COVID-19, Skills and the Labour Market

By Professor Andy Dickerson, University of Sheffield 

Unlike the global financial crisis, which was relatively benign in terms of job loss, all the indications are that the Covid-19 pandemic will have significant implications for employment, notwithstanding interventions such as the Job Retention Scheme (‘furlough’) to mitigate some of the short-run impacts on the labour market. Moreover, the signs are that job loss will not be evenly experienced, with certain groups – such as the low paid, young, and self-employed – being more severely impacted. The labour market consequences are likely to be significant for these groups.

Covid-19 will not change the underlying weak fundamentals in the labour market: a decade of stagnant productivity with associated static real wages and living standards. High employment rates and low levels of unemployment disguised a mass of low skill, low-quality jobs with few development opportunities and poor progression for many. These structural challenges are likely to be exacerbated by the consequences of Covid-19 for the labour market.

Undoubtedly, the immediate focus needs to be on young people currently transiting through the education system into employment. The types of jobs that school leavers would typically have accessed – such as entry-level jobs in hospitality and retail providing important early labour market experiences and employment skills – are those most likely to be in short supply. Changes in the patterns of consumption and activity (eg further moves to online retail) seem likely to accelerate the decline in these opportunities. There is an acute danger of a ‘Covid-19 generation’ with permanent and significant scarring effects which will be carried into old age.

Thus, actions should be geared towards supporting those whose education and training has been most disrupted, and for whom employment prospects will be curtailed. For some young people, apprenticeships would have provided skilled training opportunities, but these may be squeezed as firms emerge from the pandemic – one estimate suggests that 80% of apprenticeship starts in April were cancelled for example. However, despite the Prime Minister recently suggesting that “Young people, I believe, should be guaranteed an apprenticeship”, the apprenticeship system cannot be the only way for individuals to access improved vocational and technical skills development after compulsory schooling. Apprenticeship is not ‘scalable’ at the quality that apprenticeship standards require (12 months minimum duration plus 20% off-the-job training), and thus such a strategy runs the risk of diluting the progress that has been made in recent years in this area.

The largest numeric impact in terms of employment loss over the next few months – at least as suggested by the disproportionate use of furlough – is likely to be experienced by those in low paid occupations often with low skills and low-level educational qualifications. For these adults finding themselves unemployed, perhaps for the first time, the post-COVID labour market will be a hostile environment in which their existing skills are likely to be poorly matched with the opportunities that will be available, or that will emerge later as we recover from the COVID crisis.

Equipping both young people and adults for the post-Covid world of work requires short-term and long-term changes to the ways in which the skills and training ‘system’ are organised and funded. We are fortunate in having a recent and very comprehensive review of post-18 education and funding published only last year – the Augar Review. This highlighted many of the structural issues including the systemic neglect of the Further Education (FE) system over many decades and the associated weaknesses in the provision of vocational and technical education. It is hugely important that the conclusions (and recommendations) in Augar are not lost in the immediacy of the responses to Covid-19. They are set to be even more important post-Covid given the likely acceleration in changes in employment structure that have already been anticipated.

For young people completing their compulsory education and training, we need a flexible loans-based system for the 50% who choose not to enter Higher Education (HE) to enable their participation in high-level vocational education and training. But it is often forgotten that the majority of individuals who will be working in the labour market in 2050 have already left education. Opportunities for retraining and upskilling as adults are particularly poor in Britain. There has been a secular decline in workforce training over the last four decades, and adults with the lowest levels of qualifications and skills are least likely to access the few opportunities that are available. For many adults, therefore, there is an acute need to re-engage with education and training. For these individuals, access to shorter-term, more modular, education and training opportunities will be crucially important. Augar suggests that this should be supported with a life-long learning (LLL) account for adult non-graduates. We need a flexible system that will allow individuals to repeatedly access education and training throughout their working lives.

Financing could be supported by widening the scope of the Apprenticeship Levy by extending it to a broader range of firms – the current threshold for paying the Levy is very high and most firms are excluded. Alternatively, as some have suggested, human capital tax credits could be used to incentivise reskilling and training (noting that R&D is of little purpose unless firms have the skilled workers they need to implement new techniques and technologies). Or perhaps a ‘Training and Skills account’ could be established in which firms’ contributions were matched by government Certainly, any revitalisation of the adult training and skills system needs to include active involvement of employers including sharing costs with both individuals and government.

Currently, FE is in poor shape, reflecting the historic underinvestment over decades. Improving its capacity to deliver post-18 skills and training, as well as its attractiveness to students, requires significant investment in infrastructure and staffing, as well as funding. This would be a good area for fiscal stimulus – one with clear long-term benefits.

Some have suggested that there should be focussed interventions in specific areas such as the ‘Green Economy’ or AI. But trying to guess the jobs of tomorrow – ‘picking winners’ – is difficult and can have unintended consequences. Moreover, most job openings that will arise in the next 10 years will not be new jobs, but will be replacement demand to fill the jobs of individuals who are leaving the labour market for child and other caring responsibilities, moving to different jobs, or retirement. On average, there are at least 10 replacement jobs for each ‘new’ job. Upskilling workers to be able to move into these opportunities is key.

Individuals will increasingly need to be flexible and resilient over the course of their working lives, and to be able to adapt and change occupations through reskilling and retraining. We need a training and skills infrastructure that will enable them to do so. It seems clear that the need for this has been accelerated by Covid-19.