Serious shortages of skilled labour are building up once again, particularly in the IT, engineering and building sectors.
Ten years ago, chancellor Nigel (now Lord) Lawson boasted of a supply side miracle for the UK economy. Of course, we all know what happened.
The Government's passionate affair with the consumer boom ended in heartbreak.
Miracle turned to mirage and the City's sparkling wine turned flatter than London tap water. Fast forward to the l990s. A new decade, and a new kind of economic recovery. A recovery keen on sensible things - like inward investment, manufacturing and exports. A well-balanced recovery, with a reassuringly strong moral line on potential evils like inflation.
After the wild-eyed excesses of the past, perhaps the kind of recovery that one could safely take home to mother.
Perhaps not. One of the first cracks in the dreams of Margaret Thatcher's 'brilliant chancellor' (as she called him) came when serious shortages of skilled labour prevented domestic producers from meeting spendaholic levels of consumer demand. Once again, evidence of skills shortages is building and suddenly, it seems, we have been here before. Britain's apparent new economic virility is once again not what it seems.
Business concerns have been simmering for some time now, and the signs are that they may be beginning to boil over. The announcement in March that British Aerospace (BAe) may soon set up its own university to train engineering graduates is one clear sign of the dilemmas faced by business over skills shortages. Commenting on the move, chief executive Sir Richard Evans expressed concern at the shortfall in technological know-how and criticised the teaching profession for a 'complete lack of understanding of what technology and engineering is about'. BAe has relationships with some primary and secondary schools and with 250 universities in Britain.
It usually recruits between 600 and 700 graduates each year but has become exasperated by its inability to recruit solely from the domestic labour market. BAe's plans won applause but at the same time led many to bemoan the necessity of such a drastic step.
Coopers & Lybrand's quarterly Barometer survey is giving off a similar signal. Its poll of middle market companies (those with a turnover of between £5 million and £200 million) suggests that a third see shortages of skilled staff as a major impediment to growth. The outlook is even more gloomy among hypergrowth firms and companies listed on the Alternative Investment Market, the Barometer suggests, with half pointing to skills shortages as public enemy number one.
There are two different types of skills shortages - those that occur when you simply can't recruit the necessary staff from outside and those skills lacking in staff already in the company as processes and the marketplace evolve. An annual publication from the Department for Education and Employment (DfEE), Skill Needs in Britain, which was published earlier this year, sheds some light on the first kind of shortage. It reports that 37% of survey respondents admitted to having had a 'hard-to-fill' vacancy within the previous 12 months. The proportion has risen every year from a low of 16% in 1992 at the end of the last recession. The evidence also suggests that the proportion of current hard-to-fill vacancies is spread fairly evenly across professions. It troubles employers most in the South East and least in Scotland and North West England. According to Steve Blundell at Coopers & Lybrand, during the current recovery 'nearly twice as many middle market manufacturers are experiencing the problem than service companies'. In the heady 1980s, of course, it was the service sector in particular that suffered badly from staff shortages and the very latest anecdotal evidence suggests that the labour market for services is now once again beginning to experience problems.
Of course, a hard-to-fill vacancy does not in itself mean a shortage of available talent. There are other factors such as unattractive pay or conditions and/or unrealistically high recruitment expectations. Nevertheless the DfEE's survey estimates that nearly 40% of these awkward vacancies are put down directly to a lack of applicants with sufficient skills. The most high-profile shortfalls are occurring in the IT sector. Rob Wirszycz, director-general of the Computer Services and Software Association (CSSA), sees an acute dilemma with recruitment and retention of IT staff. He illustrates the problem with reference to a recent dinner he attended with representatives of 20 medium to large IT companies. A tour de table 'revealed a total of over 5,000 vacancies - the size of a small town,' says Wirszycz. He adds, somewhat ominously, that these were only the vacancies that the participants were prepared to own up to. Anne Minto, deputy director-general for the Engineering Employers' Federation (EEF), also points to the beginnings of a problem in her area.
'There are already a number of pressure points around the place. The aerospace industry, for example. It's not just coincidence that we've got British Aerospace saying that they've got a lack of skilled people.'
The approaching millennium is fast becoming a focal point for those worried about shortages. The twin nightmares of the year 2000 problem and the logistics of the approaching single currency are familiar to most business folk by now. But even before these problems moved from distant cloud to imminent thunderstorm, IT staff were heavily stretched. One of the biggest problems, says Wirszycz, is that those companies coming out of recession focused for the first time on using IT to make fundamental changes to their businesses. He says: 'Even without the EMU and 2000 problems, IT staff were going to be busy installing intranets, data warehousing, building new applications and so on.' He adds that many IT vendors are going to be simply too busy supporting existing customers to go touting around for new business. This is confirmed by management consultants CSC Index, who report that 30% of contractors asked to tender for year 2000 work have not bothered to bid.
