Skill mismatches

Written by Steven Bainbridge and Vladimir Kvetan on 1 June 2013 in Features

Changing labour markets will bring new challenges for developing and using skills, say Steven Bainbridge and Vladimir Kvetan

Policymakers face a tough task in mapping Europe's road to lasting economic recovery. Skill demand and supply forecasts made by the European Centre for the Development of Vocational Training (Cedefop) for the European Union seek to help them by providing insights into how national, and the European, labour markets may develop in the coming years.

The latest forecasts look at the employment prospects for sectors, occupations and qualifications for the period up to 20201. In doing so, they aim to provide pointers to possible skill mismatches in the future labour market.

As data collection and analysis for Cedefop's forecasts are harmonised, we can also gain some ideas about how the UK labour market may develop compared to the EU as a whole and, more specifically, with fellow member states France and Germany.

Employment prospects up to 2020 - three scenarios

Job prospects, of course, depend on how the economy performs. Cedefop's forecasts for employment trends consider three scenarios - baseline, optimistic and pessimistic - to examine how different economic circumstances may influence national and European labour markets up to 2020.

Each scenario takes account of global economic developments up to October 2012 and the latest Eurostat population2and European Commission short-term macroeconomic3 projections. The baseline scenario, used for the main findings, assumes that a modest economic recovery, within and outside the EU, will slowly increase confidence, investment and consumer spending. The optimistic scenario assumes a speedier economic recovery with higher levels of investment and spending, while the pessimistic foresees a prolonged economic slump.

Encouragingly, all the scenarios, even the pessimistic, forecast job growth in the UK (Figure 1 below). The baseline scenario sees UK employment at around 32.9m in 2020, compared to 31.3m in 2012. Forecast employment rises to 33.2m under the optimistic scenario, but falls to around 32.4m under the pessimistic. Both the baseline and positive scenarios see UK employment recovering to its 2008 pre-crisis level by the end of 2014. The negative scenario delays this by a year.

Figure 1: Past and future employment prospects UK, 2000-20 (millions)

UK job growth is forecast to be faster that the European (EU 27+, which includes the UK4) trend. Under the positive scenario, EU employment returns to its pre-crisis level in 2015-16 and in 2017-18 under the baseline scenario. Under the pessimistic, negative scenario, EU employment does not reach its pre-crisis level until after 2020.

Although they affect employment forecasts, the different scenarios do not substantially alter the labour market's overall structural trends. Europe and the UK's labour forces are getting older and many people will retire from the labour market between now and 2020.

However, actual numbers of economically active people (defined as those in or seeking employment) in the EU 27+ will increase by 3.1m between 2013 and 2020 for several reasons. Young people (who, while in full-time education and training, are not counted as economically active) are entering the labour market later in their 20s. Numbers of older workers will rise due to longer working lives. More women are also expected to have more and better career opportunities. Increases in people looking for work will vary considerably between EU member states. The UK's labour force is forecast to grow by a million between now and 2020 and France's by a similar figure. In contrast, Germany's labour force is forecast to shrink by some 500,000 over the same period.

Job opportunities - skill demand

For more specific forecasts, the baseline scenario is used. Forecasts for job opportunities include newly created jobs (expansion demand) and jobs that will need to be filled as people retire or leave the labour force (replacement demand). In the EU 27+, the baseline scenario forecasts around 84m job opportunities between 2012 and 2020. Replacement demand is forecast to account for 76m, or around 90 per cent of all job opportunities. The remaining 8m are newly created jobs.

Some 39m, or 45 per cent of all job opportunities, are forecast to arise in the UK (14.8m), Germany (14.5m) and France (10m). Further, these three countries are also expected to generate almost half of the new jobs. The UK and France are each forecast to create around 1.8m new jobs between now and 2020 and Germany around 470,000.

Not everyone retiring from the labour market will need to be replaced, nor will replacement necessarily be like-for-like. Job content will change. However, given the scale of replacement demand in the UK and in the EU 27+ as a whole, the baseline scenario foresees job opportunities in all occupations, even in areas traditionally regarded as being in decline such as agriculture (Figure 2 below). The forecast indicates some job polarisation, with newly-created jobs being concentrated in higher and lower skill level occupations.

Figure 2: Total job opportunities, UK – baseline scenario (thousands)

Most new jobs across the EU 27+ will be in distribution, transport and business services (Figure 3 below). However, the share of jobs in non-marketed services, namely those provided largely by the public sector, is expected to fall slightly in the UK, partly due to austerity measures and cutbacks in public spending and investment.

Changes in sectoral employment shares, according to the forecasts, are slowing down, indicating that, after some restructuring, European economies may be stabilising.

Figure 3: Changes in sectoral employment share, UK, 2000-20 – baseline scenario (%)

Between 2000 and 2010, manufacturing's share of employment in the EU 27+ fell from 18.4 per cent to 15.2 per cent. The decline in the UK was steeper - from 14.7 per cent to 9.3 per cent. However, the loss of jobs in manufacturing at European level is expected to slow down. Job losses due to relocation outside the EU have reduced and, by 2020, manufacturing is forecast to employ around 14.3 per cent of the EU 27+ labour force. In 2020, Germany will continue to have by far the highest number of jobs in manufacturing - around 7.1m or 17.4 per cent of the labour force. This is much larger than the UK's 2.7m (8.3 per cent) and France's 3m (10.6 per cent) working in manufacturing.  By 2020, in the UK, more than 82 per cent of jobs are forecast to be in services, compared to 79 per cent in France, 74 per cent in Germany and 73 per cent in the EU 27+.

A more highly qualified workforce - skill supply

A clear trend is the rising numbers of people with high-level qualifications: generally, young people are more highly qualified than retiring older workers.

