Competition for jobs and skills mismatch during the coronavirus pandemic

In the Autumn of 2021, headlines were dominated by record job vacancy numbers, providing some much-needed optimism about future labour market conditions. This accompanied serious labour shortages in some occupations, such as lorry drivers and agricultural workers. Between February and July 2021, UK salaries for driving jobs reportedly increased by more than seven times the average wage growth for all jobs. Despite this supposed excess in job vacancies, many people were still struggling to find jobs, prompting a £500m extension to post-COVID support for poorer families. How can it be the case that so many people are struggling to find work at a time when many firms are desperate to hire more employees? Whilst the long-term effects of the COVID-19 pandemic on the labour market remain to be seen, this all points to an increase in skills mismatch between jobseekers and jobs. Which if true, has worrying implications for structural unemployment and aggregate output in the UK.

What is skills mismatch?

Skills mismatch describes the difference between the skills that workers or the unemployed currently possess, and the skills that employers are looking for. This could mean that the jobs the economy is creating require skills that individuals do not have, that education institutions are not providing individuals with the skills employers need, or that current skills are becoming obsolete as some industries decline.

The obvious answer to a mismatch is for workers to acquire new skills. In practice, however, there are many reasons why individuals may find it difficult to retrain. Firms often don’t supply as much skills training as the economy might need, especially to older workers, as they are unlikely to reap the full benefits of this investment (because workers may change jobs and older workers may be likely to work for less time). Individuals, on the other hand, may be constrained financially and find it difficult to borrow money to invest in more training – even if doing so would be worthwhile in the long run.

One example of skills mismatch arose from the decline of steel production and heavy engineering in the UK during the 1970s. The number of steel workers almost halved between 1971 and 1981, from representing 1.5% of total employment in Great Britain to 0.8%. Workers who were made redundant struggled to find jobs as they had skills that were specific to their current roles. Older workers and those without easy access to education found it difficult to retrain, resulting in some groups remaining unemployed for long periods of time.

Skills mismatch can be exacerbated by labour immobility. Jobseekers can find it difficult to move regions for many reasons such as family and cultural ties, huge regional variations in housing prices or other living costs, and the financial cost of making the move itself. Even when jobseekers have the skills required for new jobs, if they are unwilling or unable to move to the part of the country in which the job is based, unemployment can be persistent.

How has COVID-19 affected skills mismatch?

Both job vacancies and unemployment have changed a lot over the course of the pandemic and between industries. At the start of the pandemic in March 2020, labour demand was affected directly in industries which were legally forced to close (e.g. hospitality, tourism and retail) and indirectly in other industries because of uncertainty about future economic conditions. Conversely, front line jobs such as healthcare and teaching did not fare as badly, but were less attractive to work in as individuals were at a higher risk of contracting COVID-19.

Since June 2021, the total number of job vacancies has exceeded pre-pandemic levels. Whilst it may look like prospects for jobseekers are flourishing, however, research from the Institute for Fiscal Studies shows that this recovery in total job vacancies was driven by surges in a few, lower paying, occupations. Discrepancies between vacancy numbers and jobseekers has produced large differences in competition for jobs between occupations. Put simply, it is now easier to get a job in some occupations (like Road Transport Drivers, Vehicle trades and Caring and Personal Services), but more challenging in others (like Business Research, Admin and Legal Professionals).

One reason for this is that the coronavirus pandemic has accelerated changes in labour demand in certain industries and regions of the UK. Whilst workers are becoming unemployed in some regions and industries, others are expanding faster than jobseekers are able to retrain for or move to. Autumn 2021 saw excess demand for road transport drivers, agriculture workers, and storage workers. We have also seen regional changes, such as the contraction of labour demand in London. This is potentially due to a sharp rise in the proportion of office workers working from home during the pandemic. This reduced the demand for certain services, and hence the number of jobs available, in central London.

Why does this matter?

Skills mismatch can result in long-term unemployment. Evidence suggests that the longer an individual is out of work, the harder it becomes to get a job and especially a job as well paid as their previous role. This can result in a loss of income, less national output because fewer people are working, and lower government revenue because people have less income to pay tax on. The longer you are unemployed, the greater the associated economic and social costs tend to be. Following the decline of steel manufacturing in the 1970s, for example, many people were unemployed for long periods of time, contributing to rising inequality, relative poverty, and a deepening regional economic divide.

For businesses, skills mismatch has negative consequences for both productivity and competitiveness. Whilst the Covid-19 pandemic continues to dominate research and headlines, we can’t forget the potential impacts of Brexit on the UK labour market. Because of increased labour regulations, such as visas to work in the UK, Brexit has made it more difficult to hire from abroad contributing to labour shortages. If these labour shortages restrict firms’ ability to fill job vacancies, produce goods and services, or implement new technologies, the output of the economy is likely to suffer. For sectors where there are labour shortages, wages are likely to increase, potentially pushing up prices for consumers.

What can the government do?

While the number of job vacancies has risen since the collapse experienced at the start of the pandemic, the number of jobseekers, and hence number of vacancies per jobseeker, has remained higher than pre-pandemic. There is also substantial variation in worker prospects between occupations, with some reporting large worker shortages. Although there will be both winners and losers, and the full effects of the COVID-19 pandemic and Brexit on the UK labour market still remain to be seen, this all points towards a labour market which is tougher for jobseekers in comparison to pre-pandemic. 
Retraining can be a costly process. If current job creation does not correspond to the skills of jobseekers, government will need to assess how education and training institutions can better provide skills that are in-demand and expand existing job match and search services to support jobseekers.

While the government’s flagship coronavirus recovery scheme (the so-called ‘Plan for Jobs’), includes targeted upskilling and job matching services, there is a risk that it is not substantial enough. Government programmes typically target younger workers who, although they are at greater risk of unemployment and decreased wage progression from economic downturn, tend to find it easier to retrain than older workers who may be more at risk of structural unemployment. 

To create long term solutions, the current UK education system may require some level of reform as its’ ability to equip people with the skills they need to work is questionable. Criticisms include that the current system is too focused on the A-level to university route, and does little to promote high-level technical and vocational qualifications, nor provide alternatives training routes for individuals who don’t make expected grades in tests at school.

Finally, the government needs to plan for the right jobs. If there is additional labour demand from expanding industries, training will need to focus on the skills which fill the gap. Investing resources in training with the assumption that any additional qualifications will mean less unemployment could be an inefficient use of resources and result in a lower return on government spending than expected.