Sources_of_Skill_Shortages_in_Britain

Sources of Skill shortages in Britain This assignment discusses the reasons for skills shortages in Britain. This assignment is divided into four portions. First part will describe the how the shift in policy making shifted from industrial relations toward skills. Second part will describe the main factors that were causing Britain’s employees to be less productive by comparing it with Germany. The third part will discuss the various developments that were done to improve Britain’s vocational educational system. The fourth and last past will discuss the problems in demand side of skill shortages. The discussion about skill shortages as factors in explaining Britain’s low wage problem will be discussed in this last part. Skills are important factors for any country’s economic performance. As argued by Thurow (1994), “... in the economy ahead, skills are the only source of competitive advantage. Everything else is available to everyone on a more or less equal access basis.” (As cited by Keep and Mathew, 1998:368) Skills are the main focus of policies in Britain today. The focus of policies from industrial relations toward skills has shifted gradually with time according to the views of governments about the causes of Britain’s low productivity and low economic performance. Skills were never totally absent from government policies but they were mostly overshadowed by industrial relations. The shift in focus of policies from industrial relations to skills will be discussed below. Industrial relations remained the main focus of policy attention from 1960 to 1980. The reason for industrial relations as main focus of policy attention was due to the problems of strikes, conflicts and low productivity faced by Government at that time. The Donovan commission was established in 1965 to enter the industries and investigate these problems. Its report in 1968 suggested that lack of order in the collective bargaining system was the root cause for these problems. The Donovan commission stressed on more formal bargaining system in which management will have more control over essential aspects of work organization and pay determination. Government considered these reforms in collective bargaining as a remedy for Britain’s low economic performance. (Odgen, 1982) These deficiencies in the design and conduct of industrial relations were considered as main factor in Britain’s low economic performance. In 1973-74, the oil crisis of OPEC (organization of petroleum exporting countries) brought the problems of rising unemployment, low economic growth and inflation. Due to these problems, policy makers started to think about alternative solution for Britain’s low economic performance. A major shift in the attention of policy makers from industrial relation toward the problem of skills shortages in Britain came by the speech of the then labour prime minister , James Callaghan in 1976. His speech mentioned failures in the education system to supply skilled workers which can meet the demands of the employers. The other main reason for a shift in focus of policies toward skills was the agenda of Thatcher government which was elected in 1979. It considered trade unions and collective bargaining as the main causes of Britain’s low economic performance. Its aim was to rectify the presumed weaknesses in the Britain’s industrial relations by reducing the strength of collective bargaining and trade unions and giving more strength to employers in pay determination. The policies of Thatcher government failed because in late 1990’s, trade unions were left with little strength and ratio of strikes was also low, but the problem of Britain’s low productivity remained. This proved that trade unions were not the causes of Britain’s low productivity and this brought the focus of policy makers toward skills. (Keep et al. 2008) The above two paragraphs discussed the shift in focus of policies from industrial relations toward skills. This portion of assignment will discuss the main factors that are causing Britain a low productive economy. A comparison will be done with German to narrow down the main factors. To understand the problem of Britain’s low productivity, many writers did comparative research in some industries in Britain and Germany. The aim of this comparison with Germany was to find the main reasons that were causing Germany to be more productive than Britain. For example Daly et al. (1985) studied manufacturing plant for metal working, Steedman and Wagner, (1989) studied the manufacturing plants of women outwears and Prais et al. (1989) studied the hotel industry in Britain and Germany. Study of Steedman and Wagner, (1989:47-50) showed that on average, German plants were training their younger employees on a three to one ratio in comparison with Britain and their plant managers were qualified with three years of clothing apprenticeship, which is equal to Britain’s HND/ BSc. On the other hand British plant managers hardly acquired any specialist qualification. Another major difference can be seen in the work of Daly et al. (1985:55), according to them, “.....most of the foremen in Germany plants were qualified to