The millennium is also a concern for Janice Bradfield, press officer at the Construction Industry Training Board (CITB). Skills shortages in construction are occurring, she says, particularly in specialised trades on major projects. Big projects like the Millennium Exhibition, for instance, 'can suck in all the local workers and so everyone else finds it difficult to hire labour, except at expensive rates'. According to Grant Prior of Construction News, bricklayers 'can take their pick at the moment'. He says brickies in London now command an hourly rate of £8.50 per hour, compared with a somewhat more lowly £7 just six months ago.
Minto also has doubts about the quality of suitable young people available to ease skills shortage concerns. 'We find it really quite hard to get the quantities of quality young people with five GCSEs at C grade or above to come on to the modern apprenticeship scheme.' She is doubtful too about the quality of young people going on to university courses, because 'quite frankly we're not interested in those people who are getting onto courses with Ds and Es (at A level). That is not the kind of student we want.'
Shortages are not confined to the IT, engineering and construction sectors, although these are the current high-profile concerns. Nearly one-third of the DfEE's hard-to-fill vacancies required neither vocational skills nor experience. Indeed, nearly 30% of vacancies - what one might call the 'McJobs' end of the market - needed skills that are largely inherent - communications and personality (the ability to fit in), for example. Such difficulties in filling McJobs vacancies could conceivably over time make business fears about a Labour government's implementation of a minimum wage seem less relevant.
The question of whether a current shortage of skills across the board means that we are about to encounter a new wave of wage inflation is key at this stage of the business cycle. The most recent evidence is troubling, the historical comparisons less so. Underlying average earnings growth has risen by a full point since October, which, according to Leo Doyle of Dresdner Kleinwort Benson, is the most rapid short-term acceleration in earnings since the 1970s. However, wage inflation was as high as 26.7% in 1976 and 25.8% in 1981. Both upsurges were of course closely related to the oil price shocks at the time, but nevertheless average nominal wage growth of less than 4% over the past four years represents a vast improvement. Real wage growth is equally subdued - for the moment at least.
Yet the CSSA estimates that the insatiable demand for staff has resulted in wage rate growth for IT staff of four times the rate of retail price inflation. In other industries, experts report calm - with pockets of wage inflation for certain skills. The EEF's Minto says: 'There are shortages and pressure points on wages. It's less geographical and more disciplinary driven. In aerospace, you could say the problem is acute.' Bradfield at the CITB tells much the same story. 'Wage inflation is evident in one or two particular sub-sectors and we might find wages creeping up in order to get the people we want.' Ireland's campaign to lure its native labourers back home to cope with a construction boom over there is another adverse factor.
Opportunities abound for those with specialist IT skills, as the headhunting industry has been quick to appreciate. The 'net-tastic' IT nerds may be tempted by lucrative offers from the desperate corporate world, but Anthony Harling, principal of the technology group at executive search consultants Heidrick & Struggles, believes that the combination of IT skills and more general management experience - the IT director or the chief information officer positions - is where the real shortages lie. While the information technology eggheads are making good short-term money, their poor reputation for communication too often infuriates business leaders. Those in demand, he says, are, 'IT directors with some sense of business strategy, who can deliver results - on time'.
If you look at the trend towards outsourcing, Harling believes, 'the skill of IT director is as much in managing the outsourcing company as in directing the IT capability itself - a lot of companies have a mixture of internal and external IT service. It's real management, as opposed to single-dimensional technical management.' Could this mean that the experienced middle manager, the major victim of the corporate downsizing of the 1990s, is making something of a comeback in the IT field? Harling apparently thinks not: 'IT directors still tend to be fairly young people.
These people might have been in a general consulting environment beforehand.
So it's not just a question of retraining older managers.'
Even if you're prepared to pay a premium for staff, sometimes it is just impossible to get them - at any price. The Bonas Machine Company, based in Gateshead, has a turnover of £34 million and a workforce of 320 people.
It is a significant player in the textile machinery business, with around half of the world market for electronic weaving machines. The company endures frustration in particular areas of recruitment - for example, technical, development and service engineers who travel the world looking after Bonas machines for its customers. 'The most difficult person for us to recruit is an engineer who also speaks languages,' explains chairman Ian Harris. 'In Britain generally that sort of person is difficult to get. In the North East, he or she is nearly impossible to get.' Bonas has its own language laboratory to encourage staff to develop their language skills, but admits that it is very difficult to get appropriate people in these areas, irrespective of what an employer may be prepared to pay.
When you simply can't get the staff, you look at what you can do with the staff that you already have. Internal training programmes are becoming more and more important, with employers reporting that the skills levels needed among the workforce are clearly increasing. Skill Needs in Britain reports that nearly three-quarters of employers believe that the skills required of their average employee are growing.
There are some encouraging signs of internal training. Around two-thirds of employers now have a training plan and a budget to go with it. Although it is unclear whether the size of the training budget per company has risen, the proportion of firms with a training budget is up from just over 50% two years ago. In addition, just over eight out of 10 employers said that they had someone at senior management level who was responsible for training, although only a third of employers said that they had training facilities and full-time training staff. Of those employers who noted a skills gap among their existing workforce, this was most often in management skills (see table opposite), perhaps the most difficult discipline to judge when recruiting from outside the organisation and a growing necessity as companies learn to adjust to increasingly fluid organisational structures.
