Skill shortages are costing the UK £10bn – and will continue to constrain growth

Is this the recovery in the UK being held back by skill shortages? There is growing evidence that this is the case. 

 

The headlines from Wednesday’s labour market statistics focused on a very slight rise in unemployment – 10,000 over the past three months. 

 

But over the same period, recorded vacancies went up by 5,000. The rise in unemployment over the past three months could have been halved if employers had not found it more difficult to find the workers they needed.

 

Data released on Wednesday by the Bank of England confirms the same picture. The Bank employs a network of Agents who visit about 8,000 companies around the country once a year. 

 

 

Their reports show that, in July and August, the percentage of companies reporting recruitment difficulties is the highest since 2005 (the start of the current data series).

 

Companies find it difficult to recruit workers for a range of different reasons. 

 

One could be that wages are too low and jobs are unattractive. But employers have the scope to address this problem themselves and that is now happening. Wage growth is picking up – averaging 3.4 per cent in the private sector in the latest three months.

 

The other main reason for recruitment difficulties is the shortage of key skills. This is a growing problem for the British economy. Since the mid-1970s, the CBI has been surveying skill shortages in manufacturing in its Industrial Trends Survey. 

 

The average responses in the most recent five surveys show a level of skill shortages not seen since the Lawson boom in the late 1980s, when the economy overheated and inflation took off.

 

The construction industry is another sector reporting acute skill shortages. 

 

 

The Federation of Master Builders reported over the summer that about half of its small and medium-sized building firms were struggling to recruit bricklayers. Carpenters, joiners, site managers and supervisors were also in short supply.

 

Skill shortages pose a real cost to the UK economy. Between 2001 and 2014, the number of unfilled vacancies averaged about 570,000. 

 

The current figure is 740,000. If these extra 170,000 vacant jobs could be filled at average wages, UK GDP would be £10bn higher in 2015. That is a sobering thought and a challenge to action.

 

For the UK, skill shortages are not predominantly caused by a lack of highly skilled and educated workers – where we can recruit internationally and draw on our world-class universities. It is more due to a lack of basic technical skills. 

 

This is a longstanding problem. The government is to be credited for recognising this issue and promoting a new regime of apprenticeships. Local Enterprise Partnerships should also help match the provision of skills to economic requirements.

 

But the economic data suggests we are struggling to catch up with emerging skill shortages. 

 

So the future growth of the UK economy will depend on our ability to overcome this key constraint.