5 Consequences of Skills Shortages in 2016

Last year the British economy expanded by 2.8%, this was the fastest growth of any major advanced economy. However, the news could be overlooked by the fact that the nation as a whole is experiencing a chronic skill shortage. A shortage that has no signs of slowing without action being taken.

We now have an abundance of knowledge on skills shortages in 2015; according to REC/KPMG’s latest report, contractor availability is, ‘deteriorated at the fastest pace since last October’. Nearly half of all SMEs across the UK are struggling to recruit the right IT staff. The economic recovery is slowing due to lack of skilled workers, despite growing 0.3% in the first quarter of 2015.

IET - Engineering and Technology: The skills demand in the industry is causing concern to UK businesses with 59% of companies indicating that a shortage of engineers would be a threat to their future. 76% of employers have experienced problems with recruiting senior engineers with five to 10 years in the industry.

The CBI has reported that STEM - science, technology, engineering and mathematics - skills shortages are widespread, with 43% of employers currently having difficulty recruiting staff and 52% of employers expecting difficulties in the next three years.

Research published recently by CompTIA, an IT skills and training specialist shows that 45% of UK businesses have productivity issues due to an “extensive” shortage of IT talent. 27% of businesses believed that the IT skills gaps is slowing speed to market and 26% reported that it is impeding innovation and new ideas. The IT skills shortage shows no signs of abating as 28% of IT executives said that they plan to hire more IT staff this coming year, a figure that has doubled from 14%  in 2014.

Finally in healthcare figures in the past few weeks from health regulator Monitor show that Foundation Trusts, spent £1.8bn on contract and agency staff, more than double the amount planned. This is caused primarily by a lack of availability of nurse staff.

Focusing on the present is quite obviously highly important, however it needs to be recognised that unless action is taken there will be huge impact on the future of this country due to a shortage of skills. The skills shortage needs addressing, and it needs addressing quickly. Recruiters need to realise that the War-on-Talent isn’t going away. The War-on-Talent is increasing and businesses and agencies confidence in their ability to thrive is plummeting fast. In order to understand the issue the recruitment industry needs to become aware of why and what implications the skills shortages will have next year. What will this mean for business, growth and prosperity? Will we be in a better or worse position this time next year? Recruiters need to develop their practices in order to overcome this, if they do not they will not survive the coming years. The five areas of recruitment will suffer if this trend continues into 2016…

1)  Project and Business Delays and Failure

Without highly skilled professionals, a project cannot begin to take place. There is an extensive lack of skills at present, especially a senior level  professional with 3-10 years’ experience in the field. Over years there has not been proper investment in personal development and training within the workplace and this has resulted in the upcoming skills shortage.

In 2016, it is foreseen that more projects will be delayed or fail due to the shortage. This will cause business projects to fail and will cause profit margins to decrease. Employers will be forced to employ freelance labour or costly consultants to complete and deliver projects. Those for whom this option is cost prohibitive will see projects fail or be cancelled.

In conjunction with this if school leavers, university graduates and existing employees do not start acquiring the skills society needs then within future years, the skills gap will become unmanageable.

In the short term hiring managers need to adapt different strategies when recruiting. They may need to accept longer timescales to hire skilled labour or lower their essential skill criteria  and  recruit potential offering training to new recruits.

Offering training to both existing staff and new employees has an added benefit of improving attractiveness to new hires as well as reducing the likelihood of employees leaving an organisation for  career advancement.

In our experience at Recruitment Training Group  (RTG) this is a proven way to address these skill shortages. For small to medium sized enterprises, government schemes such as the Business Growth Service in England and Skills Growth Wales enable businesses to access between 50%-100% of the cost of training. At RTG we deliver training to many of our SME agency clients under such schemes and are happy to assist businesses learn more about them.

2)  Wasted time RE: hiring, project completion

Wasted time is frustrating for everyone from the recruiter, to a business or candidate. Recruitment is a fast paced and hectic industry where time is a luxury.

Firstly finding staff can become an exhausting process. Candidates need to be realistic in their specifications and salary packages, otherwise employers and recruiters will become frustrated in their attempts to hire staff. Employers may see a significant amount of CVs but there will often be a high number of ‘no-shows’ at interviews. Frequently a low percentage of offers are accepted or candidates drop out last minute due to buy-backs from their current employer or choosing a different offer. The process can take months for businesses and recruiters to build a team, and when a candidate drops out they have to restart the process with no certainty of success.

One-way employers and recruiters can increase their chances is by improving their employee value proposition, acquire better their market intelligence, pay market salaries and make sure candidates see them as regional ‘employers-of-choice’ in order to advance their career.

