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Firms grapple with labour and skills shortages

Higher investment in learning and development combined with imaginative approaches to recruitment could help employers deal with mounting staff troubles

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As developed economies around the world slowly reopen after stringent lockdowns, many are faced with widespread labour and skills shortages.

The UK is a prime example, with the country in the middle of a perfect storm. At the same time as 15 out of 18 industry sectors are reporting record vacancy levels, according to the Office for National Statistics, a drop in labour supply is causing hiring difficulties across the economy. 

The Resolution Foundation and the Centre for Economic Performance at the London School of Economics recently published a study on the impact Covid has had on the labour market. The report – titled Begin Again? – found that the number of people who are economically inactive, meaning not working or looking for work, has risen by 586,000 since the start of the pandemic. 

The increase is particularly marked among 55-64 year olds. That bucks a pre-pandemic, decade-long trend, in which workers over 50 accounted for 88% of the growth in the overall size of the UK labour market. Young men aged 25-34 have also contracted as a group in employment terms. 

Brexit headaches

The loss of EU workers is also being felt, says Gerwyn Davies, senior labour market advisor at professional HR association the Chartered Institute of Personnel and Development (CIPD). 

While Brexit had already put many off working in the UK, Europe-wide migration restrictions caused by the pandemic have likewise taken their toll. This situation has had a particularly marked impact on low-paid sectors, such as food processing and social care, which the domestic workforce tends to view as unattractive.

For many years, employers have been able to do what they wanted, but the shoe is now very much on the other foot

“It feels as if the shortfall is actually much higher than it is as the number of older and EU workers rose sharply over the last decade in line with a sharp increase in employment, so demand met supply,” Davies explains. “But because they’re fewer now, it’s come as a big shock and employers are scrambling to fill jobs.”

Although he believes it was always a “problem waiting to happen”, Davies acknowledges it couldn’t have come at a worse time, with hiring activity being so high.

Shortages and mismatches

Another challenge is weighing on the economy: skills shortages. While these are also nothing new, they’re exacerbated by the inadequate labour supply. 

The expertise available on the market increasingly fails to match employers’ needs.

A growing “skills mismatch” is a key issue, though it’s little discussed, according to the National Centre for Universities and Business. 

Davies agrees the skills mismatch is another important trend. “The vast bulk of jobs created over the last decade are professional and managerial, but educational attainment levels have not risen in line with that growth. There’s still a relatively high proportion of young people who haven’t attained ‘A’ level qualifications, which means employers are having difficulties filling those positions,” he explains. 

Corina Forman, HR director at parcel delivery network APC Overnight, sees the skills mismatch as a growing challenge. 

“Some of it is down to the way technology is reshaping our world, which is creating different ways of working, changing employee expectations and leaving everyone running to catch up,” she says. “This means that if as employers we continue to define skills and talent as relatively fixed attributes that people either have or don’t have, the skills shortage will continue.”

When recruiting either internally or externally, Forman thinks it’s important to start defining skills more broadly, considering how adaptable and innovative people are and evaluating their propensity to learn. As an example of this aptitude versus experience and transferable skills-based approach, she cites the company’s new recruitment manager, who has a sales rather than traditional HR background.

“If skills are defined more broadly, you can create workplace learning cultures that are able to deal with continuous change as part of working life,” she argues. 

Continuous learning

This kind of approach is only going to become more important over time, according to the UK Skills Mismatch in 2030 research paper by the Industrial Strategy Council, a government advisory body. It indicates that because 80% of the 2030 workforce is already in employment today, reskilling will be vital until the end of the decade if employers and the wider economy are to avoid constraints in terms of competitiveness and growth.

The problem is that levels of government and employer investment in adult training, which were already low, have “remained flat at best”, the paper says. This means that if the current trajectory is maintained, up to 20% of the UK workforce could lack the skills to do their job in nine years’ time. That’s particularly true in technical fields, such as digital, but also in softer management areas like decision-making.

People want to work for a company where both their role and the organisation has meaning and purpose

To ensure her workforce has the required skills, Forman has introduced a range of learning and development pathways. These include a two-year leadership development programme, the creation of a dedicated learning academy and the development of a mobile learning app, which enables employees to undertake their training in “small, bite-sized chunks”.

Samantha Edmondson is head of talent at quantum computing start-up Universal Quantum. She has identified informal learning as a response to the skills gap. For example, one of the company’s quantum physicists offers an hourly drop-in session once a week to take people through the basic concepts at their own pace and answer questions. 

Employee engagement

Learning and development opportunities also help build employee engagement, which in turn supports staff retention. This makes it particularly valuable in a jobs market where “everyone’s competing with everyone else for talent” and wage inflation is starting to mount, says Steven Kilpatrick, chief executive for the UK and Ireland at digital recruitment agency, Gojob. 

The best approach, he says, “is to focus on engagement, engagement, engagement, which means doing all you can to build a connection with your employees and looking after the talent you’ve got. For many years, employers have been able to do what they wanted, but the shoe is now very much on the other foot.”

Other ways to build engagement include ensuring a diverse and inclusive culture, having a leadership team that prioritises people, supporting a flexible working model, and the notion of ‘purpose’, as Edmondson explains.

“People want to work for a company where both their role and the organisation has meaning and purpose,” she says, “so it’s about having an environment where everyone knows what their contribution and impact truly is.”

This is not to say that employers should ignore the potential of external recruitment. 

“Employers need to use as wide a range of tactics as possible to offset the current situation in which demand for labour vastly exceeds supply,” Davies explains. This ranges from broadening recruitment channels to widening opportunities for groups like older returners or people with disabilities. “It’s about taking a more imaginative approach.”

So is the labour and skills crisis simply a pandemic-related blip or will it endure for the long term? Davies thinks it’s currently impossible to say. However, change is unlikely while immigration challenges continue to bite and older workers fail to return to the workplace.

Employers must undoubtedly come to grips with the issue. 

“We’re now competing with countries like China every day and if we continue to let the situation grow, we could find the country becomes unattractive for global investment,” says Kilpatrick. “So organisations need to be agile and creative. It’s about survival of the fittest.”