SKILL SHORTAGES IN THE UK SKILL SHORTAGES IN THE UK ISSUES, PROBLEMS AND ISSUES, PROBLEMS AND

WAYS FORWARDWAYS FORWARD

Ewart KeepEwart KeepDeputy Director,Deputy Director,

ESRC Centre on Skills, Knowledge &ESRC Centre on Skills, Knowledge &Organisational Performance,Organisational Performance,

University of Warwick,University of Warwick,Coventry, CV4 7AL,Coventry, CV4 7AL,

ENGLANDENGLANDE-Mail: skopeek@wbs.ac.ukE-Mail: skopeek@wbs.ac.uk

UK VET AND MORAL PANIC IN UK VET AND MORAL PANIC IN PUBLIC POLICYPUBLIC POLICY

Skills as THE key to national competitivenessSkills as THE key to national competitivenessSkills as THE key to performance at firm levelSkills as THE key to performance at firm levelSkills as THE key to a host of problems:Skills as THE key to a host of problems:

Unemployment and social inclusionUnemployment and social inclusion Lack of strong sense of citizenshipLack of strong sense of citizenship Poverty and welfare dependencyPoverty and welfare dependency Crime and drug abuseCrime and drug abuse Anti-social behaviourAnti-social behaviour

SKILL SHORTAGESSKILL SHORTAGESTWO REASONS TO WORRYTWO REASONS TO WORRY

1.1. Skill ‘shortages’ as defined by international ‘league Skill ‘shortages’ as defined by international ‘league tables’. Here the concern is that other countries appear tables’. Here the concern is that other countries appear to have workforces with a higher stock of skills to have workforces with a higher stock of skills (qualifications) than your own. The ‘shortage’ is (qualifications) than your own. The ‘shortage’ is comparative.comparative.

2.2. Skills ‘shortages’ as defined by employers who cannot Skills ‘shortages’ as defined by employers who cannot recruit to fill vacancies (or who have concerns about the recruit to fill vacancies (or who have concerns about the skills of their existing workforce).skills of their existing workforce).

In the UK these two definitions have interacted to fuel public In the UK these two definitions have interacted to fuel public policy concern about skills supply and the operation of policy concern about skills supply and the operation of the VET system.the VET system.

EMPLOYERS’ SKILL SHORTAGES EMPLOYERS’ SKILL SHORTAGES UK EXPERIENCESUK EXPERIENCES

New Labour come to power in 1997 and start to New Labour come to power in 1997 and start to worry about an over-heating economy and skill worry about an over-heating economy and skill shortages as a cause of inflation and a block on shortages as a cause of inflation and a block on productivity improvement.productivity improvement.

The National Skills Task Force (NSTF) is The National Skills Task Force (NSTF) is appointed to investigate the scale and nature of appointed to investigate the scale and nature of the problem and to recommend what might be the problem and to recommend what might be done.done.

The NSTF was made up of VET supply managers, The NSTF was made up of VET supply managers, employers, trade unions, with a secretariat from employers, trade unions, with a secretariat from government. It commissioned a large programme government. It commissioned a large programme of research.of research.

DEFINE YOUR PROBLEMDEFINE YOUR PROBLEM The NSTF swiftly concluded that vague and loose The NSTF swiftly concluded that vague and loose

terminology made it very hard to categorise the nature and terminology made it very hard to categorise the nature and discern the scale of the problems that underlay the discern the scale of the problems that underlay the reported skill shortages. reported skill shortages.

Their solution was to divide the problem into three different Their solution was to divide the problem into three different categories:categories:

EXTERNAL RECRUITMENT PROBLEMSEXTERNAL RECRUITMENT PROBLEMS– Hard to Fill Vacancies (HtFVs)Hard to Fill Vacancies (HtFVs)– Skill Shortage Vacancies (SSVs)Skill Shortage Vacancies (SSVs)INTERNAL PROBLEMSINTERNAL PROBLEMS– Skill GapsSkill Gaps

Clearer definition was seen as the key to better targeted Clearer definition was seen as the key to better targeted public policy interventions. Diagnose the problem public policy interventions. Diagnose the problem accurately and then select an appropriate cure.accurately and then select an appropriate cure.

