skills in england volume 1: key messages - september 2007...skills in england 2007is presented in...

Skills inEngland 2007Volume 1:Key Messages

September 2007Of interest to everyone involved in improvingskills and learning opportunities across England

PHOTO REDACTED DUE TO THIRD PARTY RIGHTS OR OTHER LEGAL ISSUES

Skills in England 2007 is presented in fourvolumes.

Volume 1 presents the key messages and anoverview of the research findings contained inthe other three volumes. Volume 2 is the mainresearch report. It contains separate chapters ondemand for and supply of skills, mismatchesbetween supply and demand as well as socialexclusion. Volume 3 provides sectoral evidenceand Volume 4 provides evidence related toregional and local trends.

Skills in England 2007 has been produced by theLearning and Skills Council in partnership withthe Department for Industries, Universities andSkills and the Sector Skills Development Agency.

Paragraph number

Acknowledgements –

Foreword –

Ten Key Messages –

Introduction 1

Major Challenges 4

Globalisation and the general economic context 12

Improving productivity and the link to skills 20

Creating a responsive supply side 28

Responding to new challenges 32

Social cohesion 36

Key Drivers of the Demand for Skills 45

Why Skills Matter 51

How skills benefit the individual 52

The business case for employers 54

The benefits to the state 57

The Changing Demand for Skills 59

Trends in demand: industrial sectors 60

Trends in demand: occupations 64

Trends in demand: qualifications 76

Trends in demand: agency and temporary work and self-employment 82

Employer demand for generic skills 84

Raising the demand for skills 85

The Supply of Skills 95

Labour supply 96

Supply of skills 102

International comparisons of post-compulsory education 108

Workplace-based training 109

Skill Priorities 113

Implications for Individuals, Employers and the State 125

For individuals 125

For employers 126

For the state 127

For education and training providers 128

Concluding Remarks 130

Contents

Acknowledgements

At IER and CE, the following peoplecontributed to the various volumes:

Lynn GambinUniversity of Warwick Institute forEmployment Research

Anne GreenUniversity of Warwick Institute forEmployment Research

Chris HasluckUniversity of Warwick Institute forEmployment Research

Graham HayCambridge Econometrics

Terence HogarthUniversity of Warwick Institute forEmployment Research

Sadia SheikhCambridge Econometrics

Sasha ThomasCambridge Econometrics

Rob WilsonUniversity of Warwick Institute forEmployment Research

At IER, Faye Padfield and Amanda Kerryformatted the document with rigour andattention to detail, for which many thanksare due. Andrew Holden and Peter Millarprovided computing assistance.

The authors of the report remain solelyresponsible for the opinions expressed,for the detailed content of the report,and for any remaining errors.

Terence [email protected]

Rob [email protected]

Series editors

Skills in England 2007 was jointly producedby the University of Warwick Institute forEmployment Research (IER) and CambridgeEconometrics (CE). They were assisted by aSteering Group, which provided commentsat various stages of the drafting process,for which IER and CE are most grateful.

Members of the Steering Group:

Clare BodenLearning and Skills Council National Office

Paula ChapmanLearning and Skills Council National Office

Rob CirinLearning and Skills CouncilNational Office (Chair)

Tracy MitchellLearning and Skills CouncilNational Office (Project Manager)

David SwalesLearning and Skills CouncilWest Midlands region

David CampbellDepartment for Business Enterprise andRegulatory Reform

John DohertyDepartment for Innovation, Universitiesand Skills

Richard GarrettSector Skills Development Agency

Jacqui HansbroDepartment for Work and Pensions

Chris LawtonSector Skills Development Agency

Skills in England 2007 Volume 1: Key Messages

PHOTO REDACTED DUE TO THIRD PARTY RIGHTS OR OTHER LEGAL

ISSUES

Foreword

The LSC is dedicated to improving the skillsof people in England. Through our networkof skills brokers, the Train to Gain servicehas already engaged with over 50,000employers. Those trained as a result of thisprogramme will contribute towards anincrease in the number of people with Level 2 and Level 3 qualifications, lead tohigher productivity for employers and laythe foundations to allow England tocontribute extensively in a more value-added economy. An aim the LSC shareswith all our key partners.

Mark HaysomChief Executive, Learning and Skills Council

I am pleased to be introducing our fifthSkills in England. This is the annual skillsassessment, carried out by the Learning andSkills Council on behalf of ourselves and ourkey partners. It is designed to complementthe key government publications in theskills arena, including the Leitch Review ofSkills and the Freud Report.

Skills in England 2007 emphasises that,while globalisation provides manyeconomic opportunities, understanding the phenomenon is increasingly crucial inorder to appreciate any potential threats tolow-skilled jobs and to those people withsuch jobs. With increasing internationalcompetition, not least from the rapidlydeveloping economies in Asia, it isimportant that, to remain competitive,England produces high value-added goodsfor the world economy. To achieve this,employers need a highly skilled workforce.Many employers need to raise their gameto capture high-value markets – to achievethis, skills need to be placed at the heart ofan organisation’s business plan. This reporthighlights that, collectively, we must continueto find ways to increase the demand for skillsfrom employers and ensure that everyone,whether an employer or an individual, is ableto access the learning opportunities that aresuitable for them.

The benefits of economic growth have notbeen distributed evenly across society. Likemany other countries, England has a largenumber of people who have effectivelybeen excluded from participation in someparts of modern life. Although not the onlyfactor linked to social exclusion, a lack ofskills is a key determinant and, in fact, thegap between the employment rates of theunqualified and those with qualificationshas widened during the 21st century. Thisunderlines the importance of addressingthe skills needs of the socially excluded.Succeeding in this is key to helping allcitizens become active members of society.

iii


ISSUES

Ten Key Messages

Skills in England 2007 provides a summaryof the latest information about the demandfor and the supply of skills. It is a four-volume publication:

i. Key Messages: outlining key findings and policy implications;

ii. Research Report: providing in-depth analysis;

iii. Sectoral Perspectives: providing insights across industry;

iv. Regional/Local Perspectives:summarising the geographical situation.

The evidence presented over the fourvolumes indicates that recent years haveseen substantial improvements in the skillsbase of the economy. There is, however,no room for complacency. As the LeitchReview points out, there is much still to be done to ensure that the skills of theworkforce are ‘world class’ and are capableof reaping the rewards of globalisation.Following on from this, the evidence fromSkills in England 2007 can be distilled into10 key messages.

Globalisation continues to pose boththreats and opportunities. The threat

is the loss of key markets and jobs toemerging economies. But this is just oneside of the coin: as domestic marketsaround the world become more open tocompetition, immense opportunities presentthemselves for producers here to increasetheir market for goods and services.

Where the global economy poses thegreatest threat is in relation to low-

skilled jobs, often located in the productionof low-cost, standard commodity-typegoods and services. While some of these areimmune to global competition at present,this cannot be guaranteed over the longterm. Moreover, some – possibly many – willbe displaced by technology in the long run.

Skills in England 2007 provides the latestinformation on skills supply and demand.There are 10 key messages.

Globalisation provides manyopportunities…

… but poses some threat to less-skilledjobs over the long term.

1

2



ISSUES

Entering new markets, and sustaininga presence there, is dependent upon

the efficient production of goods andservices, especially those of high value.England will find it increasingly difficult tocompete with low-cost producers ofcommodities from countries such as Chinaand India. The research evidence pointssquarely to the production of high-valuegoods and services being dependent upon ahighly skilled workforce.

If the country is to retain and capturehigh-value markets around the world,

many employers need to raise their gameand to increase their demand for skills.They need to raise demand at all levels:from senior management, responsible forthe strategic vision of the organisation, tothose engaged in more routine day-to-dayactivities.

Skills cannot be considered inisolation, nor are they a panacea.

They are one element that needs to bein place in the overall strategy of a business.Accordingly, they need to be placed atthe heart of an organisation’s business plan.Otherwise, skills will not be effectivelydeployed.

If employers’ demands for skills are tobe raised, the supply side needs to be

able to respond. The supply of skills has torecognise the need for an economic focus.The learning and competence required toachieve a given qualification should benefitthe economy over the medium to long term.

This poses a number of challenges forthe qualification system. In particular,

the economic value of vocationalqualifications needs to be increased. The rateof return for those investing in vocationalskills remains, on balance, less than in thecase of academic skills. The status of thevocational route through further and highereducation needs to be improved.

3

4

5

6

7

Providing high-value goods for the worldeconomy is dependent upon a highly skilledworkforce.

Many employers need to raise their gameto capture high-value markets.

Skills need to be placed at the heart of anorganisation’s business plan.

The supply side needs to be responsive tothe changing demand for skills.

The economic value of vocationalqualifications needs to be increased.

v


ISSUES

A world economy that is even moreopen to international trade requires a

vocational education and training system that is agile and that provides individuals withthe core skills that will allow them to developtheir human capital, at any age, so that theyare able to sustain their employability.This is important, given the changes that will be brought about in the labour market by increased global competition and bydevelopments in information andcommunications technology. This places anemphasis on lifelong learning and theacquisition of new skills over the lifecycle.

Tackling social exclusion from a skillsperspective will require not only

tackling individuals’ basic skills needs, butalso providing people with the skills thatwill allow them to sustain and evenprogress in their employment. This is aformidable challenge for the education andtraining system.

