New labour shortages research highlights need for a temporary immigration ‘safety valve’ and long-term reform of skills policy

The re-emergence of rising labour shortages has become one of the most important, fast-moving and debatable issues in the UK economy. In a matter of months, media stories have switched from unsuccessful job applicants applying for hundreds of jobs to employers struggling to fill vacancies, especially in low-paying industries. These stories are often based on anecdotal reports. As a result, the CIPD has sought to provide a more critical and comprehensive assessment of employers’ perception of skill and labour shortages.

CIPD’s Skills and labour shortages report

And the research, based on a representative survey of more than 2,000 employers and a series of industry-specific focus groups, sheds some fascinating light on the causes and incidence of recruitment difficulties and the potential solutions to them in low-paying sectors.

Overall, the findings suggest that the prevalence of recruitment difficulties is broadly similar to the pre-pandemic trend. Around 4 in 10 (39%) employers reported hard to fill vacancies this summer compared with 36% during the same period in 2019 and 39% in 2018. This suggests that most labour and skill shortages currently facing the UK pre-date the pandemic. However, it is true that certain sectors are facing acute and rising recruitment difficulties, notably in hospitality, arts and recreation (51%, up from 28% in 2020), health and social care (49%) and manufacturing (47%).

The reasons for the challenges

There are several factors behind these challenges. Firstly, and perhaps most significantly, the most significant cause is that the rapid rise in hiring has coincided with a labour supply shock, most notably from older workers and EU nationals. Some employers in hospitality and transport and storage sectors in particular pointed to the reduction in supply of EU migrant workers as a factor behind rising labour shortages. This is underlined in the survey data which shows that in 2018 and 2019, transport employers received a median number of 50 applicants for the last low-skilled vacancy they attempted to fill, but in 2021 this had fallen to just 15. However, it should be added that the majority of low-paying sectors do not show a fall in labour supply.

This is related to the second issue, which is the unattractiveness of key industries. The research confirms that many low-pay sectors, such as hospitality, don’t attract enough UK applicants, despite the impact of the pandemic. This is due to a mismatch between jobseeker expectations and the wages and working conditions offered in many cases. However, some unemployed, young jobseekers said that they would be prepared to endure low pay for a period provided that suitable training opportunities and promotion possibilities were provided.

Another observation is that too many employers not taking action to address skill and labour shortages. In addition, recruitment difficulties for some firms are also linked to a narrow, ad-hoc approach to hiring which means they are not reaching out to under-represented groups in the labour market or are overly reliant on recruitment agencies and temporary workers. In addition, there was no evidence of employers linking labour shortages to the need to make productivity improvements, with no mention of automation.

The positives

On the upside, the research shows that some employers are getting better at recruiting and retaining workers in response to rising labour shortages; most notably through a focus on upskilling, apprenticeships and in some instances raising wages.

What does the UK Government need to do?

In response, the CIPD is proposing three key changes to government policy that could help address these challenges.

First, a temporary job mobility scheme for young EU nationals could help offset the fall in the stock of EU nationals reported as a cause of recruitment difficulties in the most affected sectors. The attractions of this approach are that it is less costly, less administratively burdensome and helps overcome the low expertise and awareness of the new immigration system demonstrated by employers in this report. This is especially true of SMEs, for whom industry or occupation-specific schemes are difficult to navigate.

The Apprenticeship Levy should be urgently reformed to create a more flexible training levy to support employer investment in a wider range of skills training and boost their engagement with further education colleges. For example, in transport the funding could be put towards the cost of much needed HGV driver training or it could be earmarked for NVQs for support workers in social care. Apprenticeship wage rates should also be raised to tackle the widespread perception among young unemployed jobseekers that it’s too low to make apprenticeships an attractive option.

And finally, the government should invest £60m a year to provide a business improvement consultancy service through the Growth Hub network. This would provide SMEs with up to two-days of free business consultancy support on vital issues such as people management capability, workforce skills development and technology adoption to improve recruitment practice, help retention rates and boost productivity through better paid and quality jobs.

The government’s ambition to transition the UK to a ‘high wage, high skill’ economy it is laudable. However, the research findings suggest that the UK economy faces significant challenges in meeting this policy objective. Long-term reforms to skills policy and business support are therefore required to help employers see the workforce as a key value driver to invest in rather than a transient cost to be managed down.