Skills and the Labour Market of Birmingham

City-REDI, University of Birmingham

This blog post has been produced for the Greater Birmingham Chambers of Commerce to provide academic insight on the findings of the Birmingham Economic Review.

The Birmingham Economic Review 2017 is produced by the University of Birmingham’s City-REDI and the Greater Birmingham Chambers of Commerce, with contributions from the West Midlands Growth Company. It is an in-depth exploration of the economy of England’s second city and is a high quality resource for organisations seeking to understand Birmingham to inform research, policy or investment decisions.

This post is featured in Chapter 7: Skills & Labour Market of the Birmingham Economic Review, which can be found here. You can read the full report and report summary here.

Increasingly the concept of ‘inclusive growth’ is being used as a label for a range of policy approaches seeking to more closely align economic growth to broader base social benefits. According to a definition adopted by the OECD, inclusive growth is economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity - both in monetary and non-monetary terms- fairly across society. The labour market and skills are core foci for policy to connect growth and inclusion.

Historically, labour market and skills policy has tended to focus on the quantity of jobs and on supply-side policies to raise qualification levels. The UK tends to perform well internationally with regard to high level skills, and Birmingham and the wider sub-region is home to world-class universities. A high share of graduate level skills is positively associated with high wages and productivity.

However, by international comparative standards, the UK is characterised by a shortfall in intermediate level skills (which policy to increase the number of apprenticeships is designed to address) and a long tail of low skills. Local and regional statistics show that in Birmingham and the West Midlands this long tail of low skills is more pronounced than nationally, and also that employment rates are lower than average. This highlights the importance of employability programmes to enhance labour market participation and initiatives to reduce the number of people with no or few formal qualifications.

Achieving inclusive growth means breaking out of ‘low skills traps’ – and this means addressing labour demand as well as supply. A high proportion of jobs demanding only low skills drags down productivity and means limited demand for intermediate and high-skilled labour, which in turn leads to limited opportunities for progression, so reducing demand for and the viability of training for skills development. In such a situation individuals with higher level skills find their skills under-utilised and so many move away, limiting labour supply and leading to skills shortages – continuing a vicious circle.

Demand-side policies involve shaping the economy and the structure of employment to escape low skills traps and associated issues of low pay that tend to be associated with them. International evidence on inclusive growth suggests a role for policies that identify and target sectors that are growing, are of strategic importance and have the potential to create middle- and high-income jobs. Inward investment and cluster policies both have a role to play.

The insertion of clauses regarding skills development and job quality in procurement can help embed the importance of employment quality in city and business development policies and raise wage floors. But to reap the rewards of such demand-side policies it is necessary to prioritise co-ordination with supply-side policies to better connect and match supply with demand.

Sector-focused policies have an important role to play here, as do employability policies that look beyond employment entry to sustaining employment and in-work progression. Devolution of more powers to city-level may help in designing locally-sensitive demand-side policies and adapting national policies to address local needs.