The shortfall of UK workers

The shortfall of UK workers

Availability of workers is becoming a growing concern for UK business.

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Chief Economist

KPMG in the UK

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As the new government prepares for the start of Brexit negotiations and finalises the content of the Queen’s speech, there is one important area it should consider. The availability of workers is a concern rightly rising to the top of companies’ agenda and one that will require action from both business and the government. There are no easy solutions, some initiatives are already in train, but more needs to be done – starting by giving the issue the prominence it warrants.

The demographic challenge

Demographics are not working in the UK’s favour. Assuming a low migration scenario (Under ONS low migration scenario net migration falls to 105,016 by 2020-21), the ONS projects UK population aged 16-64 to remain largely unchanged at 41.5 million by 2027. The labour market is already tight: in the first quarter unemployment fell to 4.6% - its lowest since 1975 – and survey evidence points to a significant proportion of employers finding it difficult to fill vacancies.

Pressure has increased since the referendum result: net migration from the eight Eastern European countries that joined the EU in 2004 (Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia
) has been particularly affected, falling to just 5,000 in 2016 compared to a peak of 87,000 in 2007

There were 2.3 million EU workers in the UK as of March this year, representing 7% of all those in work. However employers dependent on EU workers could find more of their workers deciding to leave the UK for a variety of reasons, even before the possible imposition of government restrictions to cut net migration to its stated target of less than 100,000.

Despite the large presence of EU nationals in the workforce, their potential loss is eased by the fact over half of the jobs they perform require low levels of training or specialist qualifications. If employers can find alternative sources of labour in the UK then, in theory, positions vacated by those EU nationals should be easier to fill.

Source: ONS Labour Force Survey 2014-2016 average values

Addressing the shortfall

The UK government had already taken some steps that will help increase the pool of labour. By 2028 the state pension retirement age for men and women will be 67, rising to 68 by 2046. Just that first increase to 67 should add 1.7 million people to the working age population by 2027, according to the ONS – a 4% increase.

Source: ONS labour force survey, 2017Q1

To expand the pool further, we may look towards the 8.8 million people in the UK who are currently outside the labour market. In the main, these people are students, parents and those looking after family members, the long-term sick and early retirees. A quarter of them, some 2.1 million people, want to take a job, according to the ONS labour force survey – just shy of the 2.3 million EU nationals working in the UK (see Chart 3 below).

Source: ONS labour force survey, 2017Q1

So what could be done to help this group join the labour market?
The first and largest sub-section of this group are parents and people looking after family members, suggesting that government policies offering affordable childcare or providing help with things like after-school clubs may help.

Employers able to give parents the flexibility to work around school hours may also find it easier to attract workers from this group. With more choice about the hours they work, new kinds of people could be drawn into the job market: from parents looking to fill a few hours during the school day to the recently retired looking for tasks to keep them active.

Possible changes to the way social care is provided in the UK are another example. KPMG’s Reimagine Care paper last year set out a future in which digital platform technology could enable social care workers and service users to interact more flexibly than existing scheduled arrangements allow, with benefits for both parties.

These kinds of solutions need to be bolstered by a benefits system that makes it less risky for people to step into the labour force, wage levels from employers that make it worthwhile for people to enter to work and a reliable public transport infrastructure that can get them there affordably.

There is also a significant proportion of those with long-term illness who would like to work – the second biggest group among the economically inactive. Again, technology and more flexible work patterns may come to the aid of those who might not fit into traditional work patterns. Broader and more reliable internet coverage will make it easier for companies to employ people who need to work from home.

It is difficult to forecast the exact size of any labour shortfall, but even if all these changes took place, the UK labour market is likely to remain tight. In these circumstances, artificial intelligence (AI) may become part of the solution. There has been a lot of hype around AI, and as Shamus Rae, KPMG’s Head of Innovation says, “the hype is now becoming reality”.

As government and business address the challenges ahead, it is hoped that increased use of technology, more efficient business processes, and better infrastructure, will also give a much needed boost to UK’s productivity performance. This will be particularly important going forwards, as a more productive labour force will make it easier for employers to absorb the rise in wages that is likely to be needed in order to attract and retain their required number of workers.

The nature of employment is continuingly changing. We have seen a 3.3% fall in the share of lower supervisory and technical jobs in the UK in the past 15 years, for example, and a 3.3% rise in the share of higher managerial and professional jobs over the same period. Looking ahead, new advances in technology, and changing trade patterns, could prove the most testing challenge for companies, workers, and government so far, as they look to adapt for the economy of the future.

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