A story with a happy ending? The UK labour market and the future of skills

Skills, Knowledge, Abilities

by Laura Dobie

Last week the UK Commission for Employment and Skills published The Labour Market Story, a series of reports exploring how the UK labour market is working following recession. In this article, we take a closer look at the results and key findings.

The reports reviewed research from the UKCES, other UK organisations and international sources to investigate:

The research revealed that while the UK economy is returning to sustained recovery, this has taken longer than before. There has been sustained growth in self-employment, and a rise in precarious forms of work, such as casual and short term work, and zero hours contracts. Youth unemployment is four times the rate for those aged 24 to 64.

There has been a long term reduction in administrative and secretarial work in many industries, typical middle level jobs, which has led to increasing polarisation in the labour market. Those with higher skills and qualifications are more likely to remain in employment and have considerably greater earnings prospects, highlighting the importance of skills in individuals’ labour market outcomes.

While the UK has been steadily improving its skills base, it has been failing to keep up with international competitors in its progress on low and intermediate skills. State and individual investment in education and skills below university level is high in comparison with competitor countries, although levels of employer investment in training, while considerable, have been declining over time.

The UK economy is experiencing persistent pockets of skills deficiencies, with skills gaps and recruitment challenges. Skills shortage vacancies make up 2.5% of the total volume of jobs in the UK, and 15% of employers report skills gaps among those already in employment, which are often found in lower-skilled occupations. Skills gaps can be attributed to high levels of labour turnover, as they are most frequently observed when employees are new to a role, although they can also be indicative of a mismatch between the skills of the workforce and those which are required by employers, suggesting that qualifications and training may not adequately reflect employer needs.

In terms of skills utilisation, the use of high-performance working practices, which can support increasing investment in skills and more effective use of skills in the workplace, is relatively low. There are also issues with under-use of skills: virtually half of UK employers have workers who have skills and qualifications beyond those required for their roles, which raises concerns about the relevance of training to the labour market and suggests that there could be considerable demand deficiency in UK workplaces.

Looking to the future, the greatest proportion of job opportunities to 2020 are projected to be in low-skilled and high-skilled jobs, reinforcing the hourglass economy. The research highlighted the following key drivers of demand: technology; competition and globalisation; demographic change; and corporate strategic choice. The share of employment in services is projected to increase by 2020, while the share of employment in manufacturing and utilities is set to decline. The UK is likely to experience labour market polarisation in terms of location, with a growing concentration of higher-skilled jobs in London and the South East of England.

The research concluded that skills need to be placed at the centre of economic policy and that greater and deeper employer collaboration is required to raise ambition and foster economic growth.

Approaches to economic growth need to reflect local and sectoral variations in the economy and labour market, while excellent management and the adoption of high performance working practices are required to increase productivity at firm level and promote a shift towards higher value products and services. There also needs to be a greater link between education and work, to ensure that the education system is providing the skills which are required by employers and that public investment supports this kind of skills provision.

The reports reveal that the UK labour market has experienced considerable shocks over the past five years, but that it could play a strong role in the global economy if it can rise to the challenges ahead. In order to respond to future opportunities and challenges, actors in the UK skills system will need to demonstrate that they are adaptable, ready for change and prepared to meet future labour market requirements.


The Idox Information Service has a wealth of resources on the economy, employment and skills. In addition to the Information Service database, we also source and summarise labour market research for Skills Development Scotland’s Research Online labour market portal.

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