Advice and guidance on careerdevelopment and skills needs will be

increasingly important in assisting peopleto navigate their way through what is likelyto prove to be a rapidly changing labourmarket. This will continue to require robustand timely labour market information,including prospects for the future.

8

9

10

The vocational education and trainingsystem needs to provide people with theopportunity to develop their human capitalat any age.

Tackling social exclusion is dependent uponskills.

Advice and guidance is required to assistindividuals in the labour market.



1

Introduction

1 Skills in England 2007, Volume 1: KeyMessages sets out the main findings andbroad policy implications stemming fromthe research undertaken and reviewed forSkills in England 2007. It highlights the keyissues facing the LSC and its partners, witha view to helping identify the key prioritiesfor skills.

2 Skills in England 2007 draws upon thelatest research and analysis to develop anunderstanding of the supply of and demandfor skills, both now and in the future.

3 Four volumes have been produced:

i. Key Messages: outlining key findings and policy implications;

ii. Research Report: providing in-depth analysis;

iii. Sectoral Perspectives: providing insights across industry;

iv. Regional/Local Perspectives: summarisingthe geographical situation.

Skills in England 2007 provides an up-to-date assessment ofthe skills arena. It highlights the key skills issues facing theLSC and its partners, based on a comprehensive review ofdevelopments and of the evidence that has emerged over thepast year.

Key Messages provides the latestinformation on the demand for and supplyof skills.


ISSUES


Major Challenges

The two main challenges are: to maintain and improve onrecent productivity performance and competitiveness; and tominimise social exclusion. In order to meet these challenges,it is vital to ensure that individuals have the skills they willneed in the 21st century to meet employers’ requirements inan increasingly competitive environment and to enable themto play an active role in both the economy and society.

4 Summary

On the demand side, the mainchallenge is to ensure that recentimprovements in productivityperformance are maintained. This entails:

• raising employers’ demand for skills;

• encouraging employers to think aboutfuture as well as current demand;

• ensuring that employers effectivelydeploy the skills available in theirworkforce or in the wider labourmarket;

• ensuring that demand for anddeployment of skills at least matchesthat of producers elsewhere in theworld.

5 On the supply side, the mainchallenge is to produce a furthereducation (FE) system that improves theemployability of individuals and meetsemployers’ current and future demandfor skills. This requires:

• ensuring that vocationalqualifications deliver economicallyvaluable skills that yield a rate ofreturn comparable to academic skillsand that enjoy equivalent status;

• making the FE system responsive tochanges in the national and globaleconomy;

On the demand side, the main challenge isto ensure that recent improvements inproductivity performance are maintained.

On the supply side, the main challengeis to produce a further education systemthat improves the employability ofindividuals and meets employers’ currentand future demand for skills.

• convincing young people of thebenefits of a vocational education,especially at Level 3;

• improving basic skills (numeracy andliteracy), which can raise productivity,support progression in learning andbring about greater levels of socialcohesion by raising employability;

• increasing participation in educationand training, especially among hard-to-reach groups.

6 A dynamic, vibrant demand side maygenerate skill gaps, simply as aconsequence of changes that occur inthe level and the content of the skillsrequired as employers raise their game.The emergence of skill gaps is notnecessarily a mark of failure; but it isimportant that the FE system andindividuals are sufficiently flexible andable to adapt to these changing needs,in order to meet these new gaps asthey emerge.

3

7 The major challenges facing thepost-compulsory education and trainingsystem have been starkly set out in theLeitch Review:

• substantially raising employer demandfor skills if England is to have a ‘world-class’ workforce with even higher levelsof productivity;

• making the supply side more responsiveto employer demand;

• ensuring the socially excluded haveaccess to the labour market througheffective guidance, coaching, trainingand qualifications.

8 These are being addressed, in part,through:

• the introduction of programmes, such as Train to Gain, that attempt to tackleboth the demand and the supply side;

• entitlements to train towards a firstLevel 3 qualification for young people upto the age of 25;

• funding to assist individuals achievequalifications (that is, Learner SupportFunds);

• the reform of further education to makeit more responsive to employer demandand individual needs;

• a commitment to raise the basic skills ofthose who have failed to get on the skillsladder (the most vulnerable in society).

9 It needs to be borne in mind that, even asEngland improves its own systems of post-compulsory education and training, othercountries are doing likewise.

10 Skills matter because they providethe key to addressing the majorsocio-economic challenges facing alldeveloped economies:

• maintaining a socially cohesive societyin the face of rapid technological andstructural change;

• assisting with equality of opportunity byproviding people with the skills that willallow them to enter and progress in thelabour market;

• intensifying international competition inthe provision of goods and services.

Skills are a vital ingredient in the policy mix.

Leitch sets out the major challenges facingthe FE system.

These include raising employer demand andmaking the supply side more responsive.

Skills are the key to addressing the majorchallenges facing the economy.


ISSUES


11 Skills, however, are not a panaceabecause:

• tackling social exclusion, ensuringequality of opportunity and raising theperformance of England’s employers donot just depend upon skills;

• a range of other social and economicpolicies need to be in place. As wasoutlined in the Budget 2007 Report, anintegrated approach is required to tacklethese issues, including policies thatrelate to innovation, enterprise andsocial welfare.

Globalisation and the generaleconomic context

12 Globalisation presents opportunities aswell as threats, because:

• it opens up new markets abroad toproducers in this country;

• it also opens up domestic markets toincreased competition, thereby forcingemployers to become more innovativeand efficient.

This is likely to generate increased demandfor skills, but some of this demand willprobably be latent, since some employersmay not recognise a skill demand until it istoo late and their markets have beencaptured by more efficient producersabroad.

13 The rewards from globalisation are likelyto be realised over the medium to longterm. More immediately, because part ofthe globalisation process involves thetransfer of low-skilled, low-wage jobs toareas with much lower labour costs, it islikely to be the more vulnerable membersof the workforce who bear the cost ofglobalisation.

14 The evidence indicates the importanceof people acquiring not only portable skills,but also skills at a higher level. There are,however, many jobs that will continue tobe dependent upon domestic demand andso are largely immune to the forces ofglobal trade. In the short to medium term,all the evidence suggests a strong economyand labour market in England. But theextent of change in the world economy is rapid.

But skills are not a panacea.

Globalisation will generate an increaseddemand for skills.

The economic rewards from reaping thebenefits of globalisation are immense.


ISSUES

5

15 The UK economy is in a relatively strongposition, with growth of around 2.75 percent a year. This has been boosted byrelatively strong business investment andby recovery in the Euro area, which hasstimulated exports.

16 The economy has experienced thelongest unbroken expansion on record inthe UK and the longest ongoing expansionin any Organisation for Economic Co-operation and Development (OECD)economy.

17 This has had an impact on employment:

• Over the last 12 months, employmenthas continued to grow.

• Total employment in England nowstands at 25 million.

18 There is some uncertainty over thelevel of migration into the labour market;if it is greater than expected, this maypush growth even faster than is currentlyforecast.

19 The world economy is in the middle ofthe strongest period of growth for morethan 30 years:

• Asia continues to lead the way, with11 per cent a year growth in China and9 per cent a year in India.

• Growth rates across Latin America andAfrica have also been strong.

• Growth in the G7 countries has becomemore balanced, with the recovery in theEuro area and Japan offsetting theslowdown in the US economy.

Improving productivity and thelink to skills

20 The Pre-Budget Report published by theTreasury in 2006 reported that England’srelative productivity has been improvingsince 1995:

• On an output per worker basis, the UKclosed the gap with Germany, halved thegap with France, and is the only G7country to have kept pace with USperformance.

• On an output per hour basis, the UK hasnarrowed the gap with France by 10percentage points, narrowed the gapwith Germany by 13 percentage points,and kept pace with US performance.

The country is currently well placed tomeet the challenges that face it.

Productivity is on an upward trend.


ISSUES


21 The trend in productivity growth isimpressive because it has taken placealongside employment growth. These tendnot to go hand in hand, because workers innew jobs tend to be less productive untilsuch time as they are fully proficient. Onthe basis of the evidence available, theTreasury (in the Budget 2007 Report) iscautiously optimistic about the productivitytrend continuing.

22 Skill is, of course, just one element inimproving productivity. The Treasury alsorecognises the importance of:

• improving competition;

• promoting enterprise;

• supporting entrepreneurship;

• supporting science and innovation;

• encouraging investment.

23 The overall productivity picture ispositive, but there are areas of concern:

• sectors where productivity levels arerelatively low, either in a national or aninternational context;

• industries employing large numbers butexhibiting relatively low productivity;

• relatively poorly performing industries,which are often highly concentratedregionally and locally.

24 Some areas of England have benefitedsignificantly from the positive externalitiesof possessing a highly qualified labour force(London and the South East). Others haveendured the negative externalities ofpossessing a relatively poorly skilled labourforce. This contributes to social andeconomic polarisation.

25 Significant improvements in the supplyof skills have helped improve productivity,but other factors are also important:

• investment in new plant, equipment andmachinery;

• information and communicationstechnology (ICT) take-up, whichhistorically has been poor comparedwith take-up rates in the USA;

Recent productivity growth has beenimpressive.

Skills are an important element in raisingproductivity levels.

There remain sectors of the economywhere productivity is relatively weak.

• effectiveness in the use of ICT. There isevidence that the USA has been moresuccessful at reaping the potential gains,due to a greater propensity to acceptorganisational change in parallel withimplementation of new ICT;

• the extent to which more marginalworkers participate in the labour market,typically in low-skilled/low-wage jobs:the proportion is relatively high inEngland;

• levels of international competition,given that the economy is a relativelyopen one.