AND THESE MEAN?AND THESE MEAN? Hard to Fill VacanciesHard to Fill Vacancies are vacancies reported are vacancies reported

by employers to be hard to fill. by employers to be hard to fill. Where HtFVs are due to a shortage of applicants Where HtFVs are due to a shortage of applicants

with the required experience, qualifications or with the required experience, qualifications or skills, they are regarded as skills, they are regarded as Skill Shortage Skill Shortage VacanciesVacancies..

Skill gapsSkill gaps are defined as occurring when are defined as occurring when employers regard some of their staff as not being employers regard some of their staff as not being fully proficient to meet the requirements of their fully proficient to meet the requirements of their job.job.

These definitions now operate within the UK’s four These definitions now operate within the UK’s four national VET systems and determine how data is national VET systems and determine how data is collected and policy responses are formulated.collected and policy responses are formulated.

CLOSER DEFINTION OF THE CLOSER DEFINTION OF THE PROBLEM MEANS THE PROBLEM MEANS THE

PROBLEM DIMINISHES SHARPLYPROBLEM DIMINISHES SHARPLY The NSTF’s work paid off. Once the new definitions were The NSTF’s work paid off. Once the new definitions were

applied at a stroke about 80 per cent of the ‘skill shortages’ applied at a stroke about 80 per cent of the ‘skill shortages’ within recruitment vanished.within recruitment vanished.

Using large-scale surveys (the 2004 National Employer Using large-scale surveys (the 2004 National Employer Skill Survey covering England had a sample of 70,000 plus Skill Survey covering England had a sample of 70,000 plus establishments), we now have a very accurate picture of establishments), we now have a very accurate picture of HtFVs, SSVs and skill gaps, by:HtFVs, SSVs and skill gaps, by:

SectorSector RegionRegion LocalityLocality OccupationOccupation

THE PICTURE IN 2004THE PICTURE IN 2004

At the time of the survey:At the time of the survey: 14% of establishments had vacancies14% of establishments had vacancies 8% of establishments had HtFVs8% of establishments had HtFVs 4% of establishments had SSVs4% of establishments had SSVs Number of vacancies – 766,000Number of vacancies – 766,000 Number of HtFVs – 358,000Number of HtFVs – 358,000 Number of SSVs – 159,000Number of SSVs – 159,000 HtFVs as a % of employment were 3.7%HtFVs as a % of employment were 3.7% HtFVs as a % of vacancies were 47%HtFVs as a % of vacancies were 47% SSVs as a % of employment – 0.8%SSVs as a % of employment – 0.8% SSVs as a % of vacancies – 21%SSVs as a % of vacancies – 21%

NESS 2004 CONTINUEDNESS 2004 CONTINUED

Skill GapsSkill Gaps % of establishments with skill gaps – 23%% of establishments with skill gaps – 23% Skill gaps as % of employment – 9%Skill gaps as % of employment – 9%

Most skill gaps are transitory. They are Most skill gaps are transitory. They are caused by the arrival of new workers, who caused by the arrival of new workers, who need training. need training.

Between 2001 and 2004, Between 2001 and 2004, The level of SSVs stayed static.The level of SSVs stayed static. HtFVs increased by over 50%HtFVs increased by over 50%

GAPS MAY BE A GOOD SIGNGAPS MAY BE A GOOD SIGN Research (Mason, Zwick) suggests that skill gaps are Research (Mason, Zwick) suggests that skill gaps are

associated with organisations that are seeking to:associated with organisations that are seeking to: improve their productivityimprove their productivity expand their product rangeexpand their product range upgrade product or service qualityupgrade product or service quality introduce new equipment (e.g. ICT)introduce new equipment (e.g. ICT) develop new marketsdevelop new markets

An economy with few skill gaps may be an economy with a An economy with few skill gaps may be an economy with a lot of path dependent firms who are not responding to lot of path dependent firms who are not responding to competitive pressures very well.competitive pressures very well.

As long as the gaps are transitory, they are probably a As long as the gaps are transitory, they are probably a good sign.good sign.

THE CHANGING MEANING OF SKILL THE CHANGING MEANING OF SKILL A RISE OF GENERIC & SOFT SKILLSA RISE OF GENERIC & SOFT SKILLS

Survey and case study data suggests that many SSVs occurSurvey and case study data suggests that many SSVs occurbecause of problems with soft/interpersonal and genericbecause of problems with soft/interpersonal and genericskills. This is particularly so in the service sector.skills. This is particularly so in the service sector.

