Why STEM is important for the future growth of NI economy?

Graeme Harrison

Head All-Island Consultancy, Oxford Economics

Education & Library Board Careers Event – Greenmount College

9th October 2009

Outline

Economic backdrop NI future skill needs research Why STEM matters? STEM challenges STEM demand STEM supply Returns to STEM Summary

Economic backdrop

Global reach of recession …

Real GDP growth outlooks (summer 2009)

2008 2009 2010 2011 2012

NI (GVA) 0.7% -3.5% 0.2% 2.9% 3.4%UK 0.8% -4.0% 0.3% 2.2% 3.2%ROI -3.0% -8.2% -1.7% 3.2% 3.1%US 1.1% -2.8% 1.6% 3.8% 3.8%Germany 1.0% -6.3% 0.2% 1.9% 2.7%France 0.3% -3.1% -0.3% 1.6% 2.2%Spain 1.2% -4.1% -0.8% 1.7% 2.5%Sw eden -0.4% -4.9% 1.0% 2.2% 2.9%Australia 2.3% 0.0% 1.0% 4.1% 3.9%

Source: Oxford EconomicsNote: Years of negative grow th shaded in purple

Sectoral reach …

-600 -500 -400 -300 -200 -100 0 100

Heath & social work

Utilities

Education

Mining & quarrying

Agriculture

Public administration & defence

Other personal services

Transport & comms

Hotels & restaurants

Financial services

Construction

Retail & distribution

Manufacturing

Business services

000s

UK: Sectoral employment forecast (2008-2010)

Source: Oxford Economics

Recession nearing end but legacy impact …

Some modestly positive economic news is coming through in early summer 2009 with business confidence indicators, housing transactions, house prices and unemployment all showing either slight improvement, or in the case of unemployment a slow down in the rate of decline

This is however not yet sufficiently sustained or corroborated by other key labour market or output data to suggest the recession is over

While it may not be long before the recession bottoms out in terms of the scale of output and employment contraction, attention should turn towards the short, medium and long-term legacy impacts the recession may leave, several of which are ‘personal’: Excess demand for education & training (but funding constraints?) and excess

supply of education & training outputs (which will increase recruitment competition today and tomorrow)

Unemployment legacy Public finances squeeze (recessionary impact will be felt for longer in public sector)

End of NI ‘golden era’ …

OE EDF Sept 2008

OE summer 2009

650

700

750

800

850

900

950

1,000

1996 1999 2002 2005 2008 2011 2014 2017 2020

000s

NI: Total employment

Forecast

Source: DETI, LFS, Oxford Economics

Growth of previous decade unsustainable

Employment trajectory if growth of the past decade repeated

Short-term outlook now much weaker

The last decade was a spectacular period of economic performance (albeit partly ‘debt-led’) which would have been difficult to repeat even before the onset of recession

The severity of the recession is such (in net job loss terms) that the NI economy is not projected to return to its 2008 peak employment level until 2017

In other words it will take a considerable period for the economy to create the quantum of jobs lost during the recession even if the economy is officially out of recession later this year / early next year

… unemployment legacy

Unemployment no longer forecast to return to its recent historic low

1. Insufficient pace of employment growth during recovery

2. Mis-match of skills of the unemployed versus business / economy needs

3. Only a limited out-migration response to rising local unemployment (as migrant origin economies are similarly struggling with recession)

OE EDF Sept 2008

OE summer 2009

0%

2%

4%

6%

8%

10%

12%

1995 2000 2005 2010 2015 2020

% working age pop

NI: Claimant unemployment rate

Source: NOMIS, Oxford Economics

Forecast

NI future skill needs research

Scope of research

Empirical assessment of future skill needs (by NQF and NVQ level) and degree subject demand of NI economy, including for priority sectors (ICT, life sciences, hi-tech manufacturing and financial services)

Baseline (EDF Sept 08) and aspirational scenario Has very recently been updated to incorporate latest summer 2009

economic outlooks Demand focus but some supply-side elements

Evidence from consultations …

STEM graduates are and will continue to be in high demand

Though concern that the number and quality of graduates within science and engineering has been dropping at an alarming rate

The quality of degrees is becoming a weakness, with sectors such as the manufacturing being less impressed with today’s graduates, many of which it terms as ‘broad brush’ graduates

Under-supply of graduates in some sectors exists due to the lack of awareness of career opportunities

“The quality of personnel over the last decade in NI has been reducing. Lower entry requirements at universities is one of the major factors contributing to this trend”

Narrow ‘unspecialised’ subject focus

NI % total degree qualified

employed persons (UK=100)