craftsman standard and most of them were also qualified to the standard of Meister (master craftsman)...” By acquiring this qualification of Meister, the foreman is able to perform his/her routine tasks of setting and maintaining machines along with other supervisory task such as managing staff and work organization. While on the other it was observed that most of British foremen have obtained this designation due to long experience, without any qualification. Prais et al. (1989:63) mentioned another important factor of quality of training that was causing German hotel industry to perform better than Britain. Two things caused quality of German training to be effective than Britain; one was that much focus was on practical knowledge and other was the job rotation during training that gave multi skills to German trainee. Lane, (1992:144) mentioned the concept of polyvalency that is found in German training system. Being a polyvalent worker means having knowledge and capabilities to perform duties in two or more areas. This polyvalency is absent in Britain’s training system. Lane, (1992:145) mentioned the co-operative style of industrial relations in Germany, in which the foreman is someone who act as technical expert to help and support the workforce. This polyvalency of training and co-operative style of industrial relations was not found in Britain workplaces. All the studies mentioned above stressed that the main reasons for high productivity of Germany is its dual-apprenticeship system. In dual- apprenticeship system of Germany, the students have the option to enter apprenticeship from secondary school. When the students of vocational secondary schools (Hauptschule) are about to finish their ninth grade, they can apply for a contract with employer in their desired field. As apprenticeships enables young apprentices to easily make transition from school to work and provide a way for adult workers to find a work or change their career, apprenticeships can be of great importance in developing countries where skill gaps and shortages are increasing. (Skillsdevelopments.org) This above mentioned differences in Britain and German workplaces shows that main reason in Britain’s low productivity was the deficiencies in Britain’s vocational training system. The following portion of this paper will discuss the problems in supply side of skills shortages. Various developments that are done to improve Britain’s education and training system (ET), and their failures will be discussed. In 1980, Britain was facing a problem of deficiency in intermediate skills and capabilities. This problem was due to the education system at that time which was best suited to those with above average abilities and not for those who were below average or average students. Many students after compulsory school leaving were not going for higher education and those who quitted education had insufficient level of literacy and numeracy. The main reason was lack of vocational-orientation in that system of education. To tackle this problem the policy of comprehensive secondary education was introduced in the 1976 Education Training Act in 1976 by Labour Government. These comprehensive secondary schools were providing both academic and vocational education. The aim was to equip students for the demands of labour market, which in turn will improve the skill base of Britain’s workforce. But this system failed to achieve the desired objectives, partly because of limited funding. Benefits from this new comprehensive system are limited and the basic problem of literacy and numeracy still persists. (Keep and Mayhew, 1998: 368-371) General National Vocational qualifications (GNVQs) system for those in schools and college was developed by Conservative governments. But these developments did not do much for bringing a genuine technical education in schools. According to Gospel, (1995:36) “...it is certain that nothing has been done within the school system to promote apprenticeship training or to develop school-to-apprentice work transitions such as existed in Germany”. Another major development was the establishing of Industrial Training Boards (ITBs) by the Labour government’s Industrial Training Act 1964. ITBs had the power to levy firms and give grants to firms for providing training to its employees. ITBs were monitored by the Manpower Services Commission (MSC), made in 1974. The main reason for ITBs was that the absence of any legal requirement on employers to provide training, the quality and quantity of training provided was in doubt. Both the ITBs and MSC had equal representation from employers and trade unions. (Keep and Rainbird, 1995) While the ITBs were successful in improving the quantity and quality of training, their progress was limited in adult training and apprenticeship. (Keep and Rainbird, 2003) Thatcher government wanted to make a training market in which employers had the power to make decisions related to trainings. It abolished the ITBs and MSC and finished levy- grant system. New voluntary, employer led bodies were formed in which involvement of trade unions was only by the invitation from employers. Due to these reforms, training system in Britain was totally deregulated. (Keep and Rainbird, 2003) These new voluntary sectoral bodies had seen a series of change in names i.e. Non-statutory training organizations (NSTOs), industry training organizations (ITOs), national training organizations (NTOs) and finally Sectors skills councils (SSC) were formed in 2001.