David Bloxham discusses the skills crisis and what can be done about it.
Deficit reduction might be the defining feature of government policy. But it’s not the only economic challenge we face. According to the Office of National Statistics (ONS), Britain’s productivity gap with other G7 nations is at its widest point since estimates began in 1991, and output per hour is still approximately 1 per cent lower than it was in early 2008.
There are a number of factors behind this productivity problem, including land use and technology investment. But top of the list is the skills gap, which has worsened for a fourth consecutive year according to the annual Global Skills Index from Hays and Oxford Economics.
The numbers make for worrying reading. The latest Labour Market Statistics from the ONS show that UK unemployment is at a low of 5.5 per cent. This is obviously good news.
But the ONS also tells us that there were 740,000 unfilled job vacancies – close to the highest on record. And yet, in 2014 output per hour fell to 20 percentage points below the average of other leading industrialised nations. The bi-annual Employer Skills Survey puts it more explicitly. According to its 2013 edition, approximately 146,000 vacancies were due to the skills shortage.
The skills shortage is particularly acute in engineering, construction and the IT and computing sectors – although very few areas are immune. Hugh Millward, director of corporate affairs at Microsoft is on record saying that ‘in the software industry alone there are 20,000 graduate vacancies a year, and only 7,500 computer science graduates to fill them.’
Skills shortages more serious than Brexit?
So serious is the skills gap, that earlier this year the Chartered Accountants of Scotland and DLA Piper found that Britain’s finance chiefs believe that the lack of accessible talent will have a bigger impact on growth over the next 12 months than a potential Brexit, increased borrowing costs and China’s slowdown. Only depressed oil prices cause more sleepless nights.
So what does all this mean for the job market, and for companies for whom productivity is not an abstract national concept but a very real barrier to growth and competitiveness? The most obvious effect is that those individuals who have in-demand skills can demand a premium for their services.
The latest Report on Jobs from the Recruitment and Employment Confederation (REC) points out that wage inflation for permanent staff remains strong, while hourly pay for temporary and contract staff is increasing at a solid pace. It also shows that the number of available candidates – both permanent and temporary – is continuing to fall at a fairly rapid rate. Our own experience reflects the findings of our colleagues in the REC: candidates with solid engineering experience, for example, or highly sought-after IT skills like DevOps can secure much higher salaries.
We’re also finding that the pace of recruitment has become polarised. On one hand, savvy businesses that find a candidate with the skills they are looking for are snapping them up quickly and are putting in place the processes to get them on board as quickly as possible, often with extremely attractive packages to supplement the higher salaries.
On the other hand, businesses are doing whatever they can to hold on to the talent they already have. Anecdotal evidence suggests that more highly-skilled workers are more likely to receive additional training. Those already affected by skills gaps are at risk of being passed over for personal development opportunities. This is helping to slow down the natural churn of staff and reduce the size of the available talent pool still further. For companies depending on new hires to fill their own skills gap, this can make recruitment a much slower process.
Not surprisingly, there are plenty of initiatives to address the problem. In his Autumn Statement George Osborne announced plans to create three million apprenticeships by 2020. For the IT sector, the Cabinet Office has already invested £500,000 in advancing essential cybersecurity skills among universities and colleges, and has initiated innovative gaming exercises to identify ‘hidden’ skills among the UK’s amateur computing experts.
Extra-curricular programmes like Coder Dojo and Code Club are encouraging young people to get involved in computer science, and coding has finally made it on to the national curriculum. Exam board AQA has also weighed in with new tech levels focusing on teaching real-world computing skills as an alternative to A-levels. In the private sector, BT has expanded its Barefoot Computing programme to teach IT skills to 400,000 children across the UK by 2016, for example.
What is being done
Education is undoubtedly a critical factor in closing the skills gap, but it is not the silver bullet. There is a time-lag between current needs and what people learn in school or college – particularly given the rapid pace of technological change and consumer preferences. High school coders won’t hit the jobs market for a good five years or more.
So there is more that businesses themselves can do. We have seen so-called digital transformation companies emerge, such as Freeformers and the Makers Academy, which complement apprenticeships schemes. Freeformers trains a young person for free for every business client who signs up, for example.
Manchester Digital is another example: an independent trade association that aims to change cultural attitudes towards digital careers and improve the uptake of digitally skilled graduates in the North West. It has developed a number of initiatives including a four-day Digital Skills Festival aimed at businesses, graduates, apprentices and school children.
Then there is the Tech Partnership, a growing network of employers whose leadership team includes the CEOs of major companies in the tech industry and heads of technology from companies across the economy, as well as representatives from small businesses. Its goal is to create the skills for the digital economy through greater collaboration.
These are just some examples. Increasingly, the skills crisis is going to be addressed by businesses making their voices heard, working together, pooling resources, regularly engaging with educators, investing in training and taking a flexible approach to recruitment and career development. Companies of all sizes must roll up their sleeves and get stuck in.
David Bloxham is managing director of GCS Recruitment.