26 The evidence confirms a link betweenskill demand and product market strategy:

• A high value-added product strategyis associated with higher skill levels inthe workforce and is positively relatedto the extent of foreign competition andsales growth.

• Companies that are dependent upondomestic demand are less likely to haveadopted high-end, value-added productmarket strategies. Competition cantherefore be a valuable stimulant, as wellas a threat.

• There remain large parts of the economythat will always be primarily dependentupon domestic demand.

• It is difficult for companies to changedirection from low- to high-endstrategies, because their currentdirection is largely shaped by pastchoices.

• Skill deficiencies are an importantcontributory factor to differences inproductivity performance, and theyaccount for as much as one-fifth of theproductivity gap between the UK andGermany.


ISSUES

7

27 In the context of international trends,the Leitch Review emphasises that there isno room for complacency and recommends:

• that the country commit to becoming‘world class’ in skills by 2020,benchmarked against the upper quartileof OECD countries;

• a doubling of attainment at most levels.

Creating a responsivesupply side

28 Labour supply is dependent upon,among other factors, the operation of theeducation and welfare systems. Comparedwith countries such as France and Germany,people out of work in England have:

• more incentives to obtain work(for example, there are relativelylow income replacement rates inJobseeker’s Allowance);

• more targeted means-tested socialsecurity benefits;

• a range of active labour marketmeasures to help connect them to work.

These factors have been significant ingenerating relatively high employmentrates and low unemployment rates.

29 While Welfare to Work policies havebeen successful in stimulating labour supplyand raising employment rates, there remainconcerns about the quality of labour supply:

• relatively low progression rates intopost-compulsory education and trainingfor 17-year-olds;

• a large number of people withoutqualifications;

• limited access to workplace-basedtraining for those most in need of it(that is, the low skilled);

• large numbers of people with problemsrelated to numeracy and literacy;

• many people lacking the skillsemployers need.

In maintaining productivity growth, there isno room for complacency. Skill levels needto be raised even higher.

The supply side needs to be moreresponsive to demand.

There are some concerns over the qualityof labour supply.


ISSUES


30 The challenge is to ensure that theproposed introduction of a demand-ledsystem in FE not only delivers productivitygains in aggregate, but also begins to tacklethose segments of the economy whereproductivity is weak, that is:

• among the low skilled;

• in industries with low value-added;

• in local areas with low skills.

31 In relation to the demand-led system,the Leitch Review recommends that:

• there needs to be much more employerengagement in the approval ofvocational qualifications, in order toensure that supply is responsive todemand. It is proposed that this shouldbe achieved mainly by having the sector skills councils determine thequalifications that are required;

• in return for increased involvement,employers should give a ‘skills pledge’ totrain and develop their workforces;

• the learning and skills sector shouldbetter meet the needs of the individuallearner and the employer.

Responding to new challenges

32 The test of a responsive supply side is how it meets new challenges. Theenvironment is one such challenge. Withthe publication of the Stern Report in 2006,environmental issues have assumed agreater importance. In many respects,the environmental agenda is based aroundsustainable development: the production of goods and services with relatively lowenergy consumption that generate a minimalamount of waste, either in production or at the end of the product’s life.

This generates a demand for:

• new materials;

• configuration of new supply chains;

• new production processes.

All of this has implications for skillrequirements.

The Leitch Review recommends moreemployer engagement to ensure thatsupply is responsive to demand.

The supply side will also need to be able torespond to new challenges.


ISSUES

9

33 Sustainable development provides bothopportunities and threats:

• opportunities arising from the scope tocapture new markets, both inside andoutside the country, with new productsand services;

• potential opportunities to look at shortersupply chains (which reduce energyconsumption and reduce wastehandling);

• threats emerging from the capacity ofproducers outside the country to capturea large share of the national market;

• pressures on costs associated with risingprices of energy and other aspects ofrecycling and environmental externalities.

34 Sustainability affects all sectors, but thedegree to which an impact can be madedepends on a number of supply chainfactors, including:

• sources of innovation and design;

• opportunity for innovation;

• levels of product/market change going on;

• availability and source of sustainablematerials;

• information, awareness;

• levels of supply-side employment andskill sets.

35 There are skills needs attached to thedevelopment of sustainable products andservices:

• knowledge of new materials;

• development of new products;

• creation of new production processes;

• production skills.

For the most part, the specific skill needsthat are likely to arise from increasedconcerns about the environment, eitherfrom government or consumers, remain tobe precisely identified.

Social cohesion

36 The benefits of economic growth havenot been distributed evenly across society.Like many other countries, England has alarge number of people who have beeneffectively excluded from participation inthe key domains of modern life.

The environment and sustainabledevelopment are one such challenge.

The skills needs arising from sustainabledevelopment remain to be fully identified.

Social inclusion remains unequal.


ISSUES


37 Educational attainment has risen quicklyin the recent past, but some people havebeen left behind. These are those groups ofindividuals or employers whose skills needsare difficult to address.

38 Social exclusion is a term generally takento describe situations where people or areassuffer from a combination of linked andmutually reinforcing problems, such as:

• unemployment;

• poor skills;

• low incomes;

• poor housing;

• high crime rates;

• bad health;

• family breakdown.

39 There is a strong link between low levelsof skills and qualifications on the one hand,and social exclusion on the other, but:

• the acquisition of skills througheducation and training is unlikely to be sufficient on its own to combatworklessness or overcome other forms of social exclusion;

• people with low skills often face otherbarriers to work or job retention,including poor job search skills;

• there is a reluctance by some employersto consider non-employed people fortheir vacancies.

40 Strategies to improve social inclusionthrough promoting skills and qualificationsneed to be complemented by labourmarket and workplace strategies andpolicies that will counter other barriers thathamper participation in education, trainingand employment.

41 The success of initiatives to raise skills inorder to combat social exclusion has beenmixed:

• Participants are often appreciative of theadditional support they receive, but theevidence to show that such initiativeshave made a substantial impact remainselusive.

• In part, this may be a reflection of thecomplex and sometimes contradictorypositions of Welfare to Work policy andskills strategies.

There is a strong link between socialexclusion and a lack of basic skills.

Skills alone cannot eliminate socialexclusion.

The success of initiatives to raise skills inorder to combat social exclusion has beenmixed.

• While individual programmes andinitiatives can each claim some degreeof success, the operation of Welfare toWork and skills strategies have, to date,not been integrated effectively.

The need for such integration is one of themost significant recommendations of theLeitch Review.


ISSUES

11

42 While, over the last decade, there hasbeen a huge range of initiatives aimed atraising skill and qualification levels andhelping the low skilled out of worklessness,the gap between the employment rates ofthe unqualified and those with qualificationshas actually widened since 2000. Thisserves to highlight how much remains tobe done if that gap is to be closed in thenear future.

43 The Leitch Review recommends aprogramme designed to integrateemployment and skills services to tacklesocial exclusion:

• a new programme to help benefitclaimants with basic skills problems;

• a new universal adult careers serviceaccessible to those currently out of workand to those who are in work but wantto progress their careers;

• a new integrated objective foremployment and skills services ofsustainable employment and progression;

• a network of employer-led employmentand skills boards to ensure that localservices meet employer needs andthat the workless are equipped toaccess work.

44 The Freud Report has proposed that:

• more targeted and long-term supportshould be available for people at risk ofsocial exclusion;

• workless people should be helped toacquire the skills they need to enteremployment;

• workless people should be supportedthrough a mentoring system during thevulnerable early period of returning fromwelfare to work.

The gap between the employment rates ofthe unqualified and those with qualificationshas widened since 2000.

The Leitch Review recommends aprogramme designed to integrateemployment and skills services to assist the most vulnerable in society.


ISSUES

13

Key Drivers of the Demandfor Skills

Technology and globalisation will continue to be the maindrivers of change in the demand for skills. Innovation andinvestment in new technologies and skills will be crucial toremaining competitive. Technology offers the potential tooffset some labour shortages, but it also creates many newskill demands.

Employer demand for skills is dependentupon a variety of factors, such asinvestment, technology and innovation.

45 Summary

The key drivers of the demand for skillsare:

• economic activity levels;

• technology, especially, but notexclusively, related to information andcommunications technology (ICT);

• investment in new plant, machineryand equipment;

• competition, especially increasedimport competition;

• innovation, the development of newproducts and services;

• legislation, which affects how goodsor services are produced.

46 The demand by employers for skills isderived from the demand for the output ofgoods and services they produce. This inturn is determined by a complex mix ofdrivers, including:

• innovation and changing methods ofprovision of products and services,including technological advance andsub-contracting;

• rising real incomes and changing tastes;

• competitive forces, including alternativesources of supply outside England.


ISSUES


47 Technology, especially ICT, is drivingvarious changes in ways of working(producing and delivering goods andservices):

• continual innovation, including thedevelopment of new products andservices;

• shortening product cycles;

• increasing complexity in many productsand services;

• the conversion of many other productsand services into ‘commodities’ that canbe provided by many low-costcompetitors;

• greater opportunities to develop morecomplex supply chains, with differentaspects of production transferred aroundthe world.

