Education, skills and productivity: commissioned research - Business, Innovation and Skills and Education Committees Contents

6. Summary and assessment

Investment in skills development—in conjunction with many other kinds of investment (in machinery, equipment, innovation and other assets)—has an important part to play in fostering productivity growth. Hence in this report we compare the UK with three high-productivity industrialised countries—the US, France and Germany—in terms of the mix of high-level and intermediate skills that is produced and the different ways that general and vocational education and training is provided in each country.

Overview of qualifications

The graduate share of the workforce in the UK has now caught up with the US and is well above the graduate shares in France and Germany.

At higher education level, Germany stands out from the other three countries for its long-established graduate-level courses of a practical or occupation-specific nature in Fachhochschulen ('universities of applied sciences') which operate in parallel with traditional, more 'academic' university courses.

At intermediate qualification levels—between university graduates and workers with low or no formal qualifications—several inter-country contrasts stand out:

·  the relatively large share of French employees with technician-level qualifications (below Bachelor degrees, above NVQ3 level)

·  the relatively large and stable share of the German workforce holding intermediate vocational qualifications (mostly at the equivalent of NVQ Level 3) which reflects the strong German tradition of apprenticeship training

·  the UK's relatively large share of general education qualifications at NVQ Levels 2-3 which contrasts with the much greater emphasis on vocational education and training at these intermediate levels in both Germany and France. The US is more similar to the UK in emphasising the development of general skills at intermediate level

Many generic skills such as communication and mathematical skills are keenly sought after by employers. However, in both the US and UK, any advantages deriving from general education may only apply towards the upper end of the skills spectrum. International comparisons suggest that average levels of numeracy proficiency in both countries are relatively low.

High-level skills

Both the UK and US have benefited from the ready supply of university graduates in terms of innovation and productivity growth in recent decades. Indeed, the UK's weak productivity performance since the 2008-09 recession might have been weaker still were it not for the contribution made by growth in high-level skills.

In spite of the apparent advantages of mass higher education, there are similar concerns in both the UK and US about a number of issues relating to graduate supply, in particular:

·  Reported shortages of graduates in STEM (science, technology, engineering and mathematics) disciplines

·  Reported deficiencies in the 'employability' skills and 'work-readiness' of many new graduates

·  Sizeable proportions of graduates who (at least at the start of their careers) experience difficulties in finding jobs requiring graduate-level skills

In both countries difficulties in recruiting STEM graduates tend to be experienced by relatively low-paying employers in STEM-related industries (especially in manufacturing). High demand for numerate STEM graduates in non-STEM jobs and industries may partly reflect deficiencies in mathematical skills in other sections of the workforce in each country.

Another feature common to both the UK and US is pressure for graduate employability skills to be developed prior to their taking up employment. This appears to reflect growing unwillingness by employers in each country to recruit and train graduates who lack prior work experience.

In France and Germany the STEM shares of university students in both France and Germany are higher than in the UK and US and the two Continental European countries also benefit from the extent to which structured work experience and training is integrated with higher education and the prevalence of courses that are practical and work-related. Such courses depend heavily on co-operation between employers and universities.

Average salary premia attached to Bachelor degree-level qualifications in both the UK and the US remain high and positive. However, in both countries there has been some widening in the dispersion of returns to university education reflecting under-utilisation of some graduates' skills, particularly when they first enter the labour market. Underemployment is also a problem for sizeable minorities of graduates in France and Germany, partly due to post-recession labour market weakness and to ongoing technological changes which may be reducing demand for high-level skills in all industrialised countries.

Intermediate skills

As with high-skilled workers, the principal mechanisms by which intermediate-skilled workers can contribute to productivity centre on innovation and improvements to efficiency.

Research evidence suggests that intermediate-level education and training contributes most to economic performance when:

(1) it produces a mix of technical, practical and occupation-specific skills combined with generic skills such as communication skills, problem solving skills, team-working skills and customer handling skills

(2) classroom-based learning is reinforced by employment-based training in some way (preferably through apprenticeship training) so that trainees learn a range of skills which are best acquired—or can only be acquired—in workplaces

In this context, as is well known, Germany benefits greatly from its well-established apprentice training system (although a growing proportion of young people do not have access to that system).

France benefits in particular from the considerable resources that it devotes to two-year technician-level courses, including work placements for full-time students and growing numbers of higher apprenticeship places. After completing these courses, students can choose between entering employment or going on to study for Bachelor or higher degrees.

Craft-level apprentice numbers have also grown in France in recent decades. However, a large majority of French students in vocational education still attend full-time vocational schools with limited exposure to workplaces. In addition, unemployment rates are high for holders of low-level vocational qualifications in France.

Apprenticeship training in the US has long been very limited in scale. Where the US does have unsung strengths is in community colleges which—in spite of being poorly funded compared to universities—provide an opportunity for large numbers of students to gain or upgrade work-related skills, including students who are already in employment of some kind. US community colleges also offer two-year Associate degree qualifications which are typically less expensive for students than the first two years of study in four-year colleges. In some ways akin to French technician-level qualifications, Associate degrees serve as potential stepping-stones to either intermediate-skilled employment or to further study to Bachelor degree level.