Rise of generic skills, such as problem solving. Some may Rise of generic skills, such as problem solving. Some may be less generic than assumed. Also the issue of where be less generic than assumed. Also the issue of where they are best created – education or the workplace in they are best created – education or the workplace in which they will be applied.which they will be applied.

Rise of personal attributes (self-discipline, loyalty, Rise of personal attributes (self-discipline, loyalty, punctuality, motivation) which may not be skills per se, and punctuality, motivation) which may not be skills per se, and which may reflect employee relations conditions in the which may reflect employee relations conditions in the workplace.workplace.

Rise of aesthetic labour – looking right and sounding right!Rise of aesthetic labour – looking right and sounding right!

SOFT AND GENERIC SKILLS SOFT AND GENERIC SKILLS FURTHER CHALLENGES FOR VETFURTHER CHALLENGES FOR VET

Challenges for certification systems in the UK, Challenges for certification systems in the UK, where the demands of ‘rigorous’ public examination where the demands of ‘rigorous’ public examination mean that soft key skills go uncertified.mean that soft key skills go uncertified.

Aesthetic skills are not traditionally part of VET. Aesthetic skills are not traditionally part of VET. They pose a large challenge. Ensuring that They pose a large challenge. Ensuring that candidates present themselves for interview in an candidates present themselves for interview in an hotel or fashion boutique as being, “passionate, hotel or fashion boutique as being, “passionate, stylish, confident, tasty, clever, successful and well-stylish, confident, tasty, clever, successful and well-travelled” (Warhurst and Nixon, 2001) is tricky.travelled” (Warhurst and Nixon, 2001) is tricky.

Quite a lot of these new skills appear to be proxies Quite a lot of these new skills appear to be proxies for middleclassness.for middleclassness.

HOW HAS POLICY TRIED TO RESPOND HOW HAS POLICY TRIED TO RESPOND

ON LABOUR SHORTAGES AND HtFVs?ON LABOUR SHORTAGES AND HtFVs?

Boosting already relatively high participation in Boosting already relatively high participation in employment:employment:– Return to work for those on disability benefitReturn to work for those on disability benefit– New Deals for the long-term unemployedNew Deals for the long-term unemployed– In work tax breaks to make low paid work ‘pay’In work tax breaks to make low paid work ‘pay’– Migrant labour (especially from New EU states)Migrant labour (especially from New EU states)– Illegal immigrants – Treasury not too worriedIllegal immigrants – Treasury not too worried

TENSIONS:TENSIONS:– Department for Work and Pensions – “work first, any Department for Work and Pensions – “work first, any

work’work’– Department for Trade Industry – some jobs may not be Department for Trade Industry – some jobs may not be

worth havingworth having

LABOUR FLOW DIAGRAMLABOUR FLOW DIAGRAM Th

e

Ed

ucati

on

S

yste

mThe Labour Market

5% ‘Blue Chip’ jobs20% Professional/ Managerial10% Associate Professional15% Craft/Technician35% Clerical/Retail/ Production15% Awful Jobs

HOW HAS POLICY TRIED TO HOW HAS POLICY TRIED TO RESPOND ON SKILL?RESPOND ON SKILL?

How have the four UK national governments driven policy on How have the four UK national governments driven policy on skill?skill?

ANSWER: A threefold policy response on skills:ANSWER: A threefold policy response on skills: Boost publicly-funded VETBoost publicly-funded VET

TargetsTargets

Forecasting, planning and matchingForecasting, planning and matching

England is the most extreme example of planning,England is the most extreme example of planning,Scotland of spending and supply.Scotland of spending and supply.

TARGETS FOR EVERYTHING TARGETS FOR EVERYTHING - NOT A HAPPY STORY- NOT A HAPPY STORY

The English VET system is now managed via a range of The English VET system is now managed via a range of national targets. Some are set by central government, national targets. Some are set by central government, others by the Learning and Skills Council (LSC).others by the Learning and Skills Council (LSC).

It is far from clear that many of the targets relate in any It is far from clear that many of the targets relate in any way to future projections of need for skills or way to future projections of need for skills or qualifications. They appear to be driven by international qualifications. They appear to be driven by international comparisons of skill stocks.comparisons of skill stocks.

