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It’ll take skills to navigate labour market turbulence

This post was originally published on the OECD Forum Network

It is a turbulent time for job markets. Following the disruption of the pandemic, the UK has seen a tightening of labour supply. Though this has meant wage bumps for some, notably in hospitality, it hasn’t been enough to overcome stagnant growth since the 2008 financial crisis.  

UK wage growth has lagged other countries because of slow productivity growth. This is partly driven by a lack of business investment, particularly in staff. Employer training has fallen over the last decade, especially for those with fewer qualifications – partially because employers are fearful that employees will move, while UK taxes make labour more expensive than capital. Businesses have long-standing complaints that workers don’t have basic literacy, numeracy, or digital skills, slowing the training process. Having weaker unions than, say, Germany also plays a role.

These issues are not felt equally across the country. While average productivity for the UK is £33.5 gross value added per hour worked, in London its £46.40. Except for the southeast, every other region is well below average. Places that experienced the UK’s deindustrialisation tend to have higher structural unemployment, hitting productivity and a terrible outcome for individuals.  

There is a risk too that with high-carbon industries concentrated in low productivity regions, the uneven distribution could widen. The UK’s steel industry for example is predominantly in Wales and Yorkshire & Humber. Should the UK fail to adapt to green steel these regions could fall further behind. 

The green skills gap
The UK government has set an ambitious target to cut carbon emissions by 78% by 2035, this will mean a rapid shift in skills demand, as 80% of current workers will still be in the
labour market in 2030. But, at the moment, UK workers lack the skills to adapt to a modern green economy. 

Some jobs will require new skills, for example the mining of electronic waste to preserve raw materials. Others will adapt, learning to use new materials and techniques, like fitting heat pumps rather than gas boilers. Lots will remain the same but with some new business processes, for example a hospital doctor learning to produce less plastic waste. Two very different sectors highlight the variability in the challenge.  

Buildings account for 16% of the UK’s emissions, with construction and related trades employing 1.3 million people. Building is linked to population centres so, although there are hotspots in London and the south east, employment is found across the country. Even ahead of the transition, the sector is suffering shortages, with 750,000 building workers expected to leave the labour market by 2035. With a need to retrofit 19 million of the UK’s least energy efficient homes, and to begin building new homes to zero carbon standards, there are specific gaps in jobs such as heat pump installation. There will need to be over 12,000 installers by 2025 and 5 five times that amount by 2030 

Heavy industry is a different story. Half of industrial emissions are found in specific areas of the UK. Geographic concentration puts a premium on place-based skills policy, ensuring that communities are not unfairly disrupted by the transition as they were from the decline of the coal industry. However, industry could be a hopeful story for skills. Green hydrogen has a very similar set of required skills to the chemical industry, while oil and gas workers have many of the skills required for carbon capture and storage. Key will be facilitating workers to move to cleaner industries, whilst maintaining the high standards of work and pay they currently enjoy.  

The government needs an active skills policy
The market alone will not close the gap in the UK’s green skills supply, there is a need for targeted policy. 

Integration is the name of the game to improve skills supply, not only across government departments notably business, education, transport and environment – but between those with something to gain, industry, education institutions and individuals.   

Primarily this means better understanding the skills gap to decarbonise, for government at a national and regional level, for education providers at a local level, and industry specific skills for businesses. Sectoral specific skills intelligence and foresight has fallen out of the UK economy recently and needs to return. Government should also lead in developing real time data of skills need in a coherent framework.  

Understanding the picture will help people plan, but greater incentives will be needed. Where the framework points to a national strategic need for example in retrofitting, government should provide funding to education institutions for retraining programmes. This would also help colleges compete to add green modules to more standard course courses, something Green Alliance’s focus groups showed young people are demanding. Businesses also need incentives with better tax treatment for labour, for example tax relief not just for physical things but to cover human capital investments.  

Finally, it is ultimately individuals who will provide the skills required. They suffer from barriers in knowledge, security and finance. Where it is strategic, loans and grants for fees and subsistence are vital. Oil and Gas workers pay, on average, £1800 in training and qualifications a year, any further costs to move industry will be prohibitive. Government campaigns will need to increase knowledge of ‘green’ sectors, though with more emphasis on security and transferability than ‘green’ which many find offputting. 

The climate transition will not mean an end to the turbulence the labour market has seen recently. But an active skills policy, with a clear end purpose will better help industry, education institutions and individuals navigate the bumps. 

Written by

Sam leads Green Alliance's Green Renewal programme, part of the Greening the Economy theme, aiming to put actions that meet our climate objectives and restore nature at the heart of our Covid-19 economic recovery. He is also a member of Chatham House’s Panel of Young Advisors, advising on youth strategy and climate. Before joining Green Alliance Sam was a Senior Advisor to Tony Blair, as well as a leading on Brexit and Industrial Strategy for the Wellcome Trust. Prior to this he worked for the Shadow Treasury team in Parliament. Outside of work Sam is a school governor, charity trustee and mentor with the Social Mobility Foundation. He holds a MSc in Climate Change.