Future Skills Action Plan for Scotland: evidence and analysis annex

Skills Gaps

Matching skills offer and employers’ demand

99. Job-related training has the potential to address skills gaps in the workforce more rapidly and more efficiently than formal education.^[85] Employers and employees can benefit from training activities in terms of improved productivity and higher wages.^[86] This holds true even when training has been undertaken with a previous employer.^[87]

100. While formal education provision and take-up has increased over the last decade, job-related training in Scotland – a key aspect of skills development provision – has steadily declined over the past 15 years. The percentage of employees aged 16-64 who received job-related training^[88] in the previous 3 months declining from 31.2% in 2004 to 22.5% in 2018. There has been a steady decline since 2013 and not in the immediate aftermath of the recession (post 2008), so explanations for this trend are likely to go beyond short term cost cutting of firms as a reaction to the global recession (Figure 11).

Figure 11: Percentage of employees (16-64) who received job-related training in the last three months, 2004-2018, Scotland

Source: Scottish Government, ‘Regional Employment Patterns’, May 2019.

Current Skills Gaps in Scotland

101. Skills gaps can have a widespread negative impact on Scotland’s economy through reduced productivity, delays to new product/services development and difficulties introducing technological change. The OECD has argued a key drag on labour productivity in the UK in recent years has been a misalignment of skills demand and supply – reflected in a high proportion of the UK workforce trained in a field of study not related to their job.^[89]

102. Figure 12 shows the range of negative impacts of skill-shortage vacancies reported by businesses, with increased workload for staff the most commonly cited impact.

Figure 12: Impact of skill-shortage vacancies, Scotland

Source: UK Department for Education (2018), ‘Employer Skill Survey 2017 – Scotland toolkit’, Oct. 2018; Base: all establishments with hard-to-fill vacancies due to skill shortages (N=505).

103. The Employer Skill Survey (ESS)^[90] shows that in 2017, 16% of establishments in Scotland reported skills gaps for their employees, higher than in the UK (13%).^[91] Since 2011, Scotland has seen a 5 percentage point fall in the number of establishments reporting skills gaps and the UK as a whole saw a decline of 4 percentage points over the same period (Figure 13). However, for Scotland and Northern Ireland, the percent of establishments reporting skills gaps increased between 2015 and 2017 while there was a decline at the UK level.

Figure 13: Incidence and density of skills gaps over time by country

Source: UK Department for Education (2018), ‘UK Employer Skills Survey 2017’; Base: All establishments (base size: UK 87,430; England 71,527; NI 3,973; Scotland 6,017; Wales 5,913).

104. The ESS divides skills gaps into technical and practical skills and people and personal skills (Figures 14 and 15). For businesses in Scotland reporting skill-shortages vacancies, the most common technical skill gaps among applicants were: specialist skills needed for the role (59%), knowledge of the organisation’s product and services (39%), and solving complex problems (34%) (Figure 14). For people and personal skills there were gaps in: ability to manage and prioritise own tasks (46%), managing their own feelings, or those of others (42%), and customer handling skills (40%) (Figure 15).

Figure 14: Skills lacking among applicants: Technical and practical skills, Scotland

Source: UK Department for Education (2018), ‘Employer Skill Survey 2017 – Scotland toolkit’, Oct. 2018; Base: All with skill-shortage vacancies – up to two occupations followed up (N=552); Figures are shown as a percentage of all skill shortage vacancies followed up and not as a percentage of all establishments.

Figure 15: Skills lacking among applicants: People and personal skills, Scotland

Source: UK Department for Education (2018), ‘Employer Skill Survey 2017 – Scotland toolkit’, Oct. 2018; Base: All with skill-shortage vacancies – up to two occupations followed up (N=552); Figures are shown as a percentage of all skill shortage vacancies followed up and not as a percentage of all establishments.

Sector breakdown of skills gaps

105. Evidence from the ESS (2017) suggests there is variation in skills gaps by sector and occupation. In 2017, the highest skills gap was in manufacturing (7.2%) and the lowest skills gap (2.3%) was in IT and communications. The density^[92] of skill gaps changed markedly from 2015 to 2017. The largest percentage point increase was for both Primary Sector and Utilities and Public Admin (+2.8 percentage points) and the largest percentage point decrease was for Manufacturing (-3.7 percentage points) (Figure 16).

Figure 16: Density of skill gaps by sector, Scotland

Source: UK Department for Education (2018), ‘Employer Skill Survey 2017 – Scotland toolkit’, Oct. 2018; Base: All establishments (base sizes range from 158 in Public Admin to 933 in Wholesale and Retail.

106. There is a gender dimension to the skills gaps that impacts on inclusive growth. A background labour market report commissioned by the Scottish Government’s Just Transition commission – that advises the Scottish Government on the transition to a carbon neutral economy – reports that a persistent feature of the school, college, and university and apprenticeship systems is the highly gendered nature of study for subjects relevant to digital skills specifically and STEM (Science, Technology, Engineering and Mathematics) subjects more generally.^[93]

107. The proportion of STEM employers in Scotland with skills shortage vacancies was 6.4% in 2015 and 7.7% in 2017 (incidence). The 2017 figure was higher than the average incidence for all sectors in Scotland (6%), suggesting that STEM skills are particularly difficult to obtain for employers. The Scottish Government has responded to this specific issue with STEM-supporting policies set out in the Scottish Government’s STEM strategy.^[94]

Upskilling

108. Even when establishments do not report a skills gap, they may still need to invest in skills to keep pace with emerging technology or sector specific requirements. The ESS (2017) reports that 69% of employers expect that at least some of their staff will need to acquire new skills or knowledge over the next twelve months (see share by industry in Figure 17). This suggests employers perceive the development of skills as an ongoing process rather than a one-off event.

Figure 17: Prevalence of a need for upskilling by sector, Scotland

Source: UK Department for Education (2018), ‘Employer Skill Survey 2017 – Scotland toolkit’, Oct. 2018; Base: All establishments in Module 2 (base sizes range from 75 in Public Admin to 463 in Wholesale and Retail).

109. In 2017, Scottish employers, prompted by ESS interviewers, reported that several reasons induce them to expect higher training needs – new legislative or regulatory requirements (42%), the introduction of new technologies or equipment (41%), and the development of new products and services (39%).

110. However, there is also evidence of skills under-utilisation within Scotland’s labour force. With ESS (2017) reporting that, a third of employers (35%) reported having at least one under-utilised employee, that is staff with qualifications and skills beyond those required for the role (up from 32% in 2015). A possible cause may be a mismatch between employees’ qualifications and employers’ needs.