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Ian Brinkley
Economic Advisor
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Ian Brinkley

Why don't British Employers invest in their workforces?

Authors: Ian Brinkley Senior Economic Advisor

16 June 2015

The debate about the causes and consequences of low labour productivity in the UK continue to rumble on. But one underlying cause may be under-investment in skills and a recent academic article   shows that employer provided training volumes have declined by between 26 and 44 per cent since the 1990s depending on the survey used.

We have to say right from the start that the state of training statistics is not good if you want to look at changes over time – or indeed make international comparisons. The authors had to piece together evidence from eight surveys, none of it entirely consistent.

The authors quickly rule out as implausible an increase in the relative cost of training, a growing mismatch between supply and demand, and changes in the composition of the workforce. They suggest four other possible explanations:

  • Managers have become less optimistic about new skills formation adding value to their business. In a highly flexible economy where new skills are highly transferable private returns may have fallen if workers find it easy to move elsewhere. It may also be that more businesses in some parts of the economy are following a low skill-low productivity route because it suits their business model.
  • A big rise in the share of graduates in the workforce means that education (paid for by taxpayers and individuals) is being substituted for training (paid for by employers). The authors point out however that while increases in the graduate workforce are common across the EU, we do not see declining training volumes elsewhere.
  • Training has greatly improved in efficiency, making good use of new technologies and more targeted approaches that align the firms training programmes more closely with business needs. This is sometimes called “lean training”.
  • The nature of learning in the workplace has changed, especially in workplaces with high involvement working practices. This concept of the “learning organisation” suggest that skills are increasingly being developed through more informal mechanisms such as mentoring and working alongside more experienced co-workers.

The authors argue that the traditional focus on participation rates in training has been a mistake. Firstly, changes in the quality and volume of training being provided are likely to be much more important.    Secondly, participation rates show the UK in a flattering light compared with many other EU States, giving a false impression of our relative position. Thirdly, good and consistent statistical measures of   the volume and quality of training have been neglected. 

However, things may not be quite as bad as some of this research suggests. Economists interested in the impact of “intangible capital” on growth and productivity have developed measures of investment in workforce training. The UK invests more than most other EU economies in intangible capital  and therefore the share of GDP devoted to training also compares favourably. However, this figure includes an estimate of earnings lost by people undergoing training as well as the direct cost of training itself, so it is certainly not a measure of the volume of training provided by employers. The latest estimates published by Nesta  nonetheless suggests that UK market sector intangible investment in training has consistently and significantly increased since the 1990s.

What the actual state of UK training provision by employers is today compared with the past is anyone’s guess, and so both pessimistic and more optimistic interpretations are possible. It seems extraordinary, given the huge efforts devoted by successive governments and the vast sums spent by taxpayers, individuals and employers on creating a modern skills system, that we cannot answer with any certainty some fairly  basic questions about whether things a re getting better, worse, or staying much the same.