There is a skills dilemma in the UK. Successive governments have focussed on supply-side measures to tackle the UK’s skills problems and to improve the nation’s international economic competitiveness. However, despite increased investment in skills and educational attainment, labour productivity in theUK lags behind other comparator countries. Lord Leitch’s review of skills found that the UK’s relatively poor skills base only accounts for around one fifth of the productivity gap with countries such as Germany and France; with the rest mostly attributable to our poor record of ‘investing in physical capital, R&D and infrastructure’, but commentators have also identified the importance of work organisation and job design in boosting productivity.

This paper challenges the implicit assumption in much skills policy making that
the skills problem lies solely on the supply-side. Supply-side interventions can certainly boost competitiveness and also have an important influence on individual labour market outcomes; however in isolation they have not been sufficient to close the productivity gap with competitor nations. We therefore argue that greater attention needs to be paid to the limited demand for skills. This argument is not new, Wilson and Hogarth advocated this view in the early 2000s, however acknowledgement of the issue in policy circles, and progress towards better demand-side policies, has been painfully slow.

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