Invest in skills to avoid a two-speed labour market

2 July 2020

COVID-19 represents the largest and most profound shift in working patterns most of us have seen during our lifetimes. With 2.8 million people out of work and claiming work-related benefits - a rise of 126% since the start of lockdown - and unemployment rates across the UK set to rise further, ensuring that people don’t slip out of the labour market and fall behind is one of the severe challenges we face. Equally, those still in work are having to adapt to a profoundly different working environment.

As we look beyond lockdown to the economic recovery, many of the people who become jobless as a result of the COVID-19 crisis may require support to develop the skills that will be in demand as our jobs market changes. Better workforce skills will also help the economy recover and prepare for future opportunities.

COVID-19 has forced employers to evolve working practices and brought to the fore many trends that have been developing for some time. In particular, we can see a widening gap between increasingly skilled, flexible and agile knowledge-driven sectors and those where innovation and higher level skills are less prevalent.

It’s possible to see a future for those who work in knowledge-intensive industries, where the office is no longer as important and working from home for some or most of the week is the norm. Access to ICT equipment and online connectivity means geography, physical location and the need to keep formal office hours can be less important.

Meetings that until recently were thought to be essential to be held in person are now being routinely held by video conference, while tools allow documents to be created, accessed and edited collaboratively by teams in the cloud.

On the other hand, roles in industries that employ hundreds of thousands of people in our region – like manufacturing, distribution and retail – are intrinsically linked to time and place, putting workers at greater risk as businesses take the first, tentative steps to reopen after lockdown.

Those in short-term, gig economy work - which are predominantly filled by lower-skilled workers on insecure, low pay, are even more vulnerable to economic shocks. Even before the COVID-19 pandemic, these types of roles were at greater risk of disruption as a result of structural changes in the economy such as automation.

Building skills for the economy of the future

Ensuring those in less secure occupations have access to the right training and support to acquire or build skills, will be vital, not just in addressing the devastating economic impact for individuals as a result of COVID-19, but for our economy too. This is something that we are keenly aware of in West Yorkshire and are working to address: through the Local Industrial Strategy we continue to develop, the work of the Future-Ready Skills Commission, and as a central part of the devolution deal signed with Government earlier this year.

With 1.1 million people, our labour market in West Yorkshire is largest in the Northern Powerhouse, but around 380,000 people - or 26% of the working age population - have low or no qualifications, and are disadvantaged in the labour market. Over 250,000 workers have been furloughed in recent months, while jobless claimants have risen by 86% between March and May to a total of 106,700. Helping people build essential skills and keep developing is a serious challenge as we plan our economic recovery.

Like much of the North, there are examples of a ‘two-speed’ labour market operating in West Yorkshire, and there is a risk that COVID-19 may cause these two sides to diverge dramatically. Here we have what has been termed a ‘low skills equilibrium’, where a low supply of skills is matched by low demand, and many employers under-invest in training and development. This makes it hard for many to find a route out of low-paid, low-skilled employment. It also means many businesses are less innovative and productive than those elsewhere in the UK.

On the other hand, Leeds City Region has the largest financial and professional services sector outside of London, a digital sector growing more rapidly than the skills base can keep up with, and a strength in advanced engineering and manufacturing. All of this requires skilled workers and a strong, long-term plan to develop and support them.

It’s clear that the post-COVID economy will look markedly different to that which came before. If we want the recovery to be as strong as possible and to build resilient, innovative and productive businesses that reach their full potential, then an investment in skills has to be high on the agenda.

A local-led response

Not only does investing in and training staff bring benefits for individuals and our region’s economy, it’s also good for businesses. There’s a strong evidence showing businesses that invest in their employees’ skills development are more productive, more innovative, and more likely to survive economic shocks than those that don’t prioritise skills investment. The industries and growth sectors of the future will need a local-led response, based on the needs and opportunities of their own businesses and labour market.

Through the independent Future-Ready Skills Commission we are working to design a blueprint for a skills system that can meet the challenges of the changing economy. The Commission’s final report will be published in Autumn 2020 and will consider the importance of place-specific issues in designing a skills system for post-COVID recovery.

Bringing together experts and leading thinkers from business, education, local government and think tanks, it addresses economic shifts such as artificial intelligence and automation, the rise of the gig economy, changing work patterns and a much-needed shift to a low carbon recovery.

Closer to home, from August 2021 the West Yorkshire Combined Authority plans to take over responsibility for the £63 million a year Adult Education Budget (AEB) as a key part of the landmark devolution deal West Yorkshire’s council leaders agreed with the Government in March 2020. Taking over responsibility for the AEB is a first step to ensuring that skills provision in West Yorkshire meets the needs of businesses. But we need further decentralisation of the skills system, as envisaged by the Future-Ready Skills Commission, in order to truly shape the skills system to the needs of our region’s economy.

The West Yorkshire Combined Authority has set out a strategy to improve the impact of Adult Education Budget in West Yorkshire, and has launched a consultation calling for feedback from interested parties. Find out more about our vision for Adult Education Budget in West Yorkshire and respond to the consultation here. It’s vital that businesses and others interested in the West Yorkshire skills system has their say.

Through these initiatives and our response to the opportunities of devolution, West Yorkshire hopes to play a leading role in a skills-led economic recovery.

Rashik Parmar MBE
IBM Fellow and Vice President Technology - Europe
Chair of the Leeds City Region Enterprise Partnership’s Employment and Skills Panel