30 January 2019

Deal or no deal, Britons will need skills to pay their bills

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One of the many baleful things about the endless Brexit saga is the way it has sucked the life out of much more interesting, probably more important policy debates. Yesterday was a good example. While the media understandably zeroed in on which MPs’ amendments were up or down, an alarming report from the Social Mobility Commission was published to very little fuss.

The Commission found that Britain’s poorest, least skilled adults are the ones least likely to access further training, even though they are precisely the section of the workforce whom it would most benefit. That conclusion is closely linked to a previous report SMC report in 2017, which found the UK had an “endemic low wage problem”, with only one in six lower-paid workers able to improve their salary over the last decade.

To listen to the Labour Party and the trade unions, that is all the fault of greedy capitalists failing to share the spoils with their workforce. If only fat cats earned less, the argument goes, their workforce would be a lot more prosperous. It’s a seductive line, although, as Matthew Lesh noted recently for CapX, even if we redistributed the entirety of every FTSE 100 chief executive’s salary, it would boost average wages by a little under £1.50 a month.

In fact, as the Commission itself points out, “low pay is mainly a low skill problem”. Their report emphasises just how severe the skills gap is, with almost half of those in the poorest socio-economic group receiving no training whatsoever after leaving school. As Ben Ramanauskas observed earlier this week, boosting that human capital is the surest route to increased prosperity.

The typical left-wing suggestions of cutting executive pay or state-mandated wage increases offer nothing to address the root cause of Britain’s low wage problem.

In fact, the state is arguably making things worse at the moment, by slanting taxpayer support towards those who do well at school and end up in higher education. Much has been made of higher tuition fees shifting the burden to students, but the Government stills spends much more subsidising higher education teaching than it does on adult skills.

And those with a degree are, to paraphrase Charlie Sheen, “double winning” — not only do many get the “graduate premium” of higher wages, but they are then three times as likely to receive on the job training than lower-skilled people. This reinforces what Daria Luchinskaya of the Institute of Employment Research calls “a ‘virtuous’ and a ‘vicious’ cycle of learning”, where the already skilled are most likely to acquire new skills, and those with few skills face a dead end.

Notably, the Commission does not point the finger at the private sector, which it found funds some 82 per cent of the total adult skills spend in this country, with individuals and the Government picking up the remainder. Perhaps that’s not surprising – after all, a well-trained workforce should mean higher productivity and, ultimately, bigger profits.

That said, it seems curious that the state puts so little into adult training. Indeed, the Government’s adult skills budget for 2018/19 is just £2.8bn, out of a total annual education budget approaching £90bn. The UK spends only two thirds of the EU average on adult skills. Combined with expensive transport and high housing costs preventing people moving for work, the so-called ‘productivity puzzle’ suddenly looks a little less puzzling.

Even if you are sceptical about state intervention in the economy, spending more public money on improving skills seems a no-brainer. Not only will it help improve productivity, it should also mean lower spending on welfare. More productive workers earning more are less likely to need benefits to top up their incomes.

There’s a broader debate here too about a shift in the way we approach learning. It’s well documented that the job market is becoming ever more fluid, with those entering the job market now expected to try out several careers before they retire. That’s a corollary both of cultural change and the fact we’re all living so much longer.

Despite that, we still put far too much stock in exams that people take as teenagers, with too little chance for those who don’t do well at GCSEs to get on in life. The Government has at least begun to make changes in this area with the new vocational T-Levels, but that should only be the beginning of a much wider effort to encourage lifelong skills acquisition.

It’s a particularly urgent issue given that labour-saving technology is likely to displace a large number of less skilled jobs currently performed by humans. As we’ve argued many times on CapX, advancing technology will be overwhelmingly beneficial, but that does not mean we should just airily ignore the consequences for those whose jobs are under threat.

Brexit may be the only game in town at the moment, with ever more frenzied discussion of the fallout from different types of withdrawal. But the truth is that however we end up leaving the European Union, deal or no deal, it will be skills that pay our bills for years to come.

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John Ashmore is Deputy Editor of CapX.