(Keep et al. 2008) Another major step to bring vocational training in education was the development of National Vocational Qualifications (NVQs) which was monitored by National Council for Vocational Qualifications (NCVQ), developed in 1986. NVQs are designed by employers and it composed of five levels. The assessment is done at workplace, normally by the supervisors. This mode of qualification rests on checking the outcomes of learning, instead of providing learning. (Keep and Rainbird, 2003) NVQs is criticised for its low level of standards and for the narrowness of skills it provide. (Gospel, 1995:36) Youth training scheme (YTS), introduced in 1983 has also been unsuccessful in providing vocational training to both the unemployed and young workers entering the market. (Keep and Mayhew, 1998:374) Another development was establishing the Training and Enterprise Councils (TECs) by conservative governments with the aim of giving more decision making power to local labour markets. TECs were also led by employers and involvement of trade unions was subject to employer’s invitation. Functions of TECs were to manage the government training schemes for unemployed, to check and deal with the skills required by the local labour market and to encourage companies to spend on training activities. Later TECs were also abolished by Labour government and Learning and Skills Councils (LSCs) were formed in 2001. It was responsible for funding all post-compulsory education and training. Two other developments are the Investor in people (IIP) and National Learning Targets. IIP is employer led body and was launched in 1990. Its aim was to support and motivate firms to invest in training. National learning targets were previously called National Education and Training Targets (NETTs) were originally launched in 1991, these are now run by LSC. Its main aims were to expend the span of learning, increasing the involvement of employers in workers training and raising the quality of the VET. Both the IIP and Learning Targets had representation from trade union congress (TUC). (Keep and Rainbird, 2003) Another major development in increasing trade unions involvement in training activities was done by the creating Union Learning Fund (ULF) in 1998 by Labour government. It was overlooked by the Union Learn and its main aim was to support union learning activities, motivate union members to take part in learning activities and these were done on partnership basis with employers. (Keep et al. 2008) The discussion show that many sincere efforts were done by governments to make training system effective in Britain but results were not as effective as were anticipated. Main problem with policies were that much focus was put only on skills formation and the factors that are important in utilization of these skills such as industrial relations and broader employment relations issues were ignored. Issues such as work organization and job design which can have a big impact in utilization of skills were not given any special attention by policy makers. (Keep et al. 2008) Discussion of the above reforms in improving Britain’s vocational training system show that employees and unions are not involved in the training decisions and according to Finegold and Soskice, (1988:50) this is also a reason of ineffectiveness of these reforms. Although it can be seen from the above discussion that voluntary sectoral bodies formed by conservative governments were employer-led, in reality they were not. With the abolition of MSC in 1988, employers lost their collective representation and they were mostly acting only as implementers of governments own policies targets and initiatives. (Keep et al. 2008: 410). Another important reason mentioned by Finegold and Soskice, (1988: 50) is lack of social partnership in these reforms. There are also some important sources on the demand side of skills shortages. One of the main factors on the demand side is the fear of poaching due to which employers can be hesitant in training their employees. Poaching means that when a company do investment in training its employees and then that employee is hired by another company. The company which losses the employee will also lose its investment. And according to Streeck, (1989) “...the company hiring the trained employee can pay him/her more than his/her previous employer because it has done no expenses in training of that employee...” (As cited by Keep and Mayhew, 1996:319) Those companies which are providing their employees with general and transferable skills have greater risk of losing their employees because general skills are those which can be used by other employer and transferable skills are those which can be used by limited number of employers. While those providing specific skills have no risk of poaching because specific skills are for that firm only in which these skills