The government’s new white paper on social mobility, published earlier this week, repeats a familiar claim: that in order to stay competitive in a changing global economy, Britain must continue to invest in the skills of its workforce.
On the face of it, this seems entirely reasonable. But the government rarely talks about where the demand for higher skills will actually come from. The assumption is that globalisation and technological change will automatically lead UK employers to seek more and more highly skilled workers. As a result, the skills agenda has become a magic bullet to sustain economic growth, increase wages and enable people to progress in work.
But research published last week by the Institute for Public Policy Research (ippr) reveals a serious flaw in this assumption. The supply of workforce skills has already outpaced demand: in 2006, there were 2.5 million economically active adults with no qualifications, but 7.4 million jobs requiring no qualifications for entry.
This mismatch between supply and demand looks set to continue, with projections developed for the Leitch Review showing that employer demand for low-wage, low-skill workers will remain broadly stable over the next 15 years. Yet, by 2020, there is expected to be just 585,000 economically active adults with no qualifications. Without a proper strategy from government to raise employer demand for higher skills, it is not clear that the right kind of jobs will be available for the ‘upskilled’ workforce.
Driving up demand for higher skills is a difficult task, which is why the government has chosen to focus on supply side issues. The level of demand for skills is a direct result of the business models and product market strategies adopted by employers. Too many British firms – particularly in retail, catering, and some other services – are stuck in a low-value, low-skill, low-wage equilibrium, often profitable but with significant costs for society.
Trying to change this means getting inside firms and enticing employers to raise their game. Government can look clumsy when it tries to tell managers how to run their business, but if Labour is serious about tackling high rates of low pay and improving social mobility, it must take the plunge. Countries like Ireland, Finland and New Zealand have shown what can be achieved if business, government and labour work together to drive up workplace performance and make sure that improvements in workforce skills are fully exploited by increasing innovation, R&D and investment at the same time. Local agencies have a crucial role in making sure this happens on the ground, and need more funding and powers if they are to succeed.
These kinds of strategies might not work for every sector or in every place. As ippr’s report makes clear, the complexity of Britain’s economy means that there is no single solution to the challenges of low pay and in-work poverty. In some sectors, like retail, the focus will need to be on strengthening career ladders and making sure that workers can access information about job prospects, pay and progression opportunities. It is also vital that the welfare and skills system supports low wage workers to stay in work and progress.
This is a difficult agenda, which requires a coherent strategy focused on high-value economic development, reducing low pay and tackling in-work poverty, and which sees improving skills as part of the solution but not the final goal. Tax credits, protection for vulnerable workers and the minimum wage all need to be part of the mix, but we also need to address the longer term challenges in Britain’s labour market if we want to make real progress on improving the lives of working people and their families.
ippr’s new report Nice Work If You Can Get It is available from www.ippr.org/publicationsandreports