48 The implications for employment arecomplex and include:

• automation, substituting robots andmachines for jobs;

• other changes in patterns of demandby businesses for the output of goodsand services produced by differentindustries, which are, in turn, the keydrivers of the demand for skills (reflectedin changing patterns of sectoralemployment);

• the transfer abroad of many jobs,typically in manufacturing butincreasingly in data processing, tolocations with much lower labour costs;

• outsourcing of many significantfunctions (for example, design, cleaning,security), resulting in these shifting fromwithin the production sector to theservice sector;

• rising real incomes, which have resultedin consumers spending more of theirincome on leisure and entertainment, aswell as on healthcare and education.

ICT usage is driving change in waysof working.


ISSUES

15

49 Legislation also has an impact on skillneed. In some industries, regulatorycompliance is a complex process, requiringpeople to be skilled in managing theprocess of meeting the appropriatestandards, as well as in making theworkforce aware of relevant regulations.Where product disposal is an issue (forexample, in the end-of-life regulations thataffect many products), the design and useof new materials rise up the policy agenda,as producers try to minimise disposal costs.Again, there are skill implications.

50 England, along with the UK and Europeas a whole, cannot compete purely onprice. The low-skill, low value-addedtrajectory is not sustainable in the longterm. Accordingly, the country needs to use competition, innovation, regulatorycompliance and technological change to its comparative advantage. These thingsshould be seen not just as threats, but asopportunities, to be exploited through ahighly skilled, adaptable workforce.

Legislation, especially regulatorycompliance, is also affecting the demandfor skills.

ICT innovation and regulatory complianceneed to be used by employers to obtaincompetitive advantage in world markets.



Why Skills Matter

Skills are crucial for individuals, employers and the state. Forindividuals, they are the key both to higher earnings and to anincreased probability of secure employment. For employers, amore highly skilled workforce is more productive and adaptable.For the state, there are benefits from the higher taxes that arisefrom individuals’ higher earnings and from more productiveemployers, as well as the advantages associated with greatersocial engagement by a better-skilled population.

Skills matter because they benefitindividuals, employers and the state.

51 Summary

Skills matter:

• for the individual: the possession ofhigher-level skills, typically measuredby formal qualifications or duration ofeducation, increases the probability ofbeing in employment and contributesto higher earnings in employment (aswell as conferring various other non-economic benefits);

• for the employer: other things beingequal, highly skilled workforces aremore productive. Skills also contribute,critically, to an organisational culturethat is adaptable and responsive tochange. Skills are also positively relatedto workplace survival;

• for the state: higher-level earningsand improved profitability ofcompanies generate higher taxrevenue and lower expenditure onbenefits when unemployment andeconomic inactivity are reduced. Skillscan also be an engine for economicdevelopment and growth, as well asbeing a source of continuingimprovement in the quality of life forcitizens, and a key contributor tosocial cohesion.


ISSUES

17

How skills benefit the individual

52 The evidence relating to the benefits ofacquiring qualifications is compelling.Higher levels of educational attainment arepositively related to:

• participation in the labour market;

• being in employment (that is, improvesemployability);

• increases in income levels over thelifecycle;

• positive rates of return;

• a whole host of other non-economicbenefits, including better health.

53 The evidence suggests that, on average,earnings are increased by between 10 percent and 15 per cent for each additionalyear of schooling. A number of stylisedfacts can be highlighted:

• The returns on graduation are high:based on a cross-section of companies,a man with a degree can, in the courseof his working life, expect to earn 67 per cent more than someone withoutqualifications.

• People who have engaged in third-leveleducation (that is, university andequivalent) earn around 60 per centmore than those who achieved onlylower secondary level (that is, completedtheir compulsory education).

• The higher the level of qualification,the higher the return. Academic Level 4and vocational Level 5 qualifications havethe highest rates of return, and many ofthese are funded by the individual.

• Returns on vocational qualifications(except at Level 5) are lower than thereturns on academic qualifications,but are still generally positive.

• Newer vocational qualifications havelow returns, but such qualificationsincrease the probability of employment.

• The returns on accredited training arehigher than when the training is non-accredited.

• The better qualified are more likely togo on to take part in further educationand training.

Individuals benefit through improvedemployability and higher rates of pay.

Academic rather than vocationalqualifications have the highest rate ofreturn for the individual.


ISSUES


The business case for employers

54 The commitment of employers totraining and skills development is oftenbased on the belief – or what they considerto be self-evident logic – that, withoutskills, they could not produce the productor deliver the service, and so they need toinvest in skills. This, rather than empiricalevidence that there is a positive rate ofreturn, is the crucial factor in convincingemployers to make further investments.

55 The benefits to employers fromengaging in training and skills developmentinclude:

• evidence of a positive relationshipbetween training and a firm’sperformance, which suggests that skillscan account for around 8 per cent of theproductivity difference between wellperforming and poorly performingorganisations;

• skills being recognised as an essentialingredient in what makes a business ahigh-performance work organisation;

• spill-over effects from investment intraining in the workplace, arising throughknowledge being transferred to otherpeople in the organisation, not just thetrainee;

• positive relationships between higherturnover and employment growth andinvestment in skill;

• workplace survival rates improvingwhere investment in skills takes place.Research by the Sector SkillsDevelopment Agency indicates thatworkplaces that provide training reducethe probability of their closure by ninepercentage points, other thingsbeing equal.

56 A degree of caution is required whenassessing statistical analyses of the effectof training or workforce development onthe performance or survival of a firm.Training and workforce development areoften part of a wider range of measuresthat improve organisational performance.Training and workforce development are an important part of that package, but,without the other elements in place, thereturns on investment in training areunlikely to be obtained.

Skills benefit employers through…

…improved performance andworkplace survival.


ISSUES

19

The benefits to the state

57 Skills, education and training boostlevels of employment, income levels,workplace survival and social cohesion.In narrow financial terms, the benefits and costs to the state relate to levels ofgovernment income and expenditure:

• Income:

– higher tax revenues.

• Expenditure:

– increased levels of expenditure on training, education and active labour market policy;

– lower expenditure on redundancy payments (from workplace closure);

– decreased expenditure on social security payments/passive labour market policy;

– less expenditure on controlling delinquent behaviour.

On balance, the evidence suggests that,financially, the benefits outweigh the costs.

58 Education and training also have manynon-pecuniary benefits, such as increasingan individual’s job satisfaction, aspirations,intellectual inquisitiveness, and so on.Where education and training take placealongside other human resource practicesassociated with high-performance workorganisations, this can have a significantimpact on the quality of an individual’s lifeat work, and on their life in general.There is also emerging evidence that thesocial environment of the country isimproved through lower crime ratesresulting from a more highly educatedpopulation. There may be other benefits interms of health-related behaviour andgreater civic engagement.

The state benefits through higher taxrevenues and lower social security payments.

The state also benefits through peoplebeing more responsible citizens.


ISSUES

21

The Changing Demandfor Skills

Structural change in the world economy is dramaticallyaltering the pattern of demand for skills and labour across theplanet. This presents both threats and opportunities at a morelocal level, with job losses and falling demand for skills insome areas, but considerable potential for new job openings –often with increasing skill requirements – in many others.

Structural changes in the domestic andworld economy are affecting the demandfor skills

59 Summary

The factors behind the changing demandfor skills include the following:

• Economic growth has generatedhigher levels of employment andincreased demand for skills.

• Structural changes in the economyhave resulted in a strong demand forlabour in finance and businessservices, distribution, hotels andcatering, education and health.

• In contrast, there has been a decreasein employment in primary andmanufacturing industries.Nevertheless, many jobs will remainin these industries for the foreseeablefuture.

• There is a strong demand formanagers, professionals and associateprofessionals, as well as for personalservice and sales staff.

• Employment has fallen in the skilledtrades, among operatives and inelementary occupations, but there arestill significant replacement needs inthese occupations.

• Technological change is alsoincreasing skill requirements in manyoccupations.

• There has been a sharp rise in thepercentage of the workforce withformal qualifications, and this isexpected to continue in the future.

• Efforts are continuing to drive upemployer demand for skills. This is amajor emphasis in government policy.

• Creating a high-performanceworkplace is dependent upon thesupply of skills, but an adequatesupply of skills is not the onlycondition. Employers also need tohave in place policies that facilitateinnovation, as well as human resourcepractices that allow their employeesto develop as individuals.

• The demand for skills is spreadunevenly across the country. Londonand the South East have experiencedthe strongest growth in demand forhigher-level skills, whereas theMidlands and Northern regions havefared less well, mainly due to the joblosses in primary and manufacturingemployment.

• The skill intensity of many jobs isincreasing. Employees tend to reportthat greater levels of skill are requiredin their jobs.


Trends in demand: industrialsectors

60 Over the past 10 years, there has been asteady shift in employment towards theservice sector and of job losses in themanufacturing industries and in the primarysector and utilities.

61 Growth in employment has been seenmost markedly in:

• computing and related services;

• other business services;

• professional services;

• health and education services;

• miscellaneous services;

• construction.

In contrast, the following have experienceda decline in employment:

• manufacturing;

• primary sectors.

Business and miscellaneous servicesaccounted for more than half of netemployment growth in England between1996 and 2006.

62 Despite this, the predicted demise ofmanufacturing has been greatlyexaggerated. This sector, together withconstruction and various other parts of theproduction sector, will continue to employlarge numbers. While employment levelsmay be falling, replacement demandremains significant. This term refers to thenumber of job openings that occur aspeople leave their current jobs because ofretirement and so on. Even occupations andindustries that have experienced a sharpdecline in employment rates can havesubstantial replacement demandrequirements, especially if they have anolder workforce. For example, there havebeen many skilled job openings in themanufacturing sector, despite the decline in overall employment levels. The scale ofreplacement demand can substantiallyoutstrip other changes.

