The looming skills crisis

Britain seems to be sleep-walking straight into a skills crisis. Evidence from an accelerating number of surveys re-inforce the increasingly shrill cries of employers across many different business sectors. In parts of Britain with relatively tight labour markets, difficulty in recruiting (and keeping) competent employees is holding back the expansion potential of up to a third of all growing companies.

Indeed, the Government has just implemented a fast-track work permit route for non British nationals to work in a range of occupations that are now officially recognised as being subject to acute shortages. Many of these are located in just 2 sectors (information technology and healthcare) and at levels that require a first degree. Quite why British universities seem unable to educate sufficient IT technologists or Doctors is perplexing. In future, perhaps the strategic oversight exercised by the Learning and Skills Council should extend to the decisions of the Higher Education Funding Council?

But the risk is that acute skill shortages will extend beyond these 2 critical occupational groups as the intense demand for intermediate and technician level skills starts to bite. For example, employers are already bidding-up the wage rates for engineers and installers in the rapidly growing telecoms and computer networking businesses. These are the early signs of "wage-push" inflation caused by labour market blockages that have caused grief to many Chancellors in the past.

If a skills crisis is imminent, what is being done about it? At a policy level, a great deal is happening. But is it actually translating into a greater volume of relevant training? And when can the economy expect to see a significant boost to productivity and output that higher skills can deliver?

At a theoretical level, the business world, academics, government and trade unions all agree: a shortage of skills is inhibiting Britain's economic performance and diminishing its comparative competitive position. Labour productivity lags the USA, France and Germany by up to 40% which means that UK output either remains lower or British workers have to work longer hours to achieve the same output.

There are 3 main practical problems facing Government and employers.

Firstly, basic skills are lacking in at least a fifth of the working age population and mean that just under 6 million people are functionally not literate or numerate. These are people stuck at the bottom of the labour market experiencing spells of poorly paid insecure employment that are punctuated by periods of unemployment. Barely a half of this population group is employed - compared with over three quarters of the working age population that are skilled to VQ 3 (the equivalent of 2 A' level passes). Many joined the labour market when a poor education did not seem to be a barrier to getting work. But even now, 40% of 16 year olds leave school and - often re-inforced by the attitudes of their employer - effectively give up on any further learning. The Government's determination to give these under-18s a statutory entitlement to receive further learning has started to boost the numbers taking up Modern Apprenticeships or other training whilst in work. But there remains a large population group of adult aged workers to whom this entitlement should be extended.

The second problem comes from lopsided balance of education and training. Britain has an excellent learning system at the top end of the labour market. Many people are seriously over-educated - about a third according to an LSE study - whilst a fifth of the labour force are totally unqualified. Skilled people tend to get even more trained. Whilst a fifth of degree qualified workers regularly receive employer funded training, only 8% of those qualified to VQ level 2 enjoy continued employer investment in their skills.

Lastly, comes the problem of employers. Large firms tend to train their employees well. However, these firms are not the main motor for economic growth and their workforces are usually static or shrinking. Small and medium sized firms - which account for almost all the significant growth in employment - are less inspiring. For almost 15 years, these employers have struggled to find a way of equitably financing workforce development in their own business sectors. Why train good staff when your competitor's response is to poach them? And why spend good money on fees when you have little influence over a curriculum that is set by the training supplier and not demand-led by the employer?

These endemic failings are being addressed slowly. Firstly, a strong Government-led drive to boost basic skills. Secondly, an effort to train the whole workforce not just the managers - not least by encouraging individuals to control their own learning through new institutions like Ufi and the emergence of Individual Learning Accounts. Thirdly, witness the determination of employer-led national bodies to get relevant, employer designed training that reflects industry sector requirements.

Since the early 1980s, the economy and labour market have changed beyond recognition. Rapid technological change and global competition have imposed intense pressures on all types of enterprise - public sector as well as the more market-exposed. Workers who have adapted to advancing technology and to new working patterns are much sought after and can command high wages.

But people without skills are being left behind stuck in precarious jobs that are poorly paid and offer little prospect of advancement out of poverty.