These comparisons have important implications for intermediate skills policy in the UK, in particular, policy relating to the balance between higher education and intermediate-level education and training.

Many UK employers clearly value employability skills and occupation-specific skills that are best learned through employment-based training and experience. However, that is not the same as being willing to pay for large quantities of employment-based training. As mass higher education has developed in the UK, it has been tempting for many employers to recruit more and more graduates from full-time HE courses (educated largely at state and individual expense) and then to complain about their lack of employability skills.

French technician-level education and training exemplifies a very different pathway which, after two years study in higher education, enables students to choose between entering employment or going on to study for Bachelor or higher degrees. The majority of these students will have participated in structured work placements or higher apprenticeships before reaching the point of choice between job-seeking or further academic study. (A similar choice is offered to US students gaining Associate degrees in community colleges but these courses are much less likely to have involved employment-based training or experience).

Expanded provision of pathways offering a choice between skilled employment and further study after two years of higher education could help the UK to shift the balance between higher education and intermediate skills development in the direction of intermediate skills. If that is a chosen objective, the UK would not need to imitate foreign examples. Two-year higher education qualifications such as Foundation degrees and Higher National Certificates/Diplomas are already in place and—if linked to Higher Apprenticeships on a larger scale than currently exists—could serve as a basis for expanded provision of technician-level skills.

A key advantage of this kind of education and training pathway offering a potential stepping stone towards further study for Bachelor degree qualifications is that it would recognise the strong incentives confronting UK students to aim for such qualifications. This continued study need not follow directly after completion of two-year qualifications and associated training. Indeed, given current high levels of HE tuition fees, many students might be interested in Higher Apprenticeship arrangements with employers whereby, following completion of their training, they work at technician level for an agreed number of years in return for future employer support with HE tuition fees.

However, to achieve this, steps would need to be taken to arrest the present decline in Foundation degree enrolments and to greatly increase the number of Higher Apprenticeship places offered by employers. Newspaper reports suggest that employers currently offering high-quality apprentice training places (including support for HE studies) typically receive a large number of applications which far exceeds the number of trainee places on offer. [10]

Below Higher Apprenticeship level, the UK's apprenticeship system has expanded to reach a high number of trainees and looks on the surface to be very promising in terms of skill development. However, a large proportion of employers of apprentices do not appear to offer high-quality training. Many trainees are aiming only for NVQ Level 2 qualifications rather than the Level 3 or higher qualifications which are typically associated with apprenticeship training in Continental Europe. Furthermore, some training under the 'apprenticeship' heading for older workers in their existing jobs seems to amount to little more than short-duration skills updating or accreditation of existing skills.

In short, employer commitment to apprentice training in the UK continues to be limited by comparison with Germany and some other Continental European nations. In large part this reflects the business strategies deployed by many British firms which do not seek to specialise in high skill, high value added product areas or to organise their workplaces in skill-intensive ways.

In this context there is only limited demand for Level 3 apprentice skills among British employers and the government may encounter resistance from some employers to its recent proposal to introduce a levy on large firms to help fund apprentice training. Considerable challenges lie ahead to design such a levy in ways that will both achieve its objectives—to expand high-quality apprentice training—and secure buy-in from a significant proportion of employers.

Continuing training for adult workers

Although a majority of British employers display relatively low demand for the types of skills that are developed through long-duration apprenticeship training, there are good reasons for many of them to finance short periods of continuing training for existing employees. In 2013 just over 70% of UK establishments reported that some of their employees needed to acquire new skills or knowledge, with many of these new skill requirements deriving from factors such as the introduction of new goods or services or new work practices or new technologies.

These skill updating needs were reported across a wide range of occupations but applied particularly to professionals, personal service workers, managers and skilled trades workers. The main types of skill in need of improvement included technical and practical skills, planning and organising skills, problem-solving skills, advanced IT/software skills and customer handling skills.

Cross-country evidence on continuing training does not show clearly how well the UK compares in terms of continuing training and needs to be treated with caution. However, it is of concern that evidence internal to the UK points to growing weakness in the average volume of job-related adult training—in terms of days per employee—which fell by about a half between the mid 1990s and 2012, with the strongest effects on those in younger age groups and those with lower levels of prior education. This is paralleled in the US by similar evidence of employers reducing their commitment to training for existing employees.

Renewed thought needs to be given to policies and initiatives which could help reinvigorate employer provision of job-related training in the UK. However, the challenge of avoiding deadweight will always remain. One option might be to follow the example of the well-known French training levy scheme, introduced in 1971, under which firms are obliged to spend specified proportions of their wage bills (varying by firm size) on continuing vocational training. However, the impact of this levy is hard to disentangle from other influences on continuing training expenditure. On balance, given the alarming issues that have been raised about the quality of much apprenticeship training in the UK, it seems wisest for any new initiatives regarding training levies to focus solely on apprentice training for the time being.

10   For information on highly regarded apprenticeship schemes having to turn away large numbers of applicants for training places, see for example:


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Prepared 5 November 2015