Up-skilling the middle: How skills policy can help ensure that low to middle income households share in future economic growth

a new paper by Anna Vignoles (Institute of Education and Centre for the Analysis of Youth Transitions) published by the Resolution Foundation in its series “Living Standards”

Introduction

Successive governments have placed skills policy at the heart of strategies to raise living standards and tackle low pay. The importance of up-skilling, for the adult population in particular, reached a high point under New Labour, with low skill levels seen as one of, if not the most important factors holding back businesses from pursuing higher productivity and higher wage strategies.¹ Yet there is growing cynicism about the potential for increases in skills per se to improve the material well-being of people on low to middle incomes (LMIs). While those who have degrees continue to reap significant wage benefits from their higher skill levels, the picture looks quite different for the majority of LMIs who possess low and intermediate qualifications, where the returns tend to be much lower and more variable. This paper asks why, despite massive public investment, and a dramatic increase in qualifications, skills policies have failed to deliver significant wage gains for this group of non-graduates, and what could be done to improve their prospects.

There is broad agreement that our education system and labour market work relatively well for most graduates. Average returns to degrees have remained high, despite the increase in the number of graduates. This might suggest there is some scope to raise LMI incomes through increasing the numbers going to higher education still further. There is less agreement on why the gap between graduates and those with low and intermediate qualifications remains so large, and why returns to these qualifications are so variable. Broadly speaking, the debate amongst academics and policy makers is split: on one side are those who point to failings in the skills system and the UK’s relatively low supply of certain skills; on the other are a growing number who argue that the ‘hollowing out’ of jobs in the middle of the labour market has reduced the demand for intermediate level skills from employers, and that this is reflected in lower wages and productivity for some workers. This paper carries out a critical review of skills policy specifically as it applies to the low to middle income group. We argue that in the context of an increasingly polarised labour market, one key challenge for skills policy in the next decade will be making those with low and intermediate skill more competitive with graduates, reducing the big gap in earnings between these groups.

Section 1 provides a brief overview of why skills matter – both for individuals’ productivity and wages, and in terms of the growth of the economy as a whole.
Section 2 summarises the current state of the academic and policy debate.
Section 3 looks briefly at recent trends in skills supply and demand, before pulling these two stories together in an attempt to steer a course through these debates.
Section four draws out the implications of this discussion for policy.

The paper is part of a series of contributions to the Resolution Foundation’s Commission on Living Standards. It will inform the Commission’s discussions in the run up to a final report in the autumn.
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¹ Lloyd, Caroline and Mayhew, Ken, Skill: the solution to low wage work?, Industrial Relations Journal 41:5, 429–445 (2010)

Full text (PDF 24pp)

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