DOI: https://doi.org/10.58248/HS102

Overview

Horizon scanning identified workforce planning and supply as a key issue for this parliament. The topics raised by external contributors in this area include innovation and productivity, the green economy, skills and labour readiness, labour mobility, and barriers to labour supply.

The employment rate is a benchmark against which economic success is measured. However, levels of employment can mask differences around work quality and different demographic groups’ economic participation rates. In the UK, the employment rate for those aged 16-64 is 74.8%[1], which is relatively high, alongside an unemployment rate of 4.3%.[2]

Headline figures can mask meaningful social trends. For example, since the pandemic, some self-employed people have classified their status as employed to afford themselves greater economic security during a time of uncertainty.[3] There has also been an increase in economic inactivity during this time, with 9.3m 16-64 year-olds classified as economically inactive in September 2024[4], higher than both a year ago and pre-pandemic.[5]

Another aspect of labour market non-productivity, sickness absence, was at 2.6% in 2022, the highest in nearly two decades.[6] This indicates an issue with workforce well-being, with potential longer-term consequences. Concerns have also been raised about the reliability of labour market data in 2023[7], so recent statistics should be treated with caution.

In what has become known as the ‘productivity puzzle’, since the 2007/8 financial crisis the UK’s productivity has slowed and wages have been stagnant despite high levels of employment.[8][9] Following the pandemic, the UK’s labour market tightened,[10] with most people who want to work able to find employment. This places pressure on organisations’ recruitment processes to secure and maintain talent.

Factors driving a tight labour market include reduced net migration from the EU post-Brexit and a rise in chosen economic inactivity, particularly among older workers,[11] but also because of long-term illness.

More recently, labour demand has slowed, with a fall in job vacancies and wage pressures, and the Office for Budget Responsibility has signalled that it anticipates a period of labour market loosening,[12] in which employment falls and unemployment rises.

Understanding the factors that affect changes around labour supply are key to planning in a context where productivity and growth have been identified as the government’s central priority in managing the UK’s deficit.[13]

Challenges and opportunities

A key area for labour market opportunity is innovation, with new technologies transforming work and occupations.

Recent developments in artificial intelligence (AI) are ambiguous, promising productivity boosts at the same time as potentially disrupting labour markets.[14] AI might replace more routinised jobs, but enhance the efficiency of those requiring critical thinking, such as in medicine or research.

Technology might also have differential effects upon groups across the labour market, with it estimated that women occupy 70% of the jobs at highest risk of automation.[15] Conversely, in some industries, such as shipping, the increased use of automation and specifically maritime autonomous surface ships might have a positive impact on the gender balance of the workforce.[16]

While across OECD countries, employers’ adoption of AI is low, a tipping point is predicted,[17] and the pace and reach of change is unknown as technology evolves.

There remain unanswered questions as to whether AI might fundamentally transform business models, but also threats around its relative lack of regulation. This is relevant to the ‘good work’ debate,[18] regarding how valued aspects of work can be protected from the advance of AI. Questions to be considered include the threat around technological unemployment, the economic impacts of AI, automation, and how digitalisation will affect labour market inequalities.

Issues around the green economy have become increasingly significant to workforce planning. Governments are becoming conscious of the ecological costs of existing production processes and are looking at how jobs can be organised in more sustainable ways. A rise in green jobs will likely be accompanied by a decline in jobs in carbon-emitting industries, such as the steel industry.[19] This prompts the need for planning around reskilling the workforce to plug shortages in green skills.[20][21]

In an evolving labour market, skills will be key in job readiness, requiring resilient workforces who can reorient themselves. At the foundation of this is youth education and its ability to provide basic skills. Simultaneously, concerns have been raised that higher education is over-educating students relative to labour market skills needs, producing a wage penalty[22] and driving demand for more targeted vocational education. Digital skills are an area where employers may be at different stages of readiness, with SMEs reporting shortfalls around digital upskilling.[23]

Labour mobility is a concern in workforce planning. Supply issues are acute in industries such as social care, where nearly 10% of jobs were vacant in 2022/23,[24] and in construction[25], which has an ageing workforce and where supply has been hit by Brexit and changes to visas.

Brexit-driven supply issues have prompted shortfalls in the transportation and storage, wholesale and retail, and accommodation and food industries.[26] Often labour shortages have geographical impacts. Furthermore, work quality can limit labour mobility, with workers underemployed or stuck in precarious work due to a lack of accessible alternative secure work.