63 The most detailed and comprehensiveset of employment projections everproduced, ‘Working Futures’, was reportedextensively in Skills in England 2005.Although there have been some changes inthe UK and world economic situation sincethese projections, the broad trends areunlikely to have changed dramatically.

The last 10 years have seen a steady shift inemployment from manufacturing to services.

Replacement demand remains high, even insectors of the economy in long-termemployment decline.


ISSUES

23

Trends in demand: occupations

64 The fastest-growing occupations in therecent past have been:

• managers;

• professionals;

• associate professionals;

• sales and customer service.

These increases have been offset by thedecline of many lower-level manual andnon-manual occupations.

65 These developments are the result of:

• changing sectoral employment patterns,which have tended to favour service-oriented managerial and professionaljobs at the expense of more traditionalblue-collar industries andadministrative/secretarial jobs;

• shifts of occupational structure withinindustries, which have also favoured thesame groups.

Changes within industries have been themain factor, driven by technological andorganisational change.

66 Changes in occupational structure overthe past decade have been substantial:

• The employment share of managerial,professional and associate professionaloccupations has increased substantially– from 37 per cent to 43 per cent overthe last decade; an increase of nearly 2.4million jobs.

• In contrast, the share of skilled tradesand process, plant and machineoperative jobs has fallen from 22 percent to 19 per cent – a loss of around312,000 jobs.

67 Job numbers have declined dramaticallyin many manual occupations (both skilledand unskilled), although some job losseshave also occurred among less-skilledwhite-collar workers in administrative,secretarial and related occupations:

• In 1996, the skilled trades, process, plantand machine operators, drivers, andelementary occupations accounted for35 per cent of all jobs.

• By 2006, these occupations accountedfor just 29 per cent of all jobs.

There is a strong demand for people towork in higher-level occupations.

The number of higher-level jobs hasincreased substantially.

There has been a dramatic decline in thenumber of manual jobs.


ISSUES


68 Changes in occupational employmentare projected to continue to favourmanagerial, professional, associateprofessional and technical, and personalservice occupations, all of which areexpected to experience significantjob growth.

69 Often these jobs will require high-levelformal qualifications (for example, businessand public service professionals and associateprofessionals, teaching, research, scienceand technology professionals and associateprofessionals, and corporate managers).

70 Some of the most rapid growth isexpected in caring and personal servicesand customer service occupations, whichare not so demanding in terms of the levelsof formal qualifications required. Otherareas of rapid projected growth includeculture, media and sports occupations.

71 Job losses are expected amongadministrative, clerical and secretarialoccupations, skilled metal and electricaltrades, process, plant and machineoperatives and elementary occupations,especially those related to clerical andservice activities.

72 For all occupational groups, theexpected patterns of ‘expansion’ orstructural demand and total requirements(the sum of replacement demand andexpansion demand) across all sectors arepositive. The patterns vary considerablyacross occupations (as well as sectors), buteven where substantial structural job lossesare projected, replacement demands areusually more than sufficient to offset this.It is essential, therefore, for employers,education and training providers and publicagencies to recognise the differentcharacteristics and requirements of thesetwo different components of futureskill needs.

73 The overall changes in the occupationalstructure of employment suggest that theskill intensity of much work is increasing.This is true across the occupational hierarchy.The shape of the occupational structure ofemployment, however, is changing. There is a tendency for the strongest growth to be injobs that require either very high or ratherlow skill requirements, which some peopleregard as evidence of polarisation in the jobs market.

74 Overall, the picture of occupationalchange that emerges – in England andacross the Western world generally – is of a growth in jobs requiring relatively high-level skills (that is, managers, professionalsand associate professionals) and thoserequiring relatively low-level skills (that is,personal service workers and salesoccupations). The reasons for this changeare complex and reflect the process ofstructural change, which is being driven bytechnology and competitive pressures.Of concern is the vulnerability of relativelylow-skilled jobs to displacement bytechnology or transfer abroad to countrieswith lower labour costs. It is apparent thatthere has been a decline in some relativelylow-skilled jobs (that is, among operativesand in elementary occupations). Even so,past trends and future projections ofoccupational employment show stronggrowth in relatively high- and low-skilledjobs, with more modest growth in jobsrequiring intermediate-level skills.

75 There is a strong regional element to the demand for skills. It is clear that someregions have suffered more because of theirspecialisation in both the primary andmanufacturing sectors. The Midlands andthe Northern regions together haveaccounted for almost two-thirds of joblosses in manufacturing. In contrast, theSouth and the North West have benefitedfrom the development of the service sector,especially business services.

Future change will favour high-level jobs.

Many of these jobs will require high-levelqualifications.

But there will also be a growth in jobs thatare not so demanding in terms of formalqualifications.

Even where employment is projected todecline, replacement demands are usuallysufficient to offset this.

Overall, the skill intensity of jobs willincrease.

25

Trends in demand: qualifications

76 Generally, the prospect is for furtherincreases in skill levels within mostoccupations and a changing structure ofjobs in favour of those that are highlyskilled. By 2014, the latest ‘WorkingFutures’ results suggest that over 60 percent of the employed workforce will bequalified to National QualificationsFramework (NQF) Level 3 and above.

77 The proportion and numbers of those inthe employed workforce with formalqualifications have risen sharply in recentyears. Increasing numbers of young peoplein particular have been acquiringqualifications at NQF Levels 4 and 5, andthese have tended to increase their chancesof finding employment.

78 One factor helping to drive up thenumber of jobs for graduates has been theshift in occupational employment structurein favour of such occupations as managers,professionals and associate professionals.These occupations employ largeproportions of graduates and otherqualified people. Between 1996 and 2006,total employment in these higher-leveloccupational categories grew by around2.4 million.

79 The numbers qualified at intermediateand lower levels have also risen:

• In 1996, over 82 per cent of theemployed workforce had formalqualifications of some kind.

• By 2006, this had risen to more than90 per cent.

Almost 30 per cent of those inemployment are still qualified below NQFLevel 2. A declining (but still substantial)number of people in employment have noformal qualifications – 10 per cent in 2006.

80 The overall proportion of the employedworkforce with NQF Level 2 as theirhighest-level qualification actually fellslightly between 1996 and 2006, while thecorresponding figure for those with NQFLevel 3 as their highest qualification roseonly modestly. Of course, the overallnumbers of people holding qualifications atNQF Levels 2 and 3 have risensubstantially; it is just that many of thesego on to acquire even higher qualifications.

The qualifications level of those inemployment is increasing.

This is notable with respect to the numberof graduates.

But improvements at an intermediate levelare also evident.PHOTO REDACTED DUE TO THIRD

PARTY RIGHTS OR OTHER LEGAL ISSUES


81 There has also been a significantimprovement in the number of vocationalqualifications held by those in employment.Many new qualifications have beenintroduced, and the flow of those obtainingA levels and other NQF Level 3qualifications has increased steadily. Theintroduction of Diplomas in 2008 may wellfurther stimulate this trend. But it remainsthe case that the highest level ofqualification possessed by an individual islikely to be an academic rather than avocational one: the highest qualificationheld by around 70 per cent of those inemployment in 2006 was an academic one.

Trends in demand: agency andtemporary work andself-employment

82 There has been a relatively recentmovement away from permanent jobcontracts towards less rigid work patterns.While the overall scale of temporaryworking seems to have levelled off in thelast few years, there has been a continuedrise in some particular types of this kind ofemployment. Temporary contracts andother flexible types of work are consideredcrucial in ensuring that the labour market iscompetitive and responsive to marketchanges. Temporary and agency work oncetended to be concentrated on middle- andlower-skilled occupations, but recently suchtypes of work have been associated withhigh-level skills, including ICT and otherhigh-level professional and managerialoccupations.

83 Following a period of quite rapidgrowth, since the mid-1990s there hasbeen no clear trend in self-employment.Skills may be considered a route toincreased self-employment; this, in turn,increases the number of jobs, as theself-employed create work for other people.Improving skills across the country meansthat self-employed individuals mustthemselves secure the appropriateeducation and training for their own needsand for any staff they may employ.

Employer demand forgeneric skills

84 While technical skills are important,employers also recognise the importance ofgeneric skills. In recent years, evidence from

the National Employers Skills Surveys, theSkills at Work, 1986 to 2006 survey andother sources suggests that employers haveplaced increasing emphasis on theimportance of:

• leadership and management skills;

• influencing skills (includingcommunication);

• customer-handling skills, includingauthority to act (especially among salesoccupations);

• numerical skills (especially amongclerical and secretarial occupations);

• problem solving;

• team working.

The evidence from the Skills at Work, 1986to 2006 survey also indicates that the skillintensity of jobs is increasing.

Generic skills are valued by employers.


ISSUES

27

Raising the demand for skills

85 The evidence concerning the relationshipbetween skills levels and either individual ororganisational performance is compelling:

• Individuals benefit from increased levelsof income over their lifecycle.

• Organisational performance is betterthan it might otherwise be and allowsemployers to pursue higher value-addedbusiness strategies.

A lot of the decisions and choices beingmade by many individuals and employerssuggest that this message often gets lost.The Skills for Business Network’s survey ofemployers reported that 16 per cent ofemployers said their human resourcestrategy was not linked to their businessstrategy. For some employers, the quality ofthe workforce appears to matter little tothe business.