NI % total degree qualified

employed persons

NI subject degree employed

persons per 10,000 working age population

(UK=100)

STEMMedicine and Dentistry 178 4% 160Vetinary Science, Agriculture and Related Subjects 125 1% 112Combined degree 116 20% 104History and Philosophical Studies 88 3% 79Technologies 83 1% 74Mathematical and Computer Sciences 79 4% 71Creative Arts and Design 67 4% 61

Non-STEMBusiness and Administration 137 16% 123Subjects Allied to Medicine 115 13% 104Architecture, Building and Planning 106 2% 95Education 100 7% 90Social Studies 97 6% 87Biological Sciences 76 4% 68Law 70 2% 63

Source: LFS, Oxford EconomicsNote: Cells shaded purple indicate NI's employed degree subject share is 10 per cent less than the UK average. Cells

STEM concentrations

10%

20%

30%

40%

50%

SC EM WW NE SW NW SO YH EN WM UK NI GL

% total degrees in employment

(3-year ma)

UK regions: STEM degrees (broad definition) in employment

Source: LFS, Oxford Economics

NI ranks last if exclude medical degrees

Where could NI be?

If NI had same sectoral and occupation skill and subject structure … 9,000 more NQF 4-8 employed persons in work 49,000 more managers and professionals in work 7,000 more creative / art degree holders and 3,000 more STEM degree

holders in work (9,000 less with Business and Administration in work)

But not easy for NI to quickly attract or create jobs genuinely requiring more graduates, managers, STEM degrees etc

High share of these jobs locate in Greater South East It is a demand and supply issue!

3k more STEM graduates in workforce

-10 -5 0 5 10

STEM (broad definition)

Medecine & Dentistry and Subjects Alliedto Medecine

Physical Sciences, Mathematical &Computer Sciences, Engineering &

Law

Business and Administration

Arts *

Creative Arts and Design

Education

Combined degree

NI actual minus expected workforce degree subjects (000s, average 2006-2008)

NI: Actual minus expected workforce degree subjects

Source: LFS, Oxford Economics

3,000 more STEM (narrow definition) and 7,000 more creative / arts graduates in employment if NI had same sectoral graduate subject structure as UK

Actual > Expected

Actual < Expected

* Linguistics, Languages, Literature, History & Philosophy

Recession impact – over-supply in short-run

Baseline

24

21

18

12

-7-8

38

2523

33

-10

0

10

20

30

40

1997 2000 2003 2006 2009 2012 2015 2018

Annual flow

NI: Net requirement from education system and in-migration

Source: Oxford Economics

ForecastEstimate

2008-2010 annual

average (000s)

Expansion demand (people-based) -19

Net replacement demand (approximate) 12Leavers (including out-migration) 58Joiners 46

Net requirement from education and in-migration -8

Entrants from education to employment 17-20

Residual in-migration Negative

Source: Oxford Economics

Recovery – still a significant demand for labour

Even without a return to growth of the past decade still a significant demand for labour

On average 16,000 jobs available pa without any net increase in total jobs

Growth of 7,000 net new jobs pa is more sustainable for NI – consistent with education outturn and moderate in-migration

But not just about flows – non-employed stock from recession era?

Baseline

2010-2020 annual

average (000s)

Expansion demand (people-based) 7

Net replacement demand (approximate) 16Leavers (including out-migration) 58Joiners 42

Net requirement from education and in-migration 23

Entrants from education to employment 17-20

Residual in-migration 3-6

Source: Oxford Economics

Need for a balanced supply …

Two-fifths of net requirement for NQF 4 and above

Still almost 1 in 4 available positions will require NQF 1 and below (not to confuse flows with stocks!)

Historical (2003-2008)

Baseline (2010-2010)

Postgraduate (NQF 7-8) 2.1 1.9First degree and sub-degree (NQF 4-6) 8.4 7.1Intermediate a (NQF 3) 6.6 5.6Intermediate b (NQF 2) 5.7 3.1Low (NQF 1 and below ) 7.6 5.3

Total 30.4 22.9

Postgraduate (NQF 7-8) 7% 8%First degree and sub-degree (NQF 4-6) 28% 31%Intermediate a (NQF 3) 22% 24%Intermediate b (NQF 2) 19% 13%Low (NQF 1 and below ) 25% 23%

Source: Oxford Economics

Net requirement from education and migrants (annual average)

Why STEM matters?

Manufacturing – a declining sector?

