Skills and labour shortages

Skills and labour shortages

Businesses have been experiencing a shortage of workers

In November 2022, 13.3% of businesses surveyed by the ONS reported experiencing a shortage of workers. The percentage of businesses experiencing a shortage of workers has been between 12.9% and 15.4% since October 2021, with the exception of August 2022, when 16.8% of businesses reported a shortage.

The industries with the highest percentage of businesses experiencing worker shortages in November 2022 were Accommodation and food services (35.5%) and Construction (20.7%).

Vacancies are high

In September-November 2022, there were 1.19 million vacancies in the UK, similar to the number of unemployed people.

Human health and social work had the highest number of vacancies in September-November 2022 with 208,000, 3.9 vacancies for every 100 employee jobs. Accommodation and food services had the most vacancies per 100 employee jobs, with 6.7 vacancies for every 100 jobs.

Skills shortages

Businesses are reporting having difficulty recruiting employees with the relevant skills. In August 2022 the Federation of Small Businesses found that 80% of small firms faced difficulties recruiting applicants with suitable skills in the previous 12 months.

The causes of labour market shortages

Labour supply and demand since the pandemic

A key reason for labour shortages is that demand for labour has recovered faster than labour supply since the pandemic. The Bank of England’s August 2022 Monetary Policy Report  points out that labour demand – measured by the number of people in employment and the number of vacancies – is above pre-pandemic levels, while labour supply is below pre-pandemic levels.

Labour supply and employment are below pre-pandemic levels because of a rise in economic inactivity – people who are not in work and not looking for work. In August-October 2022, the leading reasons for economic inactivity were being a student (27%) and a long-term illness (27%). 13% were inactive because they were retired.

The impact of Brexit on labour supply

While the UK is not unique in experiencing shortages of materials and workers, commentators have noted that new immigration rules post-Brexit may have exacerbated the situation. There are different views on the extent to which Brexit-related factors are contributing to labour supply issues in the UK.

The Bank of England reports that slowing population growth is partly responsible for a decreased labour supply, which has been driven by lower net migration from the EU.

A September 2021 ONS article provides statistics on how many companies cited a lack of EU applicants specifically as a reason why they were unable to fill vacancies. Almost half of businesses in the Transport and storage sector (46% of businesses) cited this, as did over a third of businesses in Administration (40%), Education (39%) and Arts and recreation (36%).

Government response

In his Autumn Statement in November 2022, Chancellor Jeremy Hunt announced that that the Prime Minister asked the Work and Pensions Secretary to “thoroughly review issues holding back workforce participation due to conclude early in the new year.” A report on this review has yet to be published.

The Government has responded to difficulties with recruitment after the end of EU free movement by making a temporary exception to the ‘skilled workers’ criteria under its ‘points-based immigration system’, for care workers and introducing a bespoke visa for seasonal agricultural workers.

During the pandemic, the Government introduced a number of training and employment support schemes. The Library briefing Coronavirus: Getting people back into work provides more detail on employment support schemes.