86 While it is the cadre of senior managersand professionals that establishes the visionfor the business strategy, there also needsto be a competent, skilled workforce todeliver that strategy. It is not simply a caseof investing in one set of skills rather thananother. Management skills are important,and the UK compares relatively poorly onthis measure; but other skill deficienciesacross the workforce need to be addressedat the same time.

87 The quality of management, andtherefore of management skills, is a keyfactor in explaining organisationalperformance. There are a number of stylisedfacts about management in the UK:

• A number of studies show that UKmanagers tend to be less well qualifiedand receive less training than managersin other European countries andelsewhere.

• Compared to a number of othercountries, firms in the UK place the leastimportance on vocational qualificationsas a characteristic of a good manager.

• UK employers view managementeducation as a filter when recruiting, butplace more weight on job experience.

The message that investment in skills paysoff is lost on some employers andindividuals.

Skills need to be raised across all levels ofthe workforce.

Management skills are critical toorganisational performance.


ISSUES


88 If organisations are to turn themselvesinto high-performance work organisations,they will need the skills to survive insegments of the market returning highervalue-added. But this is not just a skillsissue. There is a range of other humanresource practices – as well as investmentin fixed capital and the introduction ofother business/organisational models – thatwill need to be introduced. Skill is likely tobe an essential ingredient in the mix.

89 Policies to raise the performance oforganisations need to be multifaceted topromote the take-up of:

• innovation;

• R&D;

• export activity;

• entrepreneurship.

These need to develop simultaneously withskill development.

90 Given the above, it is important thatTrain to Gain should take a holistic view ofemployers’ training needs: it should look athow workforce training and developmentcan meet an organisation’s business needs.But apart from demonstrating the businessbenefits of investing in skills, there arerelatively few ways of persuading employersto move up the value-added ladder throughincreased investment in skills.

91 If some employers are unwilling to raisetheir game, and run the risk of technologyor producers in lower-cost countries takingaway their business, there needs to be asafety net for employees. Given the pace ofglobalisation and technologicaldevelopment, it is likely that an increasedshare of jobs that were once thought to beimmune to the process of globalisationmight prove to be not so immune. Forindividuals, the emphasis has to be onportable skills, and on being able to developthose skills throughout their lives.

92 There is the issue of how to manage thisprocess. Other countries have done so bycreating a flexible labour market, whereindividuals feel secure in making shiftsbetween sectors and occupations through asystem of ‘flexicurity’. The LSC’s flexicurityseminar explored this issue in detail. Themain elements of the flexicurity model are:

• a system where employers can readily‘hire and fire’ staff;

• relatively generous levels of benefitentitlement if people lose their jobs;

• a series of activation measures, so that,if people do not re-enter employment,they are provided with the skills that willallow them to do so.

In Denmark, this system has worked well,in that it has allowed substantial change to occur in the economy without theemergence of high levels of unemploymentor economic instability.

A strategic shift into higher value-addedmarkets is dependent upon the skills beingavailable to achieve this.

Train to Gain is an important programme,designed to raise the skills of those inemployment.

Employers unwilling to raise their game arepotentially at risk from globalisation.

A flexible labour market is critical to theoverall success of the economy.

29

93 It is clear that there are a number ofareas where the UK and England inparticular have established comparativeadvantage (pharmaceuticals, financialservices, the media and creative industries,etc.). While these areas need a continualsupply of high-level skills, picking winners isnotoriously difficult. Rather, the key aim ofthe learning and skills sector should be toprovide the infrastructure and capacitynecessary to develop the skills that will beneeded in the future. This should be anadaptable and responsive system, capableof identifying and meeting needs in aflexible fashion. It must also allowindividuals to progress through thequalifications system via a varied set ofroutes – in part because of changes in thenature of skills demands, but also to reflectindividuals’ changing career preferences –ensuring that these routes do not lead todead ends.

94 There are a number of other governmentpolicies that affect the goal of pushingemployers towards becoming high-productivity, high-skill organisations. TheWelfare to Work strategy, including in-worktax credits, has successfully tackled anumber of social problems through a work-first approach. But it tends to subsidiselow-skilled, low-wage work. It is notablethat other countries – some with higherlevels of productivity – have social securitysystems that place much less emphasis ona work-first approach. Hence their less-productive workers are more likely to beout of the labour market.

Not all policies support the creation of ahigh-value, high-skill economy.


ISSUES


ISSUES

31

The Supply of Skills

The supply of skills is improving as a result of risingeducational participation and attainment; but demographicdevelopments, including an ageing workforce, mean that newsources of supply will need to be found by many employers.Immigration is likely to remain an important source of supplyin many areas. Policy initiatives such as Train to Gain will helpto boost the supply of skills.

95 Summary

There are several aspects to thechanging supply of skills:

• There has been a significantimprovement in skills supply, with agrowing share of the labour force inpossession of formal qualifications.

• Much of the growth in the number ofpeople with qualifications is due to acohort effect, resulting from youngentrants to the labour market beingmore qualified than theircounterparts in the past.

• Over the typical lifecycle, theparticipation of people in post-compulsory education and trainingcompares favourably with theOrganisation for Economic Co-operation and Development (OECD)average, though the percentage of16–17-year-olds continuing ineducation compares less well.

• By other measures, especiallyfocusing on lower-level andintermediate-level skills, theinternational comparisons are lessfavourable.

The supply of skills is improving, but muchof this is a cohort effect.

• Migration has become an increasinglyimportant source of labour supply.The recent accession to the EuropeanUnion (EU) of a number of EasternEuropean countries, many of whichhave strong vocational education andtraining systems, will provide afurther source of skills.

• In addition, there have been a numberof major policy developments thataim to boost supply.


Labour supply

96 Skills supply is dependent upon anumber of interrelated factors. It is usefulto distinguish between overall laboursupply and the supply of skills:

• the labour supply is dependent upon:

– demographic change;

– the operation of the social securitysystem and the extent to which it stimulates labour supply;

– inward migration.

• the supply of skills is dependent upon:

– the labour supply;

– outputs from the compulsory education system;

– the operation of the vocational education and training system;

– individuals’ and employers’investments in skills.

97 The key facts about the laboursupply are:

• The labour force in England is currentlyaround 25 million, roughly half the totalpopulation.

• The total number of jobs actuallyexceeds this, as some people have morethan one job.

• Unemployment remains low byhistorical standards, measuring aroundone million using International LabourOrganization definitions (a rate of 5 percent). At this level, the unemployed nolonger form a reserve army of labour.

• To meet the future demand for labour,there is increasing recognition of theneed to find new sources of laboursupply.

98 Over recent years, population growthhas increased:

• The Office for National Statistics (ONS)estimates that the UK population grewby almost 2.2 million between 1995and 2005.

• According to ONS estimates, the UKpopulation will increase by 7.2 millionover the period 2004 to 2031.

• The growth is due to natural increase(more births than deaths). It is alsoassumed that there will be moreimmigrants than emigrants.

The UK also has an ageing population.The proportion of people aged over 65 isprojected to increase from 16 per cent in2004 to 23 per cent by 2031. So theworking-age population, other things beingequal, is becoming a proportionatelysmaller share of the total population.


ISSUES

33

99 Given the demographic trends and therelatively high employment rates, it isimperative that new sources of laboursupply be found. There is a range of policiesthat might assist with this, includingWelfare to Work and policies related to agediscrimination in the workplace. Immigrantsare another potential source.

100 The evidence on immigration indicatesthat:

• Foreign labour migration to the UK in2005 was just over 400,000, comparedwith 183,000 in 1999 and 245,000 in2002. Many migrants are relativelyyoung;

• Nearly half of all migrants (195,000)entered under the Worker RegistrationScheme, which covers employees fromthe A8 countries (Poland, Lithuania,Slovakia, Latvia, the Czech Republic,Hungary, Estonia and Slovenia);

• Just over one-fifth of labour migrants(86,000) entered under the work permitroute (for non-European Economic Areacitizens);

• EU and European Free Trade Area citizenswith free rights of entry to the UK werethe next largest group, accounting for 9 per cent of migrants (35,000);

• The Working Holidaymaker Scheme,the Highly Skilled Migrant Programmeand the Seasonal Agricultural WorkersScheme were the next largest routes,accounting for 15–20,000 migrants each.

It is not known for how long migrants willstay in the UK, and thus whether theyrepresent a permanent or a temporaryaddition to the labour force. Moreover, littleis known about the extent to which theyexport their earnings to their point oforigin. Evidence in the Pre-Budget Report2006 suggests that immigration hascontributed to economic growth, and arecent review by the Trades Union Congressindicates that, on balance, migrants make apositive contribution to the economy.

Given demographic trends, there areconcerns over future labour supply.


ISSUES


ISSUES


101 At this stage, given the pace ofimmigration since the accession of EasternEuropean countries to the EU, the followingremain unknown:

• if there is a mismatch between the skillspossessed by immigrants and the jobsthey obtain (for example, are many over-qualified for the jobs they fill?);

• if there is a substitution or displacementeffect, whereby immigrants replace thelow-skilled indigenous population (withimplications for the Welfare to Workpolicy); or if there is a displacement oftraining, because employers no longerneed to engage in this, given theimproved labour supply.

In general, improvement in the skills supplybrought about by migration will benefit thelabour market but it will have implicationsfor existing labour market policy.