0

40

80

120

160

200

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

000s

Self-employment

Employee jobs

NI: Manufacturing employment

Source: DETI, LFS, Oxford Economics

172,000 employee jobs and 7,000 self-employed in 1971

88,000 employee jobs and 5,000 self-employed in 2008

NI

UK

30

40

50

60

70

80

90

100

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

1971=100

NI and UK: Manufacturing employment excl textiles

Source: DETI, ONS, LFS, Oxford Economics

Productivity driver

NI

UK

5%

10%

15%

20%

25%

30%

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

% total GVA (2003 prices)

NI and UK: Manufacturing GVA share of total excl textiles

Source: Regional Accounts, Oxford Economics

Manufacturing

Whole economy

Professional services

Health & social work

0

10

20

30

40

50

60

70

1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

£000s (2003 prices)

NI: Sectoral productivity

Source: Regional Accounts, DETI, LFS, Oxford Economics

Forecast

Out-performing UK

Employment growth last decade

NI UK Diff (pp)

Food products, beverages & tobacco -5% -17% 11Textiles & leather -87% -65% -22Wood & w ood products 43% -17% 60Pulp, paper & printing -13% -24% 11Coke, oil refining & nuclear fuel -40% -6% -33Chemicals & man-made fibres -11% -29% 18Rubber & plastic products 1% -30% 31Other non-metallic minerals 34% -25% 60Metals 42% -30% 72Machinery & equipment nec 8% -27% 36Electrical & optical equipment -15% -43% 28Transport equipment -21% -23% 2Manufacturing nec 53% -20% 73

Total -17% -30% -

Source: DETI, ONS, Census, Oxford Economics

Towards export-led growth …

Year Exports (£bn) Year Exports (£bn)

2005/06 4.59 2005 0.312006/07 5.03 2006 0.36

Source: DETI Manufacturing Sales & Exports Survey; DETI Exporting NI Services Study

Manufacturing (including services)

High export potential service sectors and

manufacturing & construction services

STEM Review supporting arguments

STEM in education – application and problem-solving skills STEM in society – equipping people to adapt to new technologies STEM in economy

Link to productivity (and thereby Government PSA targets) Attract FDI Support realisation of MATRIX vision

Advances engineering (transport) Advanced materials Agri-food ICT Life & health sciences

Solutions to today’s global problems Climate change GM food Renewable energy

STEM challenges

Headlines from STEM Review

Young people disengaged from STEM High STEM drop out rates at local universities One-quarter of NI-domiciled STEM graduates at UK HEIs choose not

to live and work in NI Recognition of STEM importance and policy response only catching up

with ROI and GB now Rise in STEM education and science research spending in emerging

economies is growing at a staggering rate – risk of being left behind if not proactive

STEM demand

Still a positive net requirement …

-12 -8 -4 0 4 8 12

Agriculture, forestry and f ishing

Mining & quarrying

Manufacturing

Utilities

Construction

Retail & distribution

Hotel & restaurants

Transport & communications

Financial services

Business services

Public administration & defence

Education

Health & social w ork

Other personal services

Expansion demand (annual average flow 2010-2020)

NI sectors: Expansion demand (2010-2020)

Source: Oxford Economics

Manufacturing a declining sector but large positive net

requirement

-12 -8 -4 0 4 8 12

Agriculture, forestry and f ishing

Mining & quarrying

Manufacturing

Utilities

Construction

Retail & distribution

Hotel & restaurants

Transport & communications

Financial services

Business services

Public administration & defence

Education

Health & social w ork

Other personal services

Net requirement education and migration (annual average flow 2010-2020)

NI sectors: Net requirement from education and migration (2010-2020)

Source: Oxford Economics

STEM shortfalls could occur

Potential STEM shortfall under aspirational scenario (pa):

Physical sciences: 100 Mathematics: 40 Computer Science:

220 Engineering &

Technology: 290

… Before even considering downward STEM enrolment trend

Demand Supply

2010-2020 (annual average

net degree requirement)

HESA NI domiciled

graduates from UK HEIs entering

employment in NI (2003-2007

annual average grossed up)

STEM 4.2 3.6 -0.64Medicine & dentistry 0.2 0.3 0.04Subjects allied to medicine 1.2 1.4 0.26Biological sciences 0.4 0.4 0.00Veterinary science 0.0 0.0 0.00Agriculture & related subjects 0.0 0.1 0.03Physical sciences 0.3 0.2 -0.10Mathematical sciences 0.1 0.0 -0.04Computer science 0.8 0.5 -0.22Engineering & technology 0.6 0.3 -0.29Architecture, building & planning 0.6 0.3 -0.30

Law 0.5 0.2 -0.28Business and Administration 1.4 1.3 -0.08Languages 0.2 0.2 0.01Creative Arts and Design 0.5 0.3 -0.18Education 0.9 1.5 0.63Combined degree 0.2 0.1 -0.14Other * 1.0 1.1 0.13

