Does freedom of movement discourage skills development and depress wages?

I recently looked at the Hays Index for 2017 to put the UK skills situation into international context. I strongly recommend reading the  report on “Regional dynamics of the Global Labour market – skills in demand and tomorrow’s workforce” . The main shortages are not peculiar to the UK. They cannot be addressed by simply importing supposedly skilled staff from overseas. I then used the Index Comparison Tool to go behind the headline figures and had a surprise.  I found clear evidence to help explain the bitterness of the current debate on freedom of movement. Those who trumpet the virtues of immigration and untrammelled freedom of movement are indeed living in a different world to those, mainly in the private sector, who voted for Brexit. Their wages, career development and employment prospects have indeed been held down by immigration. Meanwhile those in the public sector blame austerity, bankers and outsourcing and, now, fear of Brexit.

The seven indices measure the pressures currently affecting labour markets compared to the past.  The UK scores well on Labour Market Flexibility (which includes the ease of importing skills), compared to Germany, India or the USA – even before Trump. The UK also scores well on Education Flexibility. But it does badly when  it comes to harnessing the output of its education system. The pressures in the UK resulting from “Talent Mismatch” (between the skills wanted by employers and those available in the market)  are among the highest in the world. Those in Germany are among the lowest. The UK also scores poorly compared to most other countries when it comes to labour market participation.

Meanwhile the pressure in the UK from overall wage inflation is less than in China and significantly less than in Germany. The pattern is similar when it comes to “high skilled occupations” where the wage inflation pressures in Germany are higher than most other countries. But the big difference comes with meeting the needs of “high skilled industries” where the wage inflation pressures are lower in the UK than in China or India while they are through the roof in Germany and the US. Is that because the UK is running down its “high skilled industries”, staffing them with immigrants or both?

This analysis helps explain the bitterness behind the view that UK big business and high tech have ignored the needs of the indigenous workforce, pupils, students and those who would like to return to work. They are accused of lobbying for freedom of movement when they should have been trying to reform the UK skills system. In consequence, despite a revolution in education and training technology, politicians and officials have a common (but probably now faulty) that it is natural for it to be cheaper and easier to import supposedly skilled staff from abroad than to train your own. The consequent scale of recent importation has been such as to hold down wages at all levels, not just for the unskilled. Hence the revolt of the English working class , particularly those in the private sector, against claims those who claim that immigration is good for us all. Those in the public sector blame austerity, bankers and tax-avoiding big (and often high tech) business rather than immigrants for their wages also failing to keep up with inflation.

We should, however, take a closer look at cause and effect.

  • Was the effort necessary to bring the UK skills system into line with the needs of employers, as opposed to the interests of the education and training establishment, more than could reasonably be expected of those who have businesses to run?
  • Was it a rational decision on the part of big business to focus instead on making it easier to import talent?
  • If so, what should be the response, now that we have an electoral revolt and no apparent prospect of consensus on the way forward?

In the 1980s I was at the heart of attempts to reform the UK IT skills system to cope with skills shortage. What I learned led me to write a Bow Group paper entitled “Training for jobs not just jobs for trainers”. I managed to persuade three successive Secretaries of State of the need for change. But each time there was a change of Minister I had to start again – with officials trying harder to block my path. There was a similar pattern when Labour came to power. I had been asked to brief Gordon Brown, as  shadow chancellor, on the potential impact of Y2K (was it for “real” or just another IT rip-off). After the election he organised funding direct from Treasury for the Millennium Bugbusters’ programme, with “industry strength” quality control on the training providers to ensure value for money. The follow up, using local ring-fenced pilots to test the use of tax incentives to transform vocational training with trades union support, was boycotted by the “skills establishment”. They would not even launch what was announced in the budget. Then came the fiasco of the Individual Learning Accounts – a great concept but launched with no quality control and thus wide open to fraud. Skills policy reverted to preserving past ways of delivery with a veneer of digital literacy programmes, pilots repeating variations on what had already failed and ignoring successful local initiatives unless they could be repackaged, scaled and managed centrally. One of the lesson of the past half century is that local success , unless designed for seamless scalability, tends to fail when subject to centralised planning and procurement processes.

The problems are bipartisan.  The common feature is that processes supposed to be driven by the needs of employers are hi-jacked by hierarchies of consultative and funding committees. That means decisions are taken by those with continuity of attendance. The views of those too busy to attend because they have businesses to run are not heard. Employer representation is therefore commonly via the UK CEOs (alias Country Managers) of overseas multi-nationals. Some have significant UK employment bases and/or have done a good job representing the interests of their UK suppliers and customers. But many have only a sales arm and a limited technology transfer arm (to work with UK University research programmes), with their taxable revenues routed via Luxembourg or Dublin. They have little or no “skin in the game” when it comes to developing in-house technician or professional skills.

The good news is that we have a great opportunity to use  blended learning (including the use of AI-based processes to assess aptitude, attitude and achievement) to upskill our existing workforce (both technician and graduate level) and gain competitive advantage against overseas high tech employers – who are suffering even worse skills shortages than we are. Some employers are already beginning to do so, including with the help of players like Hays. Others are, however, hung up trying to overcome the barriers to using the Apprenticeship Grant and Levy system to help them and those in their distribution and supply chains do so.

I am still trying to find out how far the barriers are for real, or just the result of ignorance. What I find will form part of the background papers for the round table on which I will be helping the Digital Policy Alliance.

The irony is that, had the UK not voted for Brexit, that  round table would probably have been held last year with the aim of using EU programmes to provide the carrots to bring about change in the UK – including in the context of communautaire (alias French, German, Danish etc.) interpretations of “Freedom of Movement”.

As a “remain” voter who wasted his vote (because it now appears that we have to leave to bring about the reforms I spent the second half of my working life trying to achieve), I find the intellectual shallowness and dishonesty, on all sides, of current debate on skills and freedom of movement very disheartening.

I look forward to getting Brexit day behind us so we can start building a new and more constructive relationship with our European friends and allies, as well as with the rest of the World – including on global, not just pan-EU, co-operation on skills.

I should perhaps add that I personally envisage the need for “evolutionary” strategies/ frameworks which enable forward looking employers and their university, college and commercial training provider partners to pilot scalable win-win solutions which gather pace over time as changes in both demand and supply outpace the ability of centralised planning to keep pace. I also expect those frameworks to be a mix of local, sectoral, national and international (global not just pan-EU) – with blurred and shifting boundaries .

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