Exam season – are we producing what the economy needs?

Simply put, we have not produced enough people

Students writing their GCSE exam in classroom.
In 2012, there were 172,000 16 to 22 year-olds in Northern Ireland. In 2022, there were 20,000 fewer in that age bracket. (Getty/Getty Images/iStockphoto)

“Assume from this day forward, you will never be able to recruit anyone ever again.”

Manufacturing NI’s chief executive, Stephen Kelly, uses that shock tactic to convey the extent to which we have skills shortages, and to prompt businesses into thinking differently about their future.

Thinking like this forces a business to consider staff retention and increasing automation and robotics. These are necessary considerations but as we enter exam season in our schools and universities, I have been thinking more about the skills we produce, areas of skills shortage and the barriers people who are not in the labour market face that prevent them from entering.

The first thing we have to consider in our skills story is raw numbers. If we take the population of people aged 16 to 22 as a rough measure of new entrants to the labour market, a concerning issue emerges.

In 2012 there were 172,000 people in this age group. In 2022, there were just over 20,000 fewer people in that age bracket. The last time the population in this group went up was in 2007.

While it is the case that we have been increasing our total working age population every year until last year, we have been relying on immigration to do it.

Last year, 13,583 National Insurance numbers were issued in NI to people from overseas. This is almost 4,000 people more than in 2019. Can we continue to rely on people coming here? That is doubtful, especially when the government has increased the salary required for work visas to a minimum of £30,960 if the occupation is on the government’s list of occupations where there are shortages, or £38,700 for occupations without shortages.

Simply put, we have not produced enough people, plus we know we lose plenty of those potential new labour market entrants to universities outside NI which compounds the issue.

So, if we are not producing enough ‘new’ labour of our own, and it is questionable as to whether immigration can continue to fill the gaps, trying to crack the age-old issue of economic inactivity becomes more acute.

I will come back to economic inactivity but before that I want to consider if we are guiding the young people coming through the education system into the areas that our businesses need.

I know I waved the 10X economic strategy off into the sunset when the Economy Minister’s economic vision and four objectives were announced this February, but there are elements within the 10X work that point clearly towards the economy’s skills needs.

Specifically, the Skills for a 10X Economy document contained a strategic goal to increase the proportion of individuals leaving NI HE institutions with first degrees and postgraduate qualifications in what are collectively called “narrow STEM subjects” - including computing, maths, biology, physics, engineering - from the 24% baseline of 2019/20 to the target of 27% by 2030.

The current available data, for 2021/22, suggests the level remains at 24% but there are about 1,000 more graduates in this high demand ‘narrow STEM’ space.

This is good progress when considered in the context that the NI Skills Barometer was suggesting an annual undersupply of a similar scale in these subjects when published in 2021. Perhaps we are now better reflecting what the economy needs through the skills we are producing.

Returning to sources of labour, there are currently 312,000 people of working age who are economically inactive, 10,000 fewer than a year ago.

For the first time since 2001, Northern Ireland did not have the highest level of economically inactive (26.6%) in the UK, with higher rates across Wales (28%) and the North-East (27.6%). This is something to be welcomed but there is a significant journey to travel here.

As we think about tight labour markets and skills shortages, enabling more people who are outside the labour market to move into it is key.

The big question therefore must be why do only 49,000 of the 312,000 economically inactive want a job? Breaking this down, 25,000 of the 122,000 long-term sick and 9,000 of the 47,000 family and home carers want to work. It isn’t a massive pool of potential labour, but it is more than twice the size of the number of unemployed people.

The solutions will be many, and often complex, but there are some definite areas of focus for policy makers and employers. Improving child-care provision is a massive barrier to employment, as we know.

The current cost of childcare means that a significant proportion of parents, 88% according to the Employers for Childcare’s latest survey, are changing their working arrangements to manage childcare, including some leaving the labour market altogether.

We also know from Ulster University that we perform exceptionally poorly on employment rates for people with disabilities.

There is much we can do to deliver a more inclusive labour market. Not only is it the right thing to do, but there’s also a willing pool of potential employees that can help solve labour shortages.

  • Andrew Webb is chief economist at Grant Thornton