Futureskills Scotland Expert Briefing: The Demand for and Use of Skills in the Modern Economy

The purpose of the Expert Briefings Series is to make available to our colleagues in Scotland the knowledge and experience of people who are expert in their fields. The series covers issues concerning the labour market, education and training and their links to the economy.

Each briefing involves an invited expert providing a personal briefing to an invited audience under Chatham House Rules and the publication of the briefing paper. In providing this service, Futureskills Scotland is pursuing two of its aims:

• to improve the availability, quality and consistency
of labour market information; and
• to analyse the Scottish labour market to inform policy making.

The views expressed in the briefing papers are those of the authors and not necessarily those of Futureskills Scotland.

The first Expert Briefing was given by Professor Francis Green of the University of Kent.  The topic was "The Demand for and Use of Skills in the Modern Economy".

Francis Green’s main conclusion is that the use of skills has been rising in Britain in recent decades. The economy has been changing in ways that demand more people with more skills.

But it is not a simple story of ‘high skills good, low skills bad’. At the same time as demand for higher skills has been rising, so too has demand for lower skilled jobs such as care workers and security guards. For some people, this suggests the economy is developing in ways that will lead the labour market to look increasingly like an hour glass or a dumbbell: large numbers of jobs at the top and bottom of the skill ladder and fewer in the middle. The pattern of job change in Scotland from the early 1990s closely matches that description.

One of the most valuable elements of Francis Green’s research is that it identifies the types of skills for which demand has been rising and falling. From the late 1990s onwards, the demand for computer skills has risen. It is not only that more people need these skills to do their jobs, a growing proportion of computer users are performing more sophisticated tasks. The decisive evidence about the growing importance of computer use is that people with these skills earn more than their counterparts who are similar in all respects save that they do not use computers.

Demand has also increased for a number of ‘generic skills’ including literacy, communication, planning and problem solving. Among these are the skills employers in Scotland say that some employees lack. However, unlike the ability to use computers, and with the exception of high level communication skills, possessing most of these other skills does not generally show up in people’s payslips. So, just how important are they?

The one ‘skill’ for which demand has fallen is physical strength and stamina. Brains, machines and computers continue to replace brawn.

Beyond these conclusions, Professor Green’s work raises a number of important issues. First, the increased supply of highly skilled and qualified people has been absorbed by an increased demand for higher-level skills. That is clear from the maintenance of the pay premium earned by graduates. It means that the economy has needed more graduates. Futureskills Scotland will be publishing research in 2006 into developments in the graduate labour market since the early 1990s which will examine how strongly this conclusion holds for Scotland.

In contrast to the complementary increases in the supply of and demand for higher skills, Francis Green draws attention to the apparent excess of people with ‘intermediate’ skills and qualifications and the apparent shortage of people with lower level skills and qualifications, both as compared with demand. Taken along with the possible emergence of an “hour glass” labour market, Professor Green’s paper suggests that some of the concerns about possible over-investment in higher education might more usefully have been directed towards ‘intermediate’ skills and qualifications.

Secondly, the paper presents persuasive evidence about the importance of learning at work. In the Skills Survey 2001, one
in three Scots ‘strongly agreed’ that they are required to learn new things at work and the proportion saying this has risen in recent years.

It also highlights the significance of informal learning. This is all but impossible to monitor and measure and never shows up in the official statistics, but it can make a substantial difference to personal and organisational productivity. The formal supply of education and training through schools, colleges, universities and training companies is clearly vital to developing an appropriately skilled workforce, but far from sufficient to deliver what the economy needs.

One consequence of the growing need to learn at work is that people will increasingly require skills that enable them to be
effective learners.

Professor Green discusses the notion of a ‘low skills’ equilibrium. This is the idea that a major cause of low productivity in Britain is that workforce skills are poorer than in other countries. According to this argument, businesses adjust their strategies and their capital investments to accommodate this lower level of skills – they take the low road, not the high road because that is what the supply of skills allows them to do. If this argument is correct, it means that the workforce might be fit for current purposes but not for higher value purposes.

A problem with the low skills equilibrium argument is that it leads some people to conclude that the solution is necessarily more or higher skills. That argument is not persuasive in Scotland’s case. The quality of our workforce stands favourable comparison with the world’s best performing economies, yet our productivity continues to lag. It is probably more accurate that Scotland has relatively low productivity but with good labour quality and employers who are generally satisfied with their staff – a low performance equilibrium. Moving away from that position will not in the first instance require higher skills for all.

Finally, the ‘dog that doesn’t bark' in Francis Green’s briefing is substantial direct evidence about Scotland. That is not an omission on Professor Green’s part. He was asked to provide insights based on his expertise and the evidence available. Rather, it reflects the absence of decent evidence about the use at work of skills in Scotland. Fortunately, that evidence gap will soon be filled. Futureskills Scotland will support the Skills Survey 2006, led by Professor Green. This will provide robust evidence for Scotland for the first time.

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