Monday, 3 July 2017

Economic Myths: "The £2.2 billion cost of the skills gap"

From The C Suite:

The skills gap is costing UK businesses more than £2 billion a year in higher salaries, recruitment costs and temporary staffing, according to research from The Open University.

The Open University Business Barometer – which monitors the skills landscape of the UK – finds that 90 per cent of employers have found it difficult to recruit workers with the required skills in the last 12 months, and some have had to inflate salaries to attract talent above market rate, costing at least £527 million alone...


1. In relative terms, that figure £2.2 billion is dwindingly small and spuriously accurate.

2. It's not really a net cost - higher wages are a benefit to more employable people; we can safely assume that the extra wages are a fair chunk of the extra output generated by those people, of which the employer keeps his cut.

3. Of course employers would prefer to pay lower wages. But if you take their non-logic to the ultimate conclusion, you might as well say that all wages above the National Minimum/Living Wage are the "cost of the skills gap".

4. Their non-logic seems to suggest that wages would be lower if more people were more employable (more education, skills, experience etc). Common sense tells us that countries wit a poorly educated populace have overall lower wages than those with a better educated populace.

5. Duh.


Staffordshire man said...

Let me see; "and some have had to inflate salaries to attract talent above market rate". You mean they had to pay, er, the market rate.

Mark Wadsworth said...

SM, exactly :-)

Bayard said...

It's another case of "there ought to be oversupply to bring the price down". Where have I heard that before?

Mark Wadsworth said...

B, in relation to housing market?

Shiney said...


I don't get it.

Beyond the basics (3 Rs?) why should 'taxpayers' pay for 'skills' that businesses need. Am I missing something?

Mark Wadsworth said...

Sh, how much education 'the taxpayer' 'should' pay for is a thorny topic. Rule of thumb, if it's of benefit to the whole economy or nation and the extra taxes cover the cost, might be worth doing. Merely doing it to fund vanity projects or depress wages is clearly off the table.

mombers said...

I'm flabbergasted that the only real cost of the skills gap isn't even mentioned. If projects simply cannot be started or get stalled due to a lack of skilled personnel at any cost, that is a true cost to society. If a private sector project can't work unless the wage bill is dropped below market rates, it's not a worthwhile project.