OF ‘MANPOWER PLANNING’ (BIGGER, BOLDER AND MORE POINTLESS THAN EVER) ‘Manpower planning’ was very briefly and mildly in vogue in the mid to late 1970 s. Thereafter the fashion was for a training market. In 1999/2000 some members of the NSTF decided that the best way to avoid skills shortages was to establish an elaborate system that linked: § Labour market forecasting (based on economic modelling) § Employers’ views about future skill needs § Funding of the VET system The Learning and Skills Council (LSC) was set up to do this. Its mission was to engage in ‘manpower planning’ on a grand scale, and at a high level of detail. The aim is to match supply with demand.

TOP DOWN, BOTTOM UP, AND SIDEWAYS Besides the LSC, there are many other players in the new system: § 9 Regional Development Agencies (RDAs) § 30 Sector Skills Councils § Sector Skills Development Agency (covers sectors with no SSC for planning purposes) And it operates at sectoral and regional levels as well.

WILL THEY ALL MEET IN THE MIDDLE? § Treasury/Df. ES PSA targets § National LSC plan and targets § 47 LLSCs plans and targets § 9 RDA Regional Economic Strategies (RES), which then plan the skills component via 9 Regional Skills Partnerships (RSPs). These include input from the SSCs and the relevant LLSCs. § 30 SSCs, (plus SSDA) each producing over the coming years its Sector Skills Agreement (SSA), which project sectoral needs and to which public funding of VET is meant to be tied. Are all these plans liable to meet up in the middle? Early indications suggest contests for scarce resources – talented people and the money to train them.

PROBLEMS WITH PLANNING Planning is only as good as the data being entered. UK employers have no history of, or capacity for planning in detail within their own companies. Projected employer views on skill demand are guesses. Most projections rely on modelling of changing sectoral and occupational structures and sizes. Industry data is weak because: § It does not take account of outsourcing § Industry structures are changing rapidly § Multi-nationals add complexity Occupational data is weak because: § Occupations are getting fuzzy § Many skills are now cross-sectoral § Measures job numbers not earnings § Job/occupation titles now cover a wide range of skill levels (e. g. ‘manager’)

MORE PROBLEMS WITH PLANNING § Generic and soft skills are not covered very well by UK qualifications, so much skill demand in the service sector cannot be specified and planned for by recourse to qualifications. Within publiclyfunded VET, funding is normally dependent on the delivery of whole, officially approved qualifications. § Lead times are lengthy. Setting up new provision and putting students through it at intermediate and higher skill levels means a 3 to 4 year lag. § Economic volatility (in the whole economy and sectors) can throw plans out very quickly.

EVEN MORE PROBLEMS WITH PLANNING The matching model assumes: 1. Simple, linear one-off career choice, which research suggests this does not happen 2. Supply and demand can be kept in balance without a clash of interests. An appropriate number of prospective students, not too few, not too many, can be persuaded to opt for a given course in a given locality. The examples of media studies and hairdressing. A problem for the LSC, which is supposed to be: § Student-centred BUT § Employer-led 3. Employers want supply to match demand. They don’t. They rationally want an excess of supply, it drives down wages and it gives them choice when recruiting.

DEEPER TENSIONS In a voluntary system, how do you get employers to play their part, and how do the various players decide exactly what their part is? It would be a mistake to treat the current demands of employers and individuals for skills as coterminous with the needs of the economy…. it cannot be assumed that these (employer and individual demand) necessarily reflect the wider needs of the economy for economic growth and stability National Skills Task Force, 1998: 3. Whilst we accept that a greater proportion of people with full vocational qualifications may benefit the economy as a whole, this is not the main concern of individual companies. British Chamber of Commerce 1998 Problem identified, but what to do about it?

THE NEEDS OF EMPLOYERS EQUAL NEEDS OF EMPLOYMENT The UK is unusual, at least in a European context, in choosing to define the needs of the labour market solely in terms of the needs of employers. In other countries the norm is for social partnership arrangements, and the active involvement of worker representatives in the management of the VET system, to ensure that such needs are conceptualised in terms of the wider needs of employment and employability rather than the immediate skill requirements of employers alone.

VOLUNTARY BUT CLOSELY PLANNED - MATCHING SUPPLY WITH DEMAND IS HARD § Interests and needs of different players do not coincide. § One person’s demand is different from another’s demand. § Employers are in competition for certain types of talent. If one lot win, another lot lose (and complain) § Individuals want different outcomes from employers (e. g. broader qualifications) § The LSC and others are left to try and mediate.

Squaring the Triangles § § Employers Individual § Learner § Needs of Society/Eco nomy

Qualifications Demand & Supply 2001 DD: Highest Qualification Required (‘ 000 s of jobs) SS: Highest Qualification Held (‘ 000 s of jobs) Level 4 or Above 7, 122 7, 359 Degree Non-Degree 4, 220 2, 903 4, 774 2, 585 Level 3 3. 976 6, 379 Level 2 3, 878 5, 302 Level 1 2, 951 3, 549 No Qualifications 6, 464 2, 881

Percentages of ‘Over-qualified’ & ‘Under-qualified’ - 1986 -2001 1986 1992 1997 2001 The Under. Qualified 20. 5 16. 5 19. 8 17. 6 The Over. Qualified 30. 0 31. 2 33. 0 37. 0 Level 4 plus Degree Non-Degree 27. 9 30. 2 32. 1 25. 3 29. 7 28. 4 25. 8 31. 6 29. 8 28. 0 33. 9 Level 3 47. 7 41. 5 52. 0 48. 1 Level 2 42. 4 42. 7 40. 8 50. 0 Level 1 54. 3 48. 9 42. 5 43. 2 NB: An under-qualified individual has a highest qualification at a lower level than that currently required to get the job he/she now holds An over-qualified individual has a qualification at a higher level than that currently required to get the job he/she now holds.