PROBLEMS WITH THE NLTsPROBLEMS WITH THE NLTs The National Learning Tragets are supposed to be ‘minimum The National Learning Tragets are supposed to be ‘minimum

international benchmark standards’ that must be met to international benchmark standards’ that must be met to ensure economic success. The NLTs have a long history of ensure economic success. The NLTs have a long history of failure:failure:

Of the 8 targets set by the Confederation of British Of the 8 targets set by the Confederation of British Industry in 1991 for achievement in 1997, just 2 were met.Industry in 1991 for achievement in 1997, just 2 were met.

Of the 6 targets set by NACETT in 1994 for achievement Of the 6 targets set by NACETT in 1994 for achievement in 2000, only 1 was met.in 2000, only 1 was met.

Of NACETT’s second set of 4 targets to be achieved in Of NACETT’s second set of 4 targets to be achieved in 2002, only 1 was met.2002, only 1 was met.

Of the 5 NLTs set by the LSC for achievement in 2004, 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 only 1 was met in full, despite the fact that the 2004 NLTs were less ambitious than those set by NACETT for were less ambitious than those set by NACETT for achievement in 2000. achievement in 2000.

No new NLTs have yet been set.No new NLTs have yet been set.

AN EXAMPLE OF TARGET AN EXAMPLE OF TARGET VERSUS NEEDVERSUS NEED

One of the government’s key VET targets is one set by the One of the government’s key VET targets is one set by the Prime Minister himself – that England achieve 50% Prime Minister himself – that England achieve 50% participation in HE by the 18-30 cohort.participation in HE by the 18-30 cohort.

This target was established without reference to need in This target was established without reference to need in the economy for graduate level skills.the economy for graduate level skills.

Given achievement patterns in England, this means that Given achievement patterns in England, this means that the vast bulk of those with intermediate level qualifications, the vast bulk of those with intermediate level qualifications, academic and vocational, need to enter HE to meet the academic and vocational, need to enter HE to meet the target.target.

Sectors like engineering, that still need substantial Sectors like engineering, that still need substantial numbers of young people to train as apprentices and numbers of young people to train as apprentices and technicians, and to fill intermediate level skill jobs, are technicians, and to fill intermediate level skill jobs, are faced with the prospect of big skill shortages. Employers faced with the prospect of big skill shortages. Employers complain the target is dangerous.complain the target is dangerous.

RE-ENTER THE DRAGON: RE-ENTER THE DRAGON: THE RETURN OF ‘MANPOWER THE RETURN OF ‘MANPOWER

PLANNING’ (BIGGER, BOLDER AND PLANNING’ (BIGGER, BOLDER AND MORE POINTLESS THAN EVER)MORE POINTLESS THAN EVER)

‘‘Manpower planning’ was very briefly and mildly in vogue in the mid to Manpower planning’ was very briefly and mildly in vogue in the mid to late 1970s. Thereafter the fashion was for a training market.late 1970s. Thereafter the fashion was for a training market.

In 1999/2000 some members of the NSTF decided that the best way to 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:avoid skills shortages was to establish an elaborate system that linked:

Labour market forecasting (based on economic modelling)Labour market forecasting (based on economic modelling) Employers’ views about future skill needsEmployers’ views about future skill needs Funding of the VET systemFunding of the VET system

The Learning and Skills Council (LSC) was set up to do this. Its 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 mission was to engage in ‘manpower planning’ on a grand scale, and at a high level of detail. at a high level of detail.

The aim is to match supply with demand.The aim is to match supply with demand.

TOP DOWN, BOTTOM UP, AND TOP DOWN, BOTTOM UP, AND SIDEWAYSSIDEWAYS

Besides the LSC, there are many other Besides the LSC, there are many other players in the new system:players in the new system:

9 Regional Development Agencies (RDAs)9 Regional Development Agencies (RDAs) 30 Sector Skills Councils30 Sector Skills Councils Sector Skills Development Agency (covers sectors Sector Skills Development Agency (covers sectors

with no SSC for planning purposes)with no SSC for planning purposes)

And it operates at sectoral and regional And it operates at sectoral and regional levels as well.levels as well.

WILL THEY ALL MEET IN THE WILL THEY ALL MEET IN THE MIDDLE?MIDDLE?