Total 8.9 8.4 -0.56

* Social studies; mass communication and documentation; and historical and philiosophical studies

Source: Oxford Economics, HESA

Balance

Note: NQF 4-8 requirement from education and migration adjustred for LFS subject degree % NQF 4-8

STEM supply

STEM degree workforce pool

2008 (3-yr average)

STEM 70,800Subjects Allied to Medicine 23,800Engineering 8,800Medicine & Dentistry 8,100Mathematical & Computer Sciences 8,200Biological Sciences 7,300Physical Sciences 6,600Architecture, Building & Planning 4,400Vetinary Science, Agriculture & Related Subjects 2,600Technologies 1,000

Non-STEM 111,600Combined Degree 37,100Business & Administration 28,700Education 12,800Social Studies 11,500Creative Arts & Design 6,400History & Philosophical Studies 5,800Law 4,500Other 4,800

Source: LFS, Oxford EconomicsNote: Rounded to nearest hundred

STEM UCAS acceptances (NI HEIs)

Change 2002-2008 (%)

Change 2002-2008 (absolute)

H1 - General Engineering 277% 36D4 - Agriculture 83% 49B4 - Nutrition 55% 31A1 - Pre-clinical Medicine 40% 75B7 - Nursing 33% 94J9 - Others in Technology 31% 13G1 - Mathematics 30% 21A2 - Pre-clinical Dentistry 29% 12H3 - Mechanical Engineering 28% 25F1 - Chemistry 27% 11H2 - Civil Engineering 27% 38C1 - Biology 1% 1G6 - Softw are Engineering -5% -1F3 - Physics -25% -14H4 - Aerospace Engineering -26% -12H6 - Electronic and Electrical Engineering -30% -29G4 - Computer Science -30% -207H7 - Production and Manufacturing Engineering -51% -33C4 - Genetics -56% -10

Source: UCAS

Returns to STEM

First occupation returns

Managers & professionals

Sales, customer service, process and elementary

Managers & professionals

Sales, customer service, process and elementary

(H2) Civil engineering 82% 5% (N1) Business studies 30% 16%(H3) Mechanical engineering

66% 13% (R1) French studies 30% 13%

(G6) Softw are engineering 61% 12% (L2) Politics 29% 16%

(H4) Aerospace engineering

60% 13% (L4) Social policy 28% 16%

(F1) Chemistry 53% 12% (C8) Psychology 28% 16%(G3) Statistics 51% 10% (V5) Philosophy 25% 22%(H6) Electronic & electrical engineering

51% 16% (C6) Sports science 24% 18%

(F3) Physics 50% 14% (N5) Marketing 22% 17%(G1) Mathematics 47% 12% (W4) Drama 17% 25%(G4) Computer science 46% 16% (P5) Journalism 11% 13%

Source: HESA Source: HESA

STEM Non-STEM

% total first destination % total first destination

Wage returns

0 5 10 15 20 25 30

Engineering

Architecture & related

Maths & computing

Medicine

Physical / environmental

Technology

Biological sciences

Medical related

Agricultural sciences

Business & financial

European languages

Other languages

Social sciences

Linguistics

Librarianship & information

Humanities

Education

Arts

% more than £1,000 per week

UK: Weekly earnings by degree subject (2008)

Source: LFS

STEM

Summary

Facing a new world

The end of a debt era Who can spend (not business, not consumer, not government?) Tomorrow will have to be export-led not debt-led – manufacturing of

growing importance? Economies need to diversify

UK over-dependent on financial services NI over-dependent on public sector / too small a private sector

Growing international competition – STEM skills build up in India and China

Could industrial production return to the UK as production and transportation costs rise elsewhere?

The environment will be ever more global - skills will therefore be even more crucial – NI not competing on cost

Leading not following matters (e.g. MATRIX)

Economist’s questions

Is the mix of skills appropriate – too general at top end? How to future skills match – STEM demand and supply? Important to

avoid ‘boom bust’ situation as has occurred for ICT – what is being done to avert this?

How to reverse STEM supply-side trends? What should the message be? Is it a demand issue? Would bursaries work – how generous would they need to be? More UCAS points for STEM subjects?

International best practice – US National Defence Education Act 1958 at start of ‘space race’

Key not to shield future generations from the growing challenge posed by emerging economies

Supplying niche skills in some STEM areas – good return but expensive – does it fit funding model in schools, FE and HE?

Skills in energy sectors – how well do we know (green technology etc)?

Contact:Graeme HarrisonHead All-Island Consultancy, Oxford EconomicsTel: 028 9266 0669Email: gharrison@oxfordeconomics.com