The Birmingham Economic Review 2017: Skills and Labour Market

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The Birmingham Economic Review was produced in October 2017 by City-REDI, the Greater Birmingham Chambers of Commerce and the West Midlands Growth Company.

The review highlights the current strengths and weakness of the Birmingham economy, as well as looking at the opportunities and threats that might impact upon it in the future.

This is a commentary on Chapter 7 of the Review, Skills and Labour Market:

Increasingly the concept of ‘inclusive growth’ is being used as a label for a range of policy approaches seeking to more closely align economic growth to broader base social benefits. According to a definition adopted by the OECD, inclusive growth is economic growth that creates the opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society. The labour market and skills are core foci for policy to connect growth and inclusion.

Historically labour market and skills policy has tended to focus on quantity of jobs and on supply-side policies to raise qualification levels. The UK tends to perform well internationally with regard to high level skills and Birmingham and the wider sub-region is home to world-class universities. A high share of graduate level skills is positively associated with high wages and productivity. But by international comparative standards, the UK is characterised by a shortfall in intermediate level skills (which the policy to increase the number of apprenticeships is designed to address) and a long tail of low skills. Local and regional statistics show that in Birmingham and the West Midlands this long tail of low skills is more pronounced than nationally and also that employment rates are lower than average. This highlights the importance of employability programmes to enhance labour market participation and initiatives to reduce the number of people with no or few formal qualifications.

Achieving inclusive growth means breaking out of ‘low skills traps’ – and this means addressing labour demand as well as supply. A high proportion of jobs demanding only low skills drags down productivity and means limited demand for intermediate and high-skilled labour, which in turn leads to limited opportunities for progression, so reducing demand for and the viability of training for skills development. In such a situation, individuals with higher level skills find they are under-utilised, and so many move away, limiting labour supply and leading to skills shortages – so continuing a vicious circle.

Demand-side policies involve shaping the economy and the structure of employment to escape low skills traps and associated issues of low pay that tend to be associated with them. International evidence on inclusive growth suggests a role for policies that identify and target sectors that are growing, are of strategic importance and have the potential to create middle- and high-income jobs. Inward investment and cluster policies both have a role to play. The insertion of clauses regarding skills development and job quality in procurement can help embed the importance of employment quality in city and business development policies and raise wage floors. But to reap the rewards of such demand-side policies it is necessary to prioritise co-ordination with supply-side policies to better connect and match supply with demand. Sector-focused policies have an important role to play here, as do employability policies that look beyond employment entry to sustaining employment and in-work progression. Devolution of more powers to city-level may help in designing locally-sensitive demand-side policies and adapting national policies to address local needs.

To download a copy of the Birmingham Economic Review, please click here.

This overview was written by Professor Anne Green, Regional Economic Development, City-REDI.  

The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.

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