PROBLEMS WITH DEMAND FOR SKILLS There has been a gradual dawning that, in part, our relatively low levels of VET vis-à-vis other developed nations may reflect the fact that demand for skill in the UK economy is relatively limited. § Finegold, Soskice and the Low Skills Equilibrium § Mason and Low Skills Trajectories § Significant parts of the economy appear locked in to producing relatively low specification, lower quality goods and services that do not require high levels of skill to deliver them. § Hogarth and Wilson and the DTI study § SKOPE and the Employers’ Perspectives Survey RESEARCH CONCLUSION: higher product or service specification/quality is positively associated with the need for higher levels of skill. The link is not always simple and direct, and may impact on different parts of workforce with varying force.

PROBLEMS WITH SKILL USAGE Two main issues: § Gradually rising levels of over-qualification § Slow (now stalled), and very patchy spread of High Performance Work Organisation (HPWO), high involvement work practices, etc. Work organisation and job design is often impoverished, produces many highly routines jobs and limits the discretion, creativity and ability to utilise skill of much of the workforce.

SKILLS ALONE ARE NOT ENOUGH Realisation that although skills are important, and supplying more of them is a prerequisite for progress, skills produce results in combination with other factors. Thus recent thinking on the UK’s patchy record on productivity now acknowledges that there are other weaknesses that must be tackled: § Poor record on R&D § Very poor record on investment in plant and equipment over many decades § Low levels of innovation § Poor public infrastructure (e. g. transport) The challenge covers the need to move to a new model of competitive advantage.

THE PORTER REPORT Michael Porter and colleagues were commissioned to report on the health of the UK economy. They concluded: The UK currently faces a transition to a new phase of economic development. The old approach to economic development is reaching the limits of its effectiveness, and government, companies and other institutions need to rethink their policy priorities…. . We find the competitiveness agenda facing UK leaders in government and business reflects the challenges of moving from a location competing on relatively low costs of doing business to a location competing on unique value and innovation. (Porter and Ketels, 2003: 5)

THE PIU WORKFORCE DEVELOPMENT PROJECT The Prime Minister commissioned the Cabinet Office’s Performance and Innovation Unit (PIU) to undertake a follow-up to the NSTF. Its aim was to address some of the fundamental issues left hanging by the NSTF. The PIU’s inquiry reached conclusions that changed the fundamental direction of VET policy. It argued that: § Weak demand for skill was as much a problem as poor supply. § Besides possible market failure, there was also systems failure underpinning a partial Low Skills Equilibrium in the economy. § Skills are a derived demand – derived from and driven by business need. The key for policy was to impact on business strategy: Workforce development needs to be addressed in the wider context of government and business strategies towards product strategy, innovation, market positioning, IT, human resources policies and so on.

A DAWNING REALISATION THAT SKILLS ARE THE EASY BIT……. . THE BAD NEWS IS: up-skilling is the easy bit. If a government is willing to spend taxpayers’ money on a large enough scale, a much more highly qualified workforce is achievable, as the UK has proved. Deriving benefit from this is the hard part. Ensuring that higher levels of skill are really needed and get used to maximum productive effect is the new challenge. One for which Anglo. Saxon style public policy is poorly prepared.

‘SKILLS CRISIS’ AS A RHETORICAL DEVICE IS STARTING TO LOOK TIRED § Skills shortages are modest and concentrated in certain sectors and occupations § Skills gaps are mainly transitory § Over, not under, qualification is becoming a problem § Massive increases in skill supply have not ‘solved’ our problems with relatively low levels of productivity. Increasingly, the question for policy makers is: Skills in combination with what else, makes the difference?

SKILLS AND WHAT ELSE MAKE THE DIFFERENCE? § Highly sophisticated and demanding customers (at home & overseas) with income levels that allow them to purchase high spec, high valueadded goods and services. § High levels of R&D (public and private) and innovation § Investment in new technology, plant and communications § Patient and knowledgeable capital § Legal, social and cultural infrastructure that encourage networking between firms § High levels of social cohesion and stability § An efficient, responsive and adequately resourced skills supply system in which ability and achievement, rather than social background and mode and place of study determine labour market outcomes. § An open and efficient labour market § High performance workplaces, competing on the basis of quality, paying high wages and offering as much job security as possible, within which employee relations systems and practices encourage partnership, high trust relationships and skills development. THIS SETS THE SCALE OF CHALLENGE FOR PUBLIC POLICY

FINAL THOUGHTS § The foregoing does not mean we can neglect our skills supply system, but it does mean that it is now pointless to pretend that supplying more skills will, of itself, solve our economic and social problems. § Policy needs to embrace the supply, demand usage of skill if it is to make further progress.