Skills shortages cost Welsh businesses £350 million in 2018, according to an Open University report. As well as the economic cost, many people in Wales are faced with the personal costs of being stuck in low-skill traps involving a cycle of low-skill, low-wage and low-productivity.
On 4 December the Assembly will debate the Economy, Infrastructure and Skills (EIS) Committee’s report into Regional Skills Partnerships (RSPs), which the Welsh Government explains, have a key role in reducing skills shortages and breaking the low-skills traps.
The report calls for:
- RSPs to be rebranded as Regional Skills Advisory Boards (RSABs), given a clearer role as expert advisors in the skills system, and a mission to shine more light on low-skill traps;
- The new Boards to have better links with universities and apprenticeship providers, to improve their forecasting and their work with employers; and
- Colleges to be able to use their own employer links, experience and expertise to respond to the advice of the new RSABs rather than the Welsh Government micro-managing the courses they can put on and how many learners they can recruit.
Skills mismatches
The skills needs of regional economies change, both in the short-term (sometimes from sudden shocks like large redundancies) and in the longer-term as economic sectors and jobs evolve.
This can and does lead to skills mismatches. Skills mismatches can be in the form of:
- Skills shortages (where vacancies are hard to fill);
- Skills gaps in the existing workforce; and
- Skills surpluses, where employees are over-qualified for the job.
A UK Government report argues that skills mismatches are ‘high [in the UK] compared with many countries’, yet the Employer Skills Survey from 2017 shows Wales not even doing as well as the UK average.
This survey showed that in 2017, 27% of employers sampled in Wales experienced a skills shortage, 4.7% of their staff had a skills gap, whilst 9.5% were under-utilised.
How to get the skills needed
The Organisation for Economic Co-operation and Development (OECD) says that there are three ways skills supply can be lined up with what is needed:
- Learner choice: skills providers offer courses based on what learners want to do. This is broadly the model for higher education in Wales and England;
- Market determination: learners choose their courses, but the courses on offer are decided by what employers want. Apprenticeships are an example of this model – learners can pick apprenticeships but will only be able to pick from the selection of vacancies that firms are offering, like any job; and
- Central planning: a central or regional organisation collects data and information to forecast what skills will be needed so that the right courses can be provided. This is the basis of the Regional Skills Partnership model in the EIS Committee’s report.
Each of the models have disadvantages but the central planning model is, argues the OECD paper:
fraught with information problems. Forecasting (by location and by occupational sectors) of the exact number of skills needed in a given labour market is often unreliable.
The Committee’s report puts a strong emphasis on the ‘information problems’ mentioned above and how the RSPs can try and reduce them to get a better picture of what skills are needed.
Predicting the skills needs of the future
Working Futures, a report used by the Regional Skills Partnerships, forecasts changes to economic sectors and jobs to 2024. For example, it forecasts strong growth in the construction sector across the UK from 2014 to 2024 but a decline in the size of the manufacturing sector.
Looking at jobs themselves, it notes a trend for a widening gap in the skills needs of employers that will continue out to 2024 with high skill occupations and some lower skill occupations seeing strong growth, but with falling employment for middle-skilled occupations.
Looking somewhat further into the future, the impact of automation and ‘industry 4.0’ on skills needs are heavily debated. Professor Phil Brown, Chair of the Welsh Government’s review into digital innovation, Wales 4.0, shines a light on the complexity of this debate, arguing for example that we should not assume that automation and AI will ‘attack from the bottom of the occupational structure to the top’ and that ‘technology is not fate’.
What these forecasts and debates show is that predicting skills needs in the medium-term can be fraught with difficulty. Yet changes in economic sectors and within jobs do have a ‘significant influence’ on skills needs.
Problems: learner choice and employer preference
The Welsh Government wants to raise average skill levels in Wales, an aim which is arguably on track in terms of qualification levels. But the Committee’s report warns that this is not enough on its own – learner choice and slack employer demand for more highly skilled workforces still present problems.
Learners might not enrol onto the courses that Regional Skills Partnerships think are needed to meet skills needs; whilst employers might be profitable with lower-skilled workforces despite the poorer personal circumstances this can mean for individual workers – a predicament the Committee’s report calls a ‘low-skills trap’.
RSPs told the Committee that the ‘balance between learner choice and industry need is one of the biggest challenges that we’ve got, not just for the RSPs , but for skills in Wales in totality’. This was echoed by Kirsty Williams, Minister for Education who said:
If an individual studies a course for which there is not a demand in the economy for those particular skills, then that investment in that individual and the prospects of that individual are not as good as we would like them to be.
Thinking about the level of skills employers want
Low-skills traps are a vicious cycle where employers have no need for higher level skills, meaning there is less reason for people to choose to get those higher skills, which then means employers don’t innovate as much – and so on. These traps can harm economic growth and often mean lower quality jobs and lower pay.
The report is clear that the ambition to drive up the average skill level in Wales involves the risk of making the skills under-utilisation problem worse if nothing is done at the same time to somehow increase employer demand for higher level skills.
There is evidence that this is already happening in Wales. The Committee’s report, using ONS statistics, shows that there have been large increases in the qualification levels of those people working in the least skilled occupations between 2004 and 2018. Highly skilled jobs will be needed to absorb the more highly skilled workforce.
Finally, looking into the future, Professor Brown also warns against relying on technology to address low-skills traps, writing that: ‘we should not assume that the introduction of new technologies will automatically raise the demand for more skilled workers, increase productivity or reduce income inequality in Wales’.
The Committee’s report is available here.
Article by Phil Boshier, Senedd Research, National Assembly for Wales