When there is a skill shortage, then ultimately society and businesses need to develop them. If businesses ensure that staff, who lack the right level of abilities, are invested in and given time and money, then the future workforce and UK businesses will reap the benefits. Unfortunately there are no short-term fixes, however if businesses fail to make adjustments to their hiring strategies there will be troubles in the future.

3)  Unfilled jobs due to lower skilled and under qualified candidates

Even as early as 2012, the UK needed to increase by as much as 50% the number of science, technology, engineering and maths (STEM) graduates it was creating. By the end of 2014 unfilled job vacancies cost the UK economy £18 billion a year. On average there were 683,000 vacancies in the UK job market in the third quarter of 2014 – a figure that was up 50% on the same period in 2011, highlighting the country’s strengthening economy. However looking into the future, a total of 14.5 million job vacancies will have reportedly opened up between 2012 and 2022. However this may not be a good thing for recruiters. Indeed’s research found that almost half of the jobs advertised remain empty after a month and 27% are still unfilled after three months. It is estimated that seven million young people will leave school and college over the period of 2012 to 2022 – leaving a potential seven million person ‘recruitment black hole’.

Failure to improve the skills market by 2016 could force businesses to leave the UK and move their design and manufacture centres abroad. A problem that the new Business Secretary Sajid Javid, needs to address by reacting rapidly cultivate the UK skills-market before the country loses international investment.

The EU foreign nationals and others migrants are currently helping to fill the UK skills gaps. Over 50% of the doctors and nurses in our NHS were born outside the UK, rather than being a drain on our NHS they are keeping it a float.

This is a problem that has been around for years. So why hasn’t there at least been some attempt to find a solution and address it?

It needs a macro-solution, which politically success governments have failed to address.

4)  Re-training

Due to the skills shortage, there is a greater need and cost to re-train employees - especially for the premium sectors of growth over the last few years, such as Engineering, Construction, IT, Marketing and Sales and Financial Services.

The major growth that these industries have witnessed will be stunted if the skills shortage continues. As an example, the estimated annual shortfall of engineering skills in the UK is currently running at over 81,000 people. According to recent studies, people over the age of 50 who will be looking to retire in the next 10-20 years represent 20% of the of the UK workforce. Construction is another industry that has sustained employment growth over recent years. It has seen an estimated 40-50,000 shortfall for 2015.

Whether it is the baby boomers staying in employment to the gen-y or new-starters to senior management, every employee should be looking to increase their skills on a basis of continuous personal development. People with obsolete skills will need to be re-trained with the right level of skills for a potential future workplace. Industries that are experiencing growth in 2015, yet finding there is a lack of skilled candidates will have their growth stunted as we enter 2016.  However, this has allowed an explosion of niche recruiters in very specific industries. These niche recruitment businesses – currently experiencing a 40%-100% year-on-year growth - will grow faster than generalist recruiters in 2016 as businesses increasingly gravitate to niche partners with sector specific knowledge to work with.  

5)  Increased wage inflation

Whilst wage inflation is great news for employees, it could spell disaster for employers. A lot more sectors need talented candidates with specialist skills, wages are certain to creep up next year – an estimated 3.7% in 2018. Increases in salary are being driven by employers who are about to be hit by the talent shortages across all industries. Businesses will have to work out new ways to source and retain scarce talent.

A better wage is always better received. If this continues into 2016, teenagers who are about to leave school will more than likely base their future higher education on wage. This could be very good news for industries in the STEM sectors, however if all university students base their career decisions on the best paid careers – will there be a reverse skills shortage on our hands?

What needs to be done?

If nothing is done then in 2016 we can expect more employers to look overseas in order to fulfil their employee and project briefs to a high standard. Will our great nation be known for its low skilled workers and project failures?

Employers and business often do not see the talent right under their nose. The best and most cost effective way for employers to recruit is to stop looking for the best candidates with the highest skill set and start hire the best potential employee, employ, develop and then retain it.

Skills shortages are not going to improve in the coming years. By now, employers and recruiters should recognise that there needs to be a different approach to securing and nurturing talent. In 2016 fostering and developing partnerships and relationships with niche recruiters will be critical, not only to understand the skills available but also to source that talent.

The only real and achievable solution to this epidemic is to train, re-train and train again. The nation needs to train the unemployed with skills to perform entry-level jobs. This can be done by training our school and university leavers with the skills that society needs in 10-15 years, especially in STEM subjects. Finally the existing worker needs to be upskilled. It will take time, money and effort but it is need to fill the recruitment black hole. It is an investment that cannot be afforded to miss.

People in the UK need up-skilling and developing. Life-long learning is a reality, which people of the UK need to embrace for themselves.

Posted: Wed 01 Jul 2015
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