Work less. Earn more

The Government’s long awaited workforce development strategy - a key project enjoying the full frontal support of the Prime Minister and Chancellor - is due for release at the end of November. What should it say?

Firstly, it probably does not need to re-iterate the scale and scope of the problem that Britain faces: the productivity gap, the low levels of adults with vocational skills and the annual £10bn loss to the economy caused by 1 in 6 lacking basic skills.

Secondly, it should not be unduly impressed by the apparently high level of investment that British firms already make to training their workers. Reckoned to be £23½bn in 2000, this averages almost £1,000 a year per employed person. Yet only a small proportion of the workforce actually enjoys this level of investment in their skills.

In a lopsided labour market, the already highly skilled get most of the training. A fifth of all employees with college degrees regularly receive employer funded training, but for those with only a level 2 qualification the proportion is just 8%. And for nearly a quarter of the workforce that has no qualifications at all, less than 3% benefit from employer funded training.

So we know where the Government needs to start. That’s why the Workforce Development Plan needs to be clear about who pays for what. The balance between the State, employers and individuals is critical. Whilst the Treasury does not want to pay out for training that would happen anyway, it also needs to recognise the extent of market failure and of failure by the formal public education system. The Government should fund a massive boost to basic skills and ultimately offer all adults a level 2 qualification. And for learning at levels above this essential competence baseline, Government should use the tax system to stimulate spending by both employers and individuals.

But the key obstacle to overcome is distressingly simple: neither employers nor individuals really believe that investment in skills has an economic payback. Even where they are convinced that, in general, there is a close correlation between skills and earnings or skills and profitability, neither firms nor individuals are certain they will specifically benefit from taking risks. And, even where most firms and individuals recognise that there is a point beyond which investment does indeed pay off , it is not clear where that point is - it's a fuzzy zone somewhere closer to a level 3 qualification than level 2.

Most individuals and firms also have short-term financial horizons that inhibit financing for the long term. For firms, this does not solely hamper their investment in skills but also their marketing, research and product development, IT and other capital investment decisions. Indeed making the case for skills does not stand on its own: firms have to make long-term investments in all their factors of production in order to significantly boost productivity, competitiveness and profitability.

So we have to do two things: firstly, convince employers and individuals of the gains from learning; secondly we have to re-engineer the learning system so that it is responsive to demand from business and individuals (the opposite of the current supplier-driven system).

For individuals, a clear argument needs to be presented: skilled workers attract significant wage premiums and lead to better lifestyle, standard of living and social status. On its own, this does not convince however and a range of barriers need to be overcome. There remain many time and cost inhibitions and a range of practical barriers:

Employers also need to be encouraged:

Most critically, we need to see firms’ training as part of growth in their overall business. Sadly, too many companies simply tick over, trapped in a low-skill equilibrium, hiring poorly skilled staff to make low grade products. Competitive pressures will eventually lead to their collapse. Instead, firms need to innovate and develop new services and products that require higher skilled workers. So it is this process of business development that should drive the demand for skills.

These changes are needed urgently and time is running out. The labour market of the future has almost arrived. It needs a skilled workforce that is flexible, innovative and adapts easily to new technologies and working patterns. That workforce will be more productive, better paid, and more able to manage the stressed balance between work and life.

Work less; earn more. What are we waiting for?