One of the barriers to labour market supply is accessible childcare. The UK’s childcare sector is comparatively expensive,[27] which particularly limits women’s labour market participation at the lower and middle ends of pay. Recent data showed that 3 in 4 mothers paying for childcare felt that it had become financially unsustainable to continue working.[28]

Research into family resilience by Oxford University researchers found that the lack of a living wage made it difficult for some families to cope with the costs of having children.[29] There are also a lack of incentives for lone parents to work, and some commentators argue that the UK’s tax regime discriminates against single-income households.[30]

Key uncertainties/unknowns

It remains to be seen how AI will evolve and affect different kinds of jobs, and the distinctive effects this will have on labour supply in industries that are experiencing shortages.

Migration may still pose issues around labour supply: early estimations point to a net loss of 330,000 workers in the UK following Brexit, equating to approximately 1% of its workforce by September 2022. Sectors like retail, manufacturing, and transport have experienced losses.[31]

The UK’s ageing population presents challenges around incentives to keep older workers in paid work and in ensuring that key services needed to support this demographic, such as health and social care, are sufficiently staffed.

Key questions for parliament

  • How should policymakers react to developments in AI in relation to workforce planning? And how can better quality data be gathered about employers’ use of AI?
  • How should government be investing in skills development to better reflect industry shortages?
  • How can workforce-wellbeing be better supported to both keep people in work, and to help them to transition from economic inactivity?
  • How can benefits be better designed to promote labour market participation of some working families?

References

[1] ONS, Labour market overview, UK, September 2024

[2] ONS, Labour market overview, UK, September 2024

[3] ONS, Understanding changes in self-employment in the UK, 2022

[4] Powell & Francis-Devine, UK labour market statistics, September 2024

[5] ONS, Labour market overview, UK, September 2024

[6] Compton, N. & Leaker, D. (2023) Sickness absence in the UK labour market: 2022, ONS https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/articles/sicknessabsenceinthelabourmarket/2022

[7] Powell, A. and Francis-Devine, B. UK labour market statistics, 12 November, 2024

[8] Harari, D. Productivity: Key economic indicators, August 2024

[9] ONS, Productivity measurement – how to understand the data around the UK’s biggest economic issue, 2021

[10] Powell & Francis-Devine, UK labour market statistics, September 2024

[11] ONS, Reasons for workers aged over 50 years leaving employment since the start of the coronavirus pandemic: wave 2, 2022

[12] Office for Budget Responsibility, Economic and fiscal outlook, Mark 2024

[13] Gov.uk, The King’s Speech, July 2024

[14] Brynjolfsson, E. and Unger, G., The macroeconomics of artificial intelligence’ Finance and Development Magazine, International Monetary Fund, 2023

[15] White, S., Lacey, A. and Ardanaz-Badia, A. The probability of automation in England: 2011 and 2017, ONS, March 2019

[16]  Devereux, H. MASS workforce: what might this new workforce look like, 2023

[17] OECD, OECD Employment Outlook 2023: Artificial intelligence and the labour market, 2023

[18] Dobbins, T. Good Work: Policy and research on the quality of work in the UK, 2022

[19] BBC, Traditional steelmaking in Port Talbot ends, September 2024

[20] Clarke, L., Sahin-Dikmen, M., and Winch, C. ‘Overcoming diverse approaches to vocational education and training to combat climate change: the case of low energy construction in Europe’. Oxford Review of Education, 46(5): 619–636, 2020

[21] Simmonds & Lally, Green skills in education and employment, POSTnote, 2024

[22] ONS, Overeducation and hourly wages in the UK labour market, 2019

[23] British Chamber of Commerce, British SMEs struggling to manage digital services amidst mounting economic challenges, 2022

[24] Foster, D. Adult social care workforce in England – House of Commons Library (parliament.uk), 2024

[25] Foster, P., Oliver, S. and Pickard, J. Labour’s homebuilding plans at risk from skills shortage, industry says, Financial Times, 18 July 2024

[26] Springford, J. and Portes, J. (2023) Early impacts of the post-Brexit immigration system on the UK labour market, January 2023

[27] OECD, Childcare costs in the UK are high: Net childcare costs for parents using childcare facilities, percentage of the average wage, 2020 or latest, in OECD Economic Surveys: United Kingdom 2022: , OECD Publishing, Paris, 2022

[28] Pregnant Then Screwed, Three-quarters of mothers who pay for childcare say that it does not make financial sense for them to work, 2023

[29] Daly, M. and Osinsky, A. Exploring Resilience with Families: National report for the UK, 2023

[30] Centre for Policy Studies, Families unfairly penalised by British tax system says new report, July 2023

[31] Springford, J. and Portes, J. The impact of Brexit on the UK labour market: an early assessment, 2023


Photo by: dylan nolte on Unsplash

Horizon Scan 2024

Emerging policy issues for the next five years.