Skills: Use ’em or lose ’em

The UK Commission for Education and Skills published a report yesterday, endorsed by both the CBI and TUC, with a simple message: If we want the economy to grow, productivity has to improve and if we want productivity to improve, we need a more highly skilled workforce.

The trouble is, like our labour market, Britain’s skills profile has been hollowing out in the middle. By 2020, half the population is expected to be qualified to degree level yet a quarter of jobs only require primary school level qualifications, one of the highest proportions in the OECD. With fewer jobs in the middle, it’s becoming that much harder to progress.

[T]he recession has provided further evidence of a shift in the shape of the labour market as globalisation and advances
in technology transform markets, businesses and ways of working. This has fuelled growth in high skill jobs and new higher skilled technical roles, creating an ‘hourglass’ effect. Prospects are good for those at the top, with high level skills, but there is greater competition for those at the bottom, and bigger steps needed to get on and move up. The career ladder is becoming that little bit harder to climb.

It’s not all bad news. In one section of the squeezed hourglass, the UKCES survey of employers found increased demand. Employers expect an increase in demand for workers in skilled trades, so much so that they predict a skills shortage.

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This is intriguing, given the steady decline in skilled trades employment, both in absolute numbers and as a proportion of the workforce, over the last two decades. Earlier this year, UKCES forecasts suggested this trend would continue.

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It may be that some re-shoring is going on or it may just be that firms have cut the number of skilled trade jobs too far and are now compensating. Whatever is driving this new demand, if these jobs materialise it will be good news for a lot of people and for the economy, as these jobs are likely to pay well, producing more consumer demand and tax revenue.

Or at least, it would be good news if the UK had people with the skills to do them. This, says UKCES, is where the problem starts. Not only have employers reduced investment in training but the disappearance of middle level jobs has removed some of the opportunities for progression. Training is all very well but, when it comes to rapid skill development, there is nothing like being given a job slightly more demanding than the one you’ve been used to. It is the absence of these ladder jobs, says UKCES, that makes it that bit more difficult for people to build their skills.

At the middle of the ladder, globalisation, new technology and longer working lives are changing the labour market. Traditional middle-skilled work, which has high routine task content, has declined over the past several decades alongside the emergence of a new ‘middle’ requiring higher skill levels than before. This has created growing opportunities for highly skilled people – in both employment and wages – but longer pathways for those at the ‘bottom’ and greater competition for those in low skill roles. As gaps in the career ladder grow, it becomes more difficult for people to progress and improve their earnings potential.

And if these jobs disappear for long enough, the skills that went with them disappear too.

The CBI, TUC and UKCES are calling for more ‘earning and learning’ routes, like apprenticeships; investment, not just in training but also in building career paths and in linking education and work. Employers and government, they say, need to do more and what they do needs to be co-ordinated.

All this sounds great but it will require significant investment. The job is made more difficult by the direction our labour market has been moving in over recent years. Part-time, temporary and zero-hours workers rarely receive the same level of training, even on a pro-rata basis, as full-time employees and the self-employed are notorious for not investing in their own development. The fewer full-time workers we have, the less skilled our workforce becomes.

Measuring a country’s human capital is no easy task but the ONS has made a reasonable stab at it over the years. It acknowledges that the statistics have limitations but by bringing together data from various ONS surveys, it is possible to see a pattern over the last decade or so. The ONS defines human capital and its measure like this:

Human capital is the value of individuals’ skills, knowledge, abilities, social attributes, personality and health attributes. These factors enable individuals to work, and therefore produce something of economic value. It is measured as the sum of the total potential future earnings of everyone in the labour market.

Like a number of other indicators, it began to slide just before the recession, dropped  sharply as the downturn became severe and hasn’t recovered since.

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As the ONS says:

Like physical capital, human capital depreciates over time, because of:

  • The wear of skills due to ageing, or illness;
  • The atrophy of skills due to insufficient use;
  • Job-specific obsolescence due to technological and organizational change;
  • Sector-specific obsolescence due to shifts in employment; and
  • Firm-specific skills obsolescence due to displacement.

In other words, use it or lose it.

It’s easier to go from being a high-skilled economy to a low one, due to neglect and atrophy, than it is to get back from being a low skill economy to a high skill one. The more dependent the UK gets on low wage jobs, the more difficult it will be to reverse the trend. Earlier this year, CIPD chief Peter Cheese warned that the low road would be a disaster for Britain’s economy:

Unless we address the demand side of the skills equation, we will fail to improve our poor productivity or to achieve the sustainable increases in real wages that have become such a dominant feature of the current media and political narrative.

The UK is at a crossroads – one which requires us to think about the fundamental nature and direction of our economy. Are we taking the high road – of higher skills and value-added employment – or the low road – trying to compete primarily on low cost?

The trouble with the low road is that the further you go down it, the steeper the climb back up to the high road will be.

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3 Responses to Skills: Use ’em or lose ’em

  1. Reblogged this on 101 Half Connected Things and commented:
    I have writer’s blog. This is far more in depth than anything I’d attempt. Skills matters…

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