Treasury PSA TargetsTreasury PSA Targets

National LSC PlansNational LSC Plans

47 Local Plans47 Local Plans

9 Regional plans9 Regional plans

30+ sectoral plans30+ sectoral plans

Are all these plans liable to ‘meet up in the middle’? Early Are all these plans liable to ‘meet up in the middle’? Early indications suggest contests for scarce resources – talented indications suggest contests for scarce resources – talented people and the money to train them.people and the money to train them.

PROBLEMS WITH PLANNINGPROBLEMS WITH PLANNING Planning is only as good as the data being entered.Planning is only as good as the data being entered.

UK employers have no history of, or capacity for planning in UK employers have no history of, or capacity for planning in detail within their own companies. Projected employer views detail within their own companies. Projected employer views on skill demand are guesses. on skill demand are guesses.

Most projections rely on modelling of changing sectoral and Most projections rely on modelling of changing sectoral and occupational structures and sizes.occupational structures and sizes.

Industry data is weak because:Industry data is weak because: It does not take account of outsourcingIt does not take account of outsourcing Industry structures are changing rapidlyIndustry structures are changing rapidly Multi-nationals add complexityMulti-nationals add complexityOccupational data is weak because:Occupational data is weak because: Occupations are getting fuzzyOccupations are getting fuzzy Many skills are now cross-sectoralMany skills are now cross-sectoral Measures job numbers not earningsMeasures job numbers not earnings Job/occupation titles now cover a wide range of skill levels Job/occupation titles now cover a wide range of skill levels

(e.g. ‘manager’)(e.g. ‘manager’)

MORE PROBLEMS WITH MORE PROBLEMS WITH PLANNINGPLANNING

Generic and soft skills are not covered very well Generic and soft skills are not covered very well by UK qualifications, so much skill demand in the by UK qualifications, so much skill demand in the service sector cannot be specified and planned for service sector cannot be specified and planned for by recourse to qualifications. Within publicly-by recourse to qualifications. Within publicly-funded VET, funding is normally dependent on the funded VET, funding is normally dependent on the delivery of whole, officially approved qualifications.delivery of whole, officially approved qualifications.

Lead times are lengthy. Setting up new provision Lead times are lengthy. Setting up new provision and putting students through it at intermediate and and putting students through it at intermediate and higher skill levels means a 3 to 4 year lag.higher skill levels means a 3 to 4 year lag.

Economic volatility (in the whole economy and Economic volatility (in the whole economy and sectors) can throw plans out very quickly.sectors) can throw plans out very quickly.

EVENEVEN MORE PROBLEMS WITH MORE PROBLEMS WITH PLANNINGPLANNING

The matching model assumes:The matching model assumes:

1. Simple, linear one-off career choice, which research suggests 1. Simple, linear one-off career choice, which research suggests this does not happenthis does not happen

2. Supply and demand can be kept in balance without a clash of 2. Supply and demand can be kept in balance without a clash of interests. An appropriate number of prospective students, not interests. An appropriate number of prospective students, not too few, not too many, can be persuaded to opt for a given too few, not too many, can be persuaded to opt for a given course in a given locality. The examples of media studies and course in a given locality. The examples of media studies and hairdressing. A problem for the LSC, which is supposed to be:hairdressing. A problem for the LSC, which is supposed to be:

Student-centredStudent-centredBUTBUT Employer-ledEmployer-led

3. Employers want supply to match demand. They don’t. They 3. Employers want supply to match demand. They don’t. They rationally want an excess of supply, it drives down wages and rationally want an excess of supply, it drives down wages and it gives them choice when recruiting.it gives them choice when recruiting.

Squaring the TrianglesSquaring the Triangles

Employers

Individual Learner

Needs of Society/Ec

onomy

Qualifications Demand & Supply 2001Qualifications Demand & Supply 2001

DD: Highest Qualification DD: Highest Qualification Required (‘000s of jobs)Required (‘000s of jobs)

SS: Highest Qualification SS: Highest Qualification Held (‘000s of jobs)Held (‘000s of jobs)

Level 4 or AboveLevel 4 or Above

DegreeDegree

Non-DegreeNon-Degree

7,1227,122

4,2204,220

2,9032,903

7,3597,359

4,7744,774

2,5852,585

Level 3Level 3 3.9763.976 6,3796,379

Level 2Level 2 3,8783,878 5,3025,302

Level 1Level 1 2,9512,951 3,5493,549

No QualificationsNo Qualifications 6,4646,464 2,8812,881

Percentages of ‘Over-qualified’ & Percentages of ‘Over-qualified’ & ‘Under-qualified’ - 1986-2001‘Under-qualified’ - 1986-2001

