With acute skills shortages posing an ongoing challenge for employers, will the parlous state of economies across the globe combined with the cost of living crisis cause the shortage to ease?
Over the last twelve months skills shortages have become even more pronounced. The UK government maintains a shortage occupation list for skilled worker visas which illustrates the jobs that are in demand. The HGV drivers, hospitality staff, agricultural and abattoir workers that were significantly impacted during the pandemic have been joined by other workers that are now similarly affected, such as airport workers, airline staff, chefs, engineers and port workers. The impact of skills shortages has been apparent outside of the UK too. The US, for example, has experienced job shortages across a range of sectors, with the hospitality industry most affected.
Each of the eight drivers of change have played a part in exacerbating the continuing skills shortage over the last 12 months.
- Demographic changes mean too few workers are entering the labour market.
- Brexit has contributed to skills shortages in the UK, though it can be argued that the real reason behind this is not Brexit so much as the UK government’s restrictive approach to work migration post-Brexit.
- Covid alongside shifting societal trends have played their part, with many businesses finding it difficult to replace workers who left during the pandemic. The “Great Resignation” has seen many people leave the labour market having reassessed life choices during the pandemic restrictions. Latest data from the Office of National Statistics shows that the long-term sick have become a significant contributor to labour market shortages in the UK, with 2.5 million now economically inactive for this reason. This is a significant jump from under 2.1 million before the pandemic and accounts for much of the increase in the economically inactive. Long Covid and NHS delays are contributing to these high numbers.
- The rapid pace of technological change and the drive for a sustainable green economy both mean that an increasing number of people have the wrong skills and experience for the jobs of today, never mind tomorrow.
- Increased globalisation of knowledge jobs has resulted in competition across frontiers for the best people with in-demand skills.
In response to the skills shortage, employers have been forced to expand their traditional recruitment pools, devote more resources to training and developing people to acquire the required skills and experience, and increase their reliance on automation. In the longer-term, views differ on the extent that technological developments will result in there being too few jobs for the available labour force or too few people for the available jobs.
However, the first signs of a loosening of the labour market are emerging. With the cost of living crisis and predictions of a lengthy recession or very low growth, job losses are bound to follow. Recent data from the US shows levels of job vacancies in decline as the economic downturn begins to bite. The Bank of England’s November Monetary Policy Report set out the Bank’s view that signs were emerging of a softening of the labour market and the November Economic and Fiscal Outlook published by the Office for Budget Responsibility predicts that unemployment will increase from the current level of 3.6% to a peak of 4.9% in Q4 2024, although still low by historic standards.
The ramifications of the skills crisis on the world of work are considered in depth in the “Spotlight on… skills shortages” below.
In the fourth quarter of 2022, the UK labour market is characterised by
- record high levels of employment and low levels of unemployment
- a skills shortage with record high numbers of job vacancies
- the highest inflation for more than 40 years resulting in record falls in real pay
- the highest level of industrial action for more than 40 years
- increased hybrid working
- lower levels of work migration than before Brexit
- increased pay inequality
- increased diversity
The cost of living crisis, together with other drivers of change, will mean a labour market featuring
- a higher level of unemployment with increased labour supply resulting, in some areas, in reduced skills shortages
- moves towards greater energy self-sufficiency creating new jobs
- redundancies caused by consumers with less money to spend and by increased business costs (energy, labour, commodities, borrowing costs) will impact on the labour market
- inflation resulting in pressure to raise pay and rising levels of industrial action
- more geographic fragmentation of the workforce
- increased work migration from overseas, particularly in the health and care sectors
- an increasing number of people looking to supplement income through working overtime or taking second jobs
- increased pressure on public sector resources and public sector employment