The Skills Shortage: Mind the Gap

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From the Economist

http://www.economist.com/node/21648003/print

THE Dyson empire in Malmesbury is dominated by a futuristic-looking “campus”. It is now set to get even bigger. Sir James Dyson (pictured), the entrepreneur known for his eponymous vacuum cleaners and “airblade” hand driers, set up shop in the quiet Wiltshire market town in the mid 1990s. Although production shifted to Singapore and Malaysia over a decade ago, everything is still designed and tested in Malmesbury, where the company employs about 1,000 engineers. Now a vast new building is taking shape on the site, providing space for thousands more workers. They aim to satisfy soaring demand for new products in 70 countries worldwide, especially Asia.

It should all be a great British success story. But, as Sir James explains, much will depend on whether he can find enough engineers. He needs 3,000 of them on the site, but Britain only produces about 25,000 engineering graduates a year so he could face a huge shortfall in recruitment. At best, this could slow his expansion plans. And Dyson is not alone. In the most recent survey of British firms that employ engineers and IT staff by the Institution of Engineering and Technology (IET), over half reported that they could not find the employees they were looking for and 59% said that the shortage would be “a threat to their business in the UK”. EngineeringUK, a lobby group, has issued dire warnings that Britain currently has a shortfall every year of about 55,000 people with engineering skills. The mismatch of supply to demand across the broader range of STEM subjects (science, technology, engineering and mathematics) is just as bad.

These are disappointing figures, particularly as the lack of engineers and technicians in the country that gave birth to the industrial revolution has been well-known for more than a century. According to the IET annual survey, the “skills gap” has worsened for the ninth year in a row. Now it has become an important economic issue as well, one of the reasons for Britain’s terrible productivity. Britain had always lagged in this, but before the financial crisis of 2008 was catching up a bit with other G7 countries. Since then, however, the gap has widened again, with America clearly in the lead. In the long run it is increased productivity that will raise standards of living.

Economists have called Britain’s productivity woes a puzzle, blaming also poor infrastructure and stubbornly low investment. Most businessmen, however, are not puzzled at all; without skilled workers, it is hard for a business to grow, especially in the manufacturing and technology sectors. In the last survey by EngineeringUK nearly half of engineering firms said that hard-to-fill vacancies had meant delays in developing new products or services, while 45% said they experienced increases in operating costs. For a government that wanted to reverse the decline of manufacturing’s share of the economy when it came into office, the continuing skills shortage is a major obstacle.

It extends into management, too. According to one academic paper, about a quarter of Britain’s productivity gap with America can be put down to poor management. The main weakness is that too many of Britain’s family-owned firms still prefer primogeniture over meritocracy to select their top bosses, three times as often as German family-run firms do. But poor generals skills are to blame, too. Even after all the extra money spent on schools since the mid-1990s, Britain still performs at a mediocre level in internationally comparable tests. Recent reports suggest that about one-fifth of the adult population still lacks basic literacy and numeracy skills.

Such poor skills are in stark contrast to the country’s continuing excellence in science. With only 0.9% of the world’s population and 4.1% of its researchers, Britain still accounts for 16% of the world’s most cited scientific publications. But the country still struggles to translate this into innovative products for the market-place. The Bank of England points out that spending on research and development has held up quite well since the crisis, but that has not resulted in a growth of innovation in products and production processes (see chart). The share of companies that introduced new products from 2008 to 2012 declined from 24% to 18%.

To some, this suggests that it is no longer just enough to shout for more STEM graduates. Their skills will have to be allied to other creative or managerial skills. Sir James has taken matters into his own hands and endowed a new engineering school at Imperial College London. This will teach students about intellectual copyright, product testing and design alongside engineering, in the hope that they become more entrepreneurial.

This will take time, however, if it works at all. Meanwhile, companies have to look abroad for talent, where they come up against visa restrictions, even on foreign STEM graduates from British universities. This is not just a problem for engineering companies. A vocal critic is Lord Bilimoria, the founder of Cobra Beer. He calls the home secretary, Theresa May, “economically illiterate” for her refusal to relax visa rules for skilled workers. But with an election looming, expect politics to trump economics every time.

http://www.economist.com/node/21648003/print

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