By 2020, the share of the labour force with high-level qualifications in the EU 27+ is forecast to be around 36 per cent. The UK is forecast to have a larger proportion of its labour force, around 41 per cent, with high-level qualifications (Figure 4 below). This is just below France (42 per cent) but higher than Germany (29 per cent). However, Germany has a significantly higher proportion of its workforce (58.5 per cent) with medium-level qualifications than either the UK (48 per cent) or France (42 per cent).

Figure 4: Labour force – share of qualifications, 2020, UK - baseline scenario

The key issue is not proportions of qualified people in the labour force but, rather, the match between skill levels and the jobs available. Taking into account expansion and replacement demand, most job opportunities will require medium-level qualifications, many of which are vocational and which will continue to employ around half of Europe's workforce.

Most newly-created jobs will require higher skills, if not necessarily high-level qualifications. The proportion of people working in highly-skilled jobs in the UK is forecast to continue its steady increase. In 2020, around 46 per cent of people in work are forecast to be in a highly skilled job, compared to 40 per cent in 2000 (Figure 5 below). The same figure of 46 per cent in 2020 is forecast for France, slightly more than the 44.1 per cent in the EU 27+ and the 40 per cent forecast for Germany. However, it is important to note that, in 2020, Germany is forecast to have a higher proportion of skilled manual occupations (31 per cent), than either France (23 per cent) or the UK (26 per cent), perhaps reflecting Germany's larger manufacturing sector.

Figure 5: Employment share by skill level UK, 2000-20 – baseline scenario (%)

France, Germany and the UK are also forecast to see a small rise in the employment share of elementary occupations. The increase varies over the period 2010-20: 10 per cent to 12 per cent in France, from 9 per cent to 11 per cent in Germany and from 11 per cent to 12 per cent in the UK.

However, referring to 'elementary' jobs is increasingly misleading. People working in elementary jobs traditionally had no or low-level qualifications. This is changing for supply and demand reasons. More people have at least medium-level qualifications, enabling employers to recruit better qualified people for elementary jobs. But jobs, at all skill levels, are becoming more complex and less routine. Some elementary jobs are being reclassified. Increasingly, between now and 2020, the jobs available will be those not easily replaced by technology, organisational change or outsourcing. They will be jobs requiring people to think, communicate, organise and decide.

The link between these types of job and skill level, as currently defined by qualifications, is not direct. What matters is not the qualification level but the amount of routine in a job. Low-skill, production-line, manufacturing jobs tend to be routine, but the Internet is currently also replacing clerical jobs as people apply for, or buy, things online. Technology is also affecting highly-skilled jobs. Many routine financial trades are already processed by technology and experiments with driverless cars run in parallel with those for pilotless aeroplanes.

Changing nature of skill mismatch

Skill mismatch is not new and, in a constantly changing labour market, will always exist to some degree. In the past, skill mismatch was largely about skill shortages. Even though employers still point to a lack of graduates in sciences, technology, engineering and mathematics, arguably the nature of skill mismatch is changing.

In the UK and across the rest of the EU, slow growth has resulted in weak employment demand. With fewer jobs available, competition for them has increased. Lower-skilled people have been displaced by those better qualified who will accept being mismatched in their job to avoid unemployment. If high unemployment continues and more highly-qualified people are attracted to low-skilled jobs, this will increase skill mismatch.

Over-education is not necessarily a problem. Better qualified people have more chance of keeping a job. Once in employment, they may help to change the nature of the job they are doing and be more flexible and innovative. Highly-skilled young people may also find it easier to transfer skills gained in one sector to another, thus increasing labour market flexibility. However, over-education can be inefficient, particularly if it persists over time. People become discouraged and frustrated in their job and their skills become obsolete. It also represents a waste of resources as qualified workers do not use their full potential.

Across the EU 27+, about 40 per cent of young people currently leave education with a university degree or equivalent. The figure for the UK is around 35 per cent. Considerable effort and resources have gone into raising the qualification level of the UK and European labour forces and, according to Cedefop's forecasts, with some success. No one wants to have a less highly-qualified workforce.

As the labour force becomes more highly qualified, the issue is not so much a shortage of skills but more a lack of the 'right' skills. The mismatch lies between the skills and subjects that people are learning and those that the labour market requires; the question remains as to how to put the skills that people have to the best use.

To some extent this may be reflected in the increasing numbers of students opting for upper-secondary, pre-tertiary and tertiary-level vocational education and training, believing that it is more likely to lead to a job. Some university graduates have subsequently pursued vocational qualifications to improve their chances in the labour market. Better vocational guidance and counselling has a key role to play in steering people towards acquiring those skills in demand.

However, the labour market is not static. The 'right' skills, particularly technical ones, change over time. Given the shift in the nature of matching skill demand and supply, Cedefop's findings indicate that a policy debate is needed on how to resolve tension between the need to up-skill the workforce to meet new demands, as jobs at all levels become more skill-intensive, and the risk of over-qualified people slipping into low-skilled jobs.

Despite advances in technology, ultimately people make businesses, the UK and the EU competitive. People create and improve goods and services and find better ways to attract and keep customers. People keep costs down while being environmentally aware. People's abilities - their skills, levels of commitment, flexibility and mobility - determine competitiveness. But to do that, the jobs people are in should give them scope to use the full range of their abilities. The debate should consider how to continue to encourage the development of skills and, most importantly, how Europe can ensure that it gets the best out of the most highly talented workforce in its history.

A fully-referenced version of this article is available on request.

About the author

Steven Bainbridge and Vladimir Kvetan are senior experts in area research and policy analysis at the European Centre for the Development of Vocational Training. They can be contacted via

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