In 1995, there was a major step up in the provision of training of all sorts and this has been maintained into 1996. Much of the training has been provided out of statutory necessity, in health and safety, for example, but there has been growth in training in all areas (see table, p46). Minto and her colleagues at the EEF launched a Training Challenge to stimulate people into the culture of life-long training. 'I'd like to see more training within the adult workforce. Whatever the size of the company, those which are beating the competition are those which are actually actively involved in training people,' she says. 'A great deal of emphasis is placed on the youngsters - and rightly so. But we've got a heck of a lot of very good people around 40 to 45 years old who need to be retrained to keep up with the kind of technologies that are available in the workforce.' It is this sort of statement, notable by its absence in the years of corporate downsizing, which is giving the more mature members of the workforce fresh hope of opportunities in the labour market.
The DfEE reveals that, in 1996, almost two-thirds of employers said that at least some of their training provision led to formal qualifications. This represents a steady increase over the past few years. Of those employers who encourage formal qualifications, the vast majority go for NVQ/SVQs or other nationally recognised qualifications, such as City and Guilds. The CITB, for instance, concentrates particularly on those in shortest supply, such as bricklayers and joiners. To encourage companies to participate in the scheme, the CITB operates a levy-grant system. It levies the construction industry at 0.25% of payroll and then returns the money to the industry in the form of grants 'so that those who train their staff get their money back and those who don't are subsidising those that do'. The CITB also negotiates for funds from the National Training and Enterprise Council. For every £1 it collects in levy, it claims to return £1.48 to the industry.
That training up the skills base seems to be in the ascendancy reflects competitive necessity rather than utopian generosity. There is strong criticism of government for not doing enough to help the corporate sector.
Minto believes that differential funding of modern apprenticeship schemes in engineering has not been fully tackled. The cost of training in engineering is far greater than in business studies or hairdressing. 'For business studies it costs something like £8,000 to put someone through to NVQ level 3,' she says. 'To do the same for engineering, it costs about £28,000. The average TEC support we're getting is somewhere between £4,000 and £9,000 and you're very lucky if you're getting that. That's a huge gulf for the employer.'
The Bonas Machine Company is in the process of bringing more training in-house and is currently working in conjunction with the local TEC (and will work with one of the local universities) on a programme to bring in staff up to the level where they can be NVQ assessors.
As Harris explains: 'External training can be of good quality but if you buy, you have to buy the whole package, which perhaps some of the time isn't as good as it could be. And of course there is great variability in the standard of external skills training available.'
Minto is critical of the consequences of Euro-sceptical political shenanigans.
'We tried to get the Government to take up the ADAPT funding when Michael Portillo was the secretary of state (for employment). He was only prepared to take European funding if it was to help who were unemployed. We are sympathetic to the unemployed but of course very interested in people in work who need their to have their skills updated. If there was money there to be had, the UK ought to be in there getting its share. Because if we don't pick it up, someone else will.'
As far as IT skills are concerned, the CSSA's Wirszycz is less concerned about a lack of government action. He believes that there is fault on both sides: 'The Government is doing something about IT skills, albeit largely on the promotional side. Its role should be largely to facilitate.
Its antennae on these matters are not as finely tuned as they ought to be, but that may be the fault of the industry. One of the jobs I have to do is to go and tell them what I think and I could quite happily hold up my hand and say, "I haven't really told them very much so far". We're not an industry that bleats to the Government and says, "Well, it's your fault and you should do something".'
How serious the skills shortage is depends on your perception of the prospects for economic growth. The CITB's Bradfield believes that as long as growth isn't any stronger than about 2% or 3% a year, the problems the construction industry has are containable. This is a deeply depressing but, alas, accurate statement. Since the last recession, economic growth has been steady but very modest. The fact that skills shortages and associated wage pressures are already appearing does not bode well for the growth potential of the economy in the years ahead. Sadly, it appears that this economic recovery, for all its virtues, is in some ways different from the last.
FIRMS PROVIDING OFF-THE-JOB TRAINING
1994 1995 1996
% % %
Health & safety 64 81 85
Induction 49 72 72
New technology 47 64 66
Management 47 60 64
Supervision 41 53 51
Apprenticeships 12 17 17
Foreign languages 7 7 11
Source: Skill Needs in Britain (DfEE)
WHERE EMPLOYERS FIND SKILLS ARE LACKING
1992 1993 1994 1995 1996
% % % % %
Management 48 46 47 64 66
General 41 53 43 70 65
communications Computer literacy 51 48 53 62 64
Personal (motivation, 47 47 53 61 61
ability to fit in, etc)
Practical 46 34 46 54 54
Basic ability 31 39 37 51 53
Literacy and 11 16 18 24 28
Source: Skill Needs in Britain (DfEE).