Supply of skills

102 Many new developments in skillssupply are reported this year. Policiesdesigned to stimulate skills supply continueapace, such as the introduction of Train toGain, and the funding available to youngpeople to obtain a first Level 2 or Level 3qualification.

103 The highest level of educationalattainment, measured by qualificationsobtained, provides one means of measuringchanges in skills supply over time. LabourForce Survey (LFS) data reveal improvementsover time, with a substantial increase in thenumber of the economically active populationqualified at National QualificationsFramework Levels 3, 4 and 5.

104 Available information points to the LSCmeeting government targets to increase theskills of the population:

• Target to increase the proportion of19-year-olds who achieve at least aLevel 2 by three percentage pointsbetween 2004 and 2006, and a furthertwo percentage points between 2006and 2008; and improve attainment atLevel 3: the LSC is on track to exceedthe 2006 milestone. The figures for2004/05 showed that 69.8 per cent ofyoung people had achieved Level 2 byage 19, an increase of three percentagepoints over the 2003/04 baseline of 66.8 per cent.

Qualification levels in the workforce areimproving.

The LSC is meeting its Public ServiceAgreement targets to improve the skills supply.

• Target to reduce by at least 40per cent the number of adults in theworkforce who lack an NVQ Level 2or equivalent qualification by 2010.Working towards this, one millionadults in the workforce to achieveLevel 2 by 2006: by the end of 2004/05,the LSC had delivered an increase of841,000 adults towards the one milliontarget. Over the duration of the targetperiod, the LSC expects to fund 1.4million adults to achieve their first fullLevel 2. So far, between 2001/02 and2005/06, the LSC has deliveredapproximately 400,000 first full Level 2achievements.

• Target to improve the basic skills of2.25 million adults between 2001 and2010, with a milestone of 1.5 millionby 2007: the latest figures (June 2006)show that the 2007 milestone is likely tobe exceeded. The figures for 2004/05show that, by the end of that year,1,286,000 achievements had beenconfirmed as counting towards thetarget. Of these, 1,136,000 had beenfunded by the LSC.

• By 2007/08, increase the numberscompleting Apprenticeships by three-quarters compared with 2002/03: thelatest data from providers (for 2005/06)show 91,600 Apprenticeshipcompletions, surpassing the 2007/08target of 75,500 two years early.


ISSUES

35

105 Success rates in further education (FE)improved by around 2 per cent between2004/05 and 2005/06.

106 The final area of interest is thatrelating to participation in higher education(HE). Recent years have seen a massivegrowth in the numbers entering HE: in1990/91 there were 749,000 students infull-time HE in the UK, compared with 1.5 million in 2004/05.

107 The Higher Education InitialParticipation Rate is used to measureprogress towards the target of 50 per centof young people entering HE; the latestprovisional total is 42 per cent.

International comparisons ofpost-compulsory education

108 Despite the improvements cited above,international comparisons reveal a moremixed picture:

• On average, people spend a relatively highnumber of years in education, comparedwith the OECD average (for new entrantsto the UK education system, it is estimatedthat they will spend around 20.7 years ineducation over a lifetime).

• The post-16 participation rate for thoseimmediately continuing their secondaryeducation is lower in the UK (at 16 yearsof age, 66 per cent are continuing ineducation, compared to an average of78 per cent in the OECD).

• The UK is also relatively weak in relationto the proportion of individuals in thepopulation who have successfullycompleted upper secondary education.

• While upper secondary attainment rateshave increased in the UK, the increasehas been greater in many other countries.

• Although a relatively low proportion of17–19-year-olds continue in post-compulsory education, the evidencesuggests that the FE system is relativelysuccessful in enrolling them at a laterage. For example, the rate of enrolmentin the age group 20–29 years is, at 27.8per cent, above the OECD average of24.7 per cent.

• Participation in HE has grown overrecent years, but has now levelled off,whereas it continues to grow elsewhere.

Completion rates are improving.

International comparisons reveal a mixedpicture of educational attainment. Peoplespend a relatively long time in education inthe UK…


ISSUES


• In relation to ongoing training anddevelopment, a mixed picture emergesfor the UK. Around 27 per cent of thosein employment take part in non-formaljob-related education and training eachyear, compared with the OECD averageof 18 per cent.

• But the intensity of participation in non-formal job-related education andtraining is comparatively low: betweenthe ages of 25 and 64 years, the totalanticipated number of hours spent innon-formal job-related training perworker is 315, below the OECD averageof 389 hours.

• The provision of job-related education islowest among those who need it most,insofar as those with relatively loweducational attainment receive a lowernumber of hours of training.

Workplace-based training

109 The LFS reveals that:

• just over 30 per cent had participated inworkplace-based training over theprevious 13 weeks;

• there had been a modest increase overthe past 10 years;

• the duration of training is often less thana week (32 per cent of all thosereceiving training);

• training tends to be of longer durationfor people aged 16–19 years (for thisgroup only 10 per cent had receivedtraining of less than a week.

110 Evidence drawn from the 2005National Employers Skills Surveyreveals that:

• 61 per cent of the employed workforcehad received some form of training overthe previous 12 months (13.1 millionemployees);

• 65 per cent of workplaces engage insome form of training;

• 46 per cent of workplaces engage inoff-the-job training;

• 45 per cent of workplaces have atraining plan;

• 33 per cent of workplaces have atraining budget.

111 Comparisons with previous surveyssuggest that there has been a steadyimprovement over recent years in theprovision of such training, but that itremains focused on induction and healthand safety, rather than on future skill needs.

112 As noted above, the incidence of non-formal, job-related education and trainingis relatively high compared with the OECDaverage, but the intensity is much lower.

…but the UK is relatively weak on anumber of other measures, such as theintensity of workplace-based learning.

Workplace-based training is increasing.

61 per cent of the workforce had receivedtraining in a 12-month period.


ISSUES

37

Skill Priorities

Skill priorities can be identified in a number of different areas,including encouraging employers in sectors and localities thatare currently not benefiting from the potential offered by ahighly skilled workforce to raise their sights, and also helpingindividuals adapt to a rapidly changing environment byencouraging lifelong learning.

There are a number of priorities that theskills agenda needs to address…

...too many people employed in low-productivity, low-skilled industries…

113 Summary

Skills in England 2005 identified thepriorities facing education and trainingproviders using four main sets ofindicators:

• international comparisons;

• expected future changes;

• market signals;

• employers’ perceptions.

These all remain valid, but it is alsopossible to look at the priorities in adifferent way.

114 The priorities for skills can bepresented in relation to:

• industrial sectors;

• regions/localities;

• size of organisations;

• qualification pathways/portable skills;

• international comparisons;

• under-utilisation of skills.

115 In relation to size, sector andregion, it is possible to identify anumber of stylised facts:

• There are industries in whichproductivity is relatively low (theevidence suggests that England hastoo many people employed in toomany such industries).

• These industries are often spatiallyconcentrated (where regional andproductivity levels are relatively low,it often stems from an over-representation of industriesgenerating low value-added).

• Areas with relatively highconcentrations of low-value, low-skilledindustries fail to benefit from thespill-over effects of having a relativelyhighly skilled, high-waged workforce.

• Small workplaces, especially micro-sized ones, are much less likely tohave in place the range of humanresource practices associated withhigh-performance work organisations.They will need assistance to achieve astep up to a higher value-added path.


116 Relatively weak economic performanceappears to have interrelated dimensionsrelating to sector, size and locality.Encouragement is required for employers inthe relatively low-productivity sectors toraise their game. This will necessitateemployees possessing portable skills –either to facilitate improvements within theorganisation/industry, or to obtain jobs inhigher value-added sectors of employment,where, other things being equal, employmentmight be more secure. This suggests thatemployer engagement in developing skillssupply, as outlined in the Leitch Review,needs to be counter-balanced by acommitment from employers to raise thelevel of their skills demand. Moreover, thefocus needs to be on future, as well ascurrent, demand.

117 The pathways to qualification areanother priority. For the individual, theemphasis is on possessing portable skillsthat allow moves across sectors/organisations/occupations as required, inthe face of structural shifts in the economy.The emphasis in policy also needs to be onraising skill levels. The Government’s targetis for 50 per cent participation in highereducation, but the typical pathway toNational Qualifications Framework Levels 4or 5 is via the academic route, leading to adegree. There have been a number ofinnovations – such as the introduction ofFoundation Degrees or the new Diplomasto be launched in 2008 – that place muchmore emphasis on a vocational pathway toqualification.

118 It is not just the vocational side thatneeds to be stimulated. Rather, the aimmust be to ensure a variety of pathwaysthrough the post-compulsory educationsystem, so that there are no dead ends forlearners of any age. The pace of changebrought about by technological andstructural alterations in the world economyis such that the emphasis will increasinglybe upon people moving across sectors andoccupations, as new opportunities arise.This creates a demand for both technicalskills (as new technologies emerge and oldskills become obsolete) and generic ones.

119 Much can be learned frominternational comparisons. Data drawnfrom the Organisation for Economic Co-operation and Development (OECD)and the European Centre for theDevelopment of Vocational Training(Cedefop) provide quantitative informationabout the activities of competitorcountries, as well as about the structure of their post-compulsory education andtraining systems. Much less is known aboutthe quality of provision. Attention has beendrawn to the relatively short duration ofworkplace-based training in England.