19861986 19921992 19971997 20012001

The Under-The Under-QualifiedQualified

20.520.5 16.516.5 19.819.8 17.617.6

The Over-The Over-QualifiedQualified

30.030.0 31.231.2 33.033.0 37.037.0

Level 4 plusLevel 4 plus

DegreeDegree

Non-DegreeNon-Degree

27.927.9

30.230.2

32.132.1

25.325.3

29.729.7

28.428.4

25.825.8

31.631.6

29.829.8

28.028.0

33.933.9

33.933.9

Level 3Level 3 47.747.7 41.541.5 52.052.0 48.148.1

Level 2Level 2 42.442.4 42.742.7 40.840.8 50.050.0

Level 1 Level 1 54.354.3 48.948.9 42.542.5 43.243.2

NB: An under-qualified individual has a highest qualification at a lower level than that currently required to get the NB: An under-qualified individual has a highest qualification at a lower level than that currently required to get the job he/she now holdsjob he/she now holds An over-qualified individual has a qualification at a higher level than that currently required to get An over-qualified individual has a qualification at a higher level than that currently required to get the job he/she now holds.the job he/she now holds.

PROBLEMS WITH DEMAND PROBLEMS WITH DEMAND FOR SKILLSFOR SKILLS

There has been a gradual dawning that, in part, our There has been a gradual dawning that, in part, our relatively low levels of VET vis-à-vis other developed relatively low levels of VET vis-à-vis other developed nations may reflect the fact that demand for skill in the UK nations may reflect the fact that demand for skill in the UK economy is relatively limited.economy is relatively limited.

RESEARCH CONCLUSIONRESEARCH CONCLUSION:: higher product or service higher product or service specification/quality is positively associated with the need specification/quality is positively associated with the need for higher levels of skill. The link is not always simple and for higher levels of skill. The link is not always simple and direct, and may impact on different parts of workforce with direct, and may impact on different parts of workforce with varying force.varying force.

PROBLEMS WITH SKILL USAGEPROBLEMS WITH SKILL USAGE

Two main issues:Two main issues:

Gradually rising levels of over-qualificationGradually rising levels of over-qualification

Slow (now stalled), and very patchy spread of Slow (now stalled), and very patchy spread of High Performance Work Organisation (HPWO), High Performance Work Organisation (HPWO), high involvement work practices, etc. Work high involvement work practices, etc. Work organisation and job design is often impoverished, organisation and job design is often impoverished, produces many highly routines jobs and limits the produces many highly routines jobs and limits the discretion, creativity and ability to utilise skill of discretion, creativity and ability to utilise skill of much of the workforce.much of the workforce.

SKILLS ALONE ARE NOT SKILLS ALONE ARE NOT ENOUGHENOUGH

Realisation that although skills are important, and Realisation that although skills are important, and supplying more of them is a prerequisite for progress, supplying more of them is a prerequisite for progress, skills produce results in combination with other factors.skills produce results in combination with other factors.

Thus recent thinking on the UK’s patchy record on Thus recent thinking on the UK’s patchy record on productivity now acknowledges that there are other productivity now acknowledges that there are other weaknesses that must be tackled:weaknesses that must be tackled:

Poor record on R&DPoor record on R&D Very poor record on investment in plant and Very poor record on investment in plant and

equipment over many decadesequipment over many decades Low levels of innovationLow levels of innovation Poor public infrastructure (e.g. transport)Poor public infrastructure (e.g. transport)

The challenge covers the need to move to a The challenge covers the need to move to a new model of competitive advantage.new model of competitive advantage.

THE PORTER REPORTTHE PORTER REPORT Michael Porter and colleagues were commissioned Michael Porter and colleagues were commissioned to report on the health of the UK economy. They to report on the health of the UK economy. They concluded:concluded:

The UK currently faces a transition to a new phase The UK currently faces a transition to a new phase of economic development. The old approach to of economic development. The old approach to economic development is reaching the limits of its economic development is reaching the limits of its effectiveness, and government, companies and effectiveness, and government, companies and other institutions need to rethink their policy other institutions need to rethink their policy priorities…..We find the competitiveness agenda priorities…..We find the competitiveness agenda facing UK leaders in government and business facing UK leaders in government and business reflects the challenges of moving from a location reflects the challenges of moving from a location competing on relatively low costs of doing business competing on relatively low costs of doing business to a location competing on unique value and to a location competing on unique value and innovation. innovation.