are gained. (Steven, 1996: 22-27) Another factor for lack of training in Britain mentioned by Keep and Mayhew, (1996: 308-310) is the growth in small firms, unemployment and part-time work. Part time work in Britain is found mostly in low level occupations such as clerical work, selling, catering, cleaning etc, and much training is not required in these occupations. According to Keep and Mayhew, (1988: 380), due to a large number of poor population residing in Britain, there is a demand for low price and low quality products. Due to this demand for low prices products the employers do not require highly skilled employees. Employers try to gain competitive advantage by low labour costs. Short-termism is another factor mentioned by Keep and Mayhew, (1996:323-324) which can discourage employers to invest in training. One main reason behind this was the rise of conglomerates in Britain after Second World War. Loans provided by banks are mostly short termed and the shareholders are interested in quick returns. If the returns are late then expected, then there is risk of being sold out. As investment in training is something that has returns in long term, most companies try to avoid investing in training. As discussed in the demand for low price products above, it is clear that skills shortages in Britain also result in low wages problems in Britain. The main things that can determine the pay level of a worker is his/her qualification and experience. These qualifications can be either academic qualification or technical qualification. And the job experience held by an employee also increases his/her skill. The skill level is in direct proportion to the level of pay. The higher the skills level will be, the higher will be the level of pay. The above essay discussed the main sources of skills shortages in Britain. From the discussion of the comparative studies that were done between Britain and Germany, it is clear that main reason behind Britain’s low productivity is the lack of vocational training in Britain. All the governments that came since 1960 did various efforts to develop the vocational training system effective in Britain but the results of these developments were not as effective as were anticipated. The main weak point in the policies was that too much focus was given only to skills formation. The issue of industrial relations and broad employment issues, which are important in effective utilization of skills, were ignored. Some other reasons lack of social partnership, lack of union strength in bargaining collectively over the issue of training and lack of employers association. There were also some issue on demand side of skill shortages such as short-termism of British firm, demand for labour and employee poaching. References: Ashton, D., Green, F. (1996): Education, Training and the Global Economy. Cheltenham: Edward Elgar. Daly, A et al. (1985): Productivity, Machinery and Skills in a Sample of British and German Manufacturing Plants: National Institute Economic Review, Vol. February, pp. 48-61. Finegold, D., Soskice, D., (1988): The Failure of Training in Britain: Analysis and Prescription: Oxford Review of Economic Policy, Vol. 4, No. 3, pp. 21-53. Gospel, H. F. (1995): The decline of apprenticeship training in Britain: Industrial Relations Journal, Vol. 26, No. 1, pp. 32-43. Keep, E., Mayhew, K. (1998): Vocational Education and Training and Economic Performance’ in Buxton, T. Chapman, P. Temple, P. (eds) Britain’s Economic Performance. London: Routledge. pp: 367-395. Lane, C. (1988): Industrial Change in Europe: The Pursuit of Flexible Specialization in Britain and West Germany: Work, Employment and Society, Vol. 2, No. 2, pp. 141-168. Keep, E., Mayhew, K. (1996): Evaluating the assumptions that underlie training policy. In: Booth, A., Snower, D.J. (eds.): Acquiring Skills: Market failures, their symptoms and policy responses. Cambridge. Cambridge University Press. Keep, E., Rainbird, H. (1995): Training in Edwards, P. (ed.) Industrial Relations: Theory and practice in Britain. Oxford: Blackwell. Keep et al. (2008): Skills Policy and the Displacement of Industrial Relations: The Elephant in the Corner' In: Colling, T., Terry, M.( 2010)(3rd ed): Industrial Relations: Theory and Practice. Oxford. Wiley- Blackwell. Keep, E., Rainbird, H. (2003): Training in Edwards, P. (ed.) Industrial Relations: Theory and practice in Britain. Oxford: Blackwell. Odgen, S. (1982): Bargaining structure and the control of industrial relation: British journal of industrial relations, 12 (5), 170-185 Prais, S.J et al. (1989) : Productivity and Vocational Skills in Services in Britain and Germany: Hotels: National Institute Economic Review, Vol. November, pp. 52-74. Steedman, H., Wagner, K. (1989): Productivity, Machinery and Skills: Clothing Manufacture in Britain and Germany’. National Institute Economic Review, Vol. May, pp. 40-57. Stevens, M. (1996): Transferable training and poaching externalities: In: Booth, A., Snower, D.J. (eds.): Acquiring Skills. Market failures, their symptoms and policy responses. Cambridge: Cambridge University Press Skillsdevelopment.org: http://www.skillsdevelopment.org/pdf/Apprenticeshipsupdated.pdf