…encouraging employers to raise theirgame and their level of skills demand…

…improving the vocational qualificationpathway…


ISSUES

39

120 Over-qualification or under-utilisation? Evidence from the Skills atWork, 1986 to 2006 survey report suggests:

• an excess supply of qualified people atall levels in 2006 ‘compared to minimumentry requirements’ (much greater thanthe level of excess supply in 1986);

• an excess demand for people with noqualifications, resulting from the declinein the percentage of people withoutqualifications.

According to the estimates presented in thereport, the excess supply of people educatedat Level 4 and above stood at just over onemillion in 2006.

121 At face value, these findings suggestover-supply or over-qualification on asubstantial scale. However, the findings areat odds with evidence from other studies,such as those by the OECD, which reveal asubstantial wage premium associated withhigher levels of educational attainment. Theauthors of the Skills at Work, 1986 to 2006survey report recognise that many peoplewho possess qualifications above theminimum entry requirement for the jobthey are doing may be making use of theskills and knowledge that they haveacquired. The evidence should not beinterpreted too simplistically.

122 Rather than being a supply-sideproblem, it may also reflect a demand-sideissue, resulting from the under-utilisation ofskills that are available to employers. As thesupply side transforms, employers need toadapt their human resource strategiesaccordingly; but this may take time, sothere will always be a lag between thesupply of skills and their full deployment.

123 On balance, the evidence that rates ofreturn have remained high and relativelystable over time suggests that supply iskeeping pace with demand, and that, atmost levels, there is no significant problemof over-qualification.

124 But on the question of the rates ofreturn from Level 2 qualifications, there isprima facie evidence (supported by theSkills at Work, 1986 to 2006 survey) that theremay be a degree of mismatch between thecontent of vocational qualifications and theneeds of employers. As the Leitch Reviewpointed out, there is scope for making thestructure of vocational qualifications simplerand better attuned to the needs of employers.

…ensuring available skills are effectivelydeployed.

The evidence suggests skill supply iskeeping pace with skill demand.

There may be a mismatch between thecontent of vocational qualifications and theskills employers need.


ISSUES

41

Implications for Individuals,Employers and the State

Individuals need to continue to acquire the generic andtechnical skills they will need to succeed in an increasinglycompetitive environment, adopting a lifelong approach tolearning. Employers need to ensure that skills are effectivelydeployed in the workplace, and to recognise the need toinvest in new skills in order to remain competitive. The stateneeds to provide a flexible and adaptable system for skilldevelopment that recognises the need to anticipatecontinuing change.

For individuals

125 Implications for individuals:

• Demographic trends, which show arelatively low birth rate, an ageingpopulation and continued growth inemployment, suggest a labour supplyshortfall over the medium term, andindicate that it will be a seller’s market.

• Other trends suggest that the shortfallmight be less than expected, due topressures on people to work until theyare older (the pension problem) andincreased levels of immigration.

• Technological changes, allied tostructural changes in the worldeconomy, suggest that competitionbetween countries will continue tointensify. This has implications for alljobs, but especially for those that canbe performed by technology or movedto lower-cost countries.

• The implication of this for individuals issimple: they must acquire the technicaland generic skills that will sustain themin the labour market over the course oftheir working lives.

Individuals must acquire the generic andtechnical skills to sustain them in thelabour market. Engagement in lifelonglearning is of critical importance.


ISSUES


• This indicates a need for continuedinvolvement in education and training.In this context, lifelong learning assumescritical importance.

• If lifelong learning is to be effective,individuals will need to receiveguidance and information at variousstages of their working lives, not just atthe beginning.

For employers

126 Implications for employers:

• They will need to be responsive andadaptable, given the pace of change intechnology, globalisation and thechanging patterns of demand for skills.

• The adaptation and responsiveness isnot just about acquiring skill, but aboutensuring that it is effectively deployed inthe workplace.

• Employers will need to avoid damagingskills shortages that can have a directimpact on their business performance.To some extent, these can be anticipated;but too many employers currently leaveit to the external market to solve theirskills needs.

• In a tighter labour market, moreattention will have to be paid torecruitment and retention policies;that is, to the package of terms andconditions that will attract and retainskilled individuals.

• Many employers are already effective atanticipating and responding to change inthe economy and labour market; but, aswas mentioned earlier, there are alsomany that are not. These need to behelped to achieve best practice.

• Attention will increasingly need to befocused on identifying new stocks oflabour (for example, older workers) andre-configuring working practices toaccommodate these workers asnecessary (such as those related to thework–life balance).

• At senior levels in the organisation, theprocess of production is likely to increasein complexity, especially the managementand configuration of supply chains.

• This, in turn, will have implications forthe type of skills organisations inEngland require.

• Increasingly, there will be fewersegments of the labour market that areimmune to the competitive pressuresof globalisation.

• Globalisation is a potential opportunityfor employers and the country, providedit does not drive down wages, workingconditions and profitability. This can beavoided by making the necessaryinvestment in the workforce, so thatemployers can operate at the highervalue-added end of the market.Employers must ensure that skills are

effectively deployed in the workplace.


ISSUES

43

For the state

127 For the state, the implications areabout:

• providing an infrastructure capable ofsupplying the skills required in a rapidlychanging world economy driven by thefast pace of technological change. Inpart, this will be about managing skillsobsolescence and ensuring a supply ofnew skills, both generic and technical,wherever needed;

• developing a system with a strongemphasis on guidance for bothindividuals and employers;

• identifying the processes that will allowfuture skills needs to be acknowledgedand met, and putting in place measuresthat encourage workers and employersto engage in ongoing training anddevelopment, finding both the ‘carrots’and the ‘sticks’ to bring this about;

• balancing the tension between (a)meeting current employer demand forskills and (b) investing in the future skillsneeds of the country. What employersdemand now is not necessarily whatthey will need in the future. But the leadtimes to develop new skills aresometimes long;

• establishing a more creditable vocationalroute that offers the same rewards andopportunity to progress as the academicone (or even breaking down thevocational/academic distinction);

• identifying the means to finance whatwill be a substantial increase in the levelof post-compulsory education andtraining, especially in the light of theLeitch Review recommendations to moreor less double attainment rates;

• how to manage the stock of people who,for whatever reason, fail to acquire thenew skills required in a changingeconomy, so as to avoid their possibleexclusion from the labour market.

The state should provide an adaptablevocational education and training systemthat can anticipate and meet futuredemand.


ISSUES


ISSUES


For education and trainingproviders

128 For providers of education andtraining, the implications relate to:

• creating a demand-led system that iscapable of meeting both the current andthe future skill needs of the economy;

• being able to anticipate change in thedemand for skills;

• tailoring courses and training to allowindividuals to achieve their aspirations,as well as meeting employer demand;

• providing effective guidance and adviceto both young people and adults.

This is likely to pose a challenge to someproviders, though many institutions, such asthose colleges with Centres of VocationalExcellence, do have a strong base on whichto build.

129 It is necessary continually to keepabreast of technological, environmental,regulatory and structural changes thataffect the national and world economy,and to identify the implications of thesechanges for the current and future demandfor skills. As mentioned elsewhere in Skills inEngland, this will necessitate ongoingadaptation and change on the supply side.

Providers need to satisfy the needs of theeconomy, employers and individuals.


45

Concluding Remarks

Skills in England 2007 highlights the threats and opportunitiesfacing the economy over the medium term, and the role ofskills in meeting these challenges. Its main conclusion is that,while they are not a panacea, skills are key elements inaddressing the two main challenges facing the economy:maintaining global competitiveness and reducing socialexclusion.

130 The challenges posed by technologicalchange and structural changes in the worldeconomy are, if anything, intensifying andwill have significant implications foremployment and skills needs in England.Employers, the state, education and trainingproviders, and individuals making careerchoices will all need to be ready to respondto the challenges they will face.

131 To date, the role of the state has beento increase substantially the supply ofaccredited skills. The evidence is clear: thishas benefited employers, individuals andthe state. For a variety of reasons, it has notbenefited everyone equally. Nor has italways matched the needs of employersand the economy.

132 Education and training providers willneed to be able to meet the needs of bothindividuals and employers, and be able tokeep abreast of, if not to anticipate,changes in the demand for skills.

133 Some employers simply do not regardskill as an important aspect of theirbusiness plan. These are typically low-valueproducers, offering relatively poorconditions of employment. Their workforcespotentially miss out on the benefits ofadditional education and training.

134 Because of social exclusion, someindividuals also find it difficult toparticipate in education and training. Forsuch individuals, there will be a need to

The benefits of investing in skills aresubstantial, but this message has still toreach some individuals and employers.

continue investing in their skills base; butmany will need guidance and advice tomake the right investment decisions. Thechallenge is to be in a position to reach outto such individuals without divertingresources away from those who are morereadily targeted by existing skills policies.


ISSUES

Learning and Skills CouncilNational Office

Cheylesmore HouseQuinton RoadCoventry CV1 2WTT 0845 019 4170F 024 7682 3675www.lsc.gov.uk

© LSC September 2007Published by the Learning and Skills Council

Extracts from this publication may be reproducedfor non-commercial educational or training purposeson condition that the source is acknowledged andthe findings are not misrepresented.

This publication is available in electronic formon the Learning and Skills Council website:www.lsc.gov.uk

If you require this publication in analternative format or language, pleasecontact the LSC Help Desk: 0870 900 6800

Publication reference: LSC-P-NAT-070160

skills in england volume 1: key messages - september 2007...skills in england 2007is presented in...

Documents