(Porter and Ketels, 2003: 5)(Porter and Ketels, 2003: 5)

THE PIU WORKFORCE THE PIU WORKFORCE DEVELOPMENT PROJECTDEVELOPMENT PROJECT

A Cabinet Office inquiry on workforce development concluded:A Cabinet Office inquiry on workforce development concluded:

Weak demand for skill was as much a problem as poor supply.Weak demand for skill was as much a problem as poor supply.

Besides possible market failure, there was also systems failure Besides possible market failure, there was also systems failure underpinning a partial Low Skills Equilibrium in the economy.underpinning a partial Low Skills Equilibrium in the economy.

Skills are a derived demand – derived from and driven by Skills are a derived demand – derived from and driven by business need. The key for policy was to impact on business business need. The key for policy was to impact on business strategy:strategy:

Workforce development needs to be addressed Workforce development needs to be addressed in the wider context of government and business in the wider context of government and business strategies towards product strategy, innovation, strategies towards product strategy, innovation, market positioning, IT, human resources policies market positioning, IT, human resources policies andand so on.so on.

A DAWNING REALISATION THAT A DAWNING REALISATION THAT SKILLS ARE THE EASY BIT……..SKILLS ARE THE EASY BIT……..

THE BAD NEWS ISTHE BAD NEWS IS: up-skilling is the easy bit. : up-skilling is the easy bit. If a government is willing to spend taxpayers’ If a government is willing to spend taxpayers’ money on a large enough scale, a much more money on a large enough scale, a much more highly qualified workforce is achievable, as the UK highly qualified workforce is achievable, as the UK has proved.has proved.

Deriving benefit from this is the hard part. Deriving benefit from this is the hard part. Ensuring that higher levels of skill are really Ensuring that higher levels of skill are really needed and get used to maximum productive needed and get used to maximum productive effect is the new challenge. One for which Anglo-effect is the new challenge. One for which Anglo-Saxon style public policy is poorly prepared.Saxon style public policy is poorly prepared.

FROM SKILLS CRISIS TO ‘SKILLS FROM SKILLS CRISIS TO ‘SKILLS AND WHAT ELSE….?AND WHAT ELSE….?

Increasingly, the question for policy Increasingly, the question for policy makers is: Skills in combination with makers is: Skills in combination with what else, makes the difference?what else, makes the difference?

SKILLS AND WHAT ELSE MAKE SKILLS AND WHAT ELSE MAKE THE DIFFERENCE?THE DIFFERENCE?

Highly sophisticated and demanding customers (at home & overseas) Highly sophisticated and demanding customers (at home & overseas) with income levels that allow them to purchase high spec, high value-with income levels that allow them to purchase high spec, high value-added goods and services.added goods and services.

High levels of R&D (public and private) and innovationHigh levels of R&D (public and private) and innovation Investment in new technology, plant and communicationsInvestment in new technology, plant and communications Patient and knowledgeable capitalPatient and knowledgeable capital Legal, social and cultural infrastructure that encourage networking Legal, social and cultural infrastructure that encourage networking

between firmsbetween firms High levels of social cohesion and stabilityHigh levels of social cohesion and stability An efficient, responsive and adequately resourced skills supply system An efficient, responsive and adequately resourced skills supply system

in which ability and achievement, rather than social background and in which ability and achievement, rather than social background and mode and place of study determine labour market outcomes.mode and place of study determine labour market outcomes.

An open and efficient labour marketAn open and efficient labour market High performance workplaces, competing on the basis of quality, High performance workplaces, competing on the basis of quality,

paying high wages and offering as much job security as possible, paying high wages and offering as much job security as possible, within which employee relations systems and practices encourage within which employee relations systems and practices encourage partnership, high trust relationships and skills development.partnership, high trust relationships and skills development.

THIS SETS THE SCALE OF CHALLENGE FOR PUBLIC POLICYTHIS SETS THE SCALE OF CHALLENGE FOR PUBLIC POLICY