Forecasting Future Skill Needs in NI Presentation to Stakeholder Conference Oxford Economics Neil Gibson 27 th Novembe

1. Forecasting Future Skill Needs in NIPresentation to Stakeholder ConferenceOxford EconomicsNeil Gibson 27th November 2008

2. Outline • Forecasting skills – the rationale • The economic conditions – tougher times • World • UK • NI • Skills data – the current picture • Skills forecasts – the forward picture - provisional • Planning and enabling a ‘better’ Northern Ireland - provisional • Summary and conclusions • Annex Note: significant empirical project – still underway. Many information omitted on regional comparisons, time series, NQF and priority sector analysis (much of this can be included in reporting)

3. Forecasting skills – the rationale

4. Forecasting skills - the rationale • To aid and inform strategic planning for future needs • To inform on potential skills shortages which could hamper potential economic growth • To raise debate about skills funding priorities and choices Technically difficult to do: • Formal skills not the only method of measurement • Data issues • Using past evidence of realized demand as indicative of desired demand • Economy hard to foretell (at the moment!) • Does not replace qualitative ‘bottom-up’ information An accepted approach: • The Leitch Review and, to a lesser degree, the Sector Skill Council reports include an element of quantitative measurement • The project Oxford Economics are charged with is carrying out an empirical assessment of skills needs up to 2020

5. The economic conditions – tougher times

6. UK heading into recession …

7. … as world demand begins to slide …

8. … real incomes fall …

9. … and all hope has gone!..

10. …but • Interest rates still being cut • MPC and Government is acting aggressively • Fiscal stimulus • World problem – focus of all economies • Inflation coming down (though remember due to cooling world economy – perhaps temporary) • Company balance sheets in decent shape after recent growth (did not return to borrowing)

11. How much will consumers retract key … Very possible

12. … end of ‘golden era’ for NI …

13. … a return to growth – but it looks very different … A key difference – with skills implications

14. Skills – the current picture (Note data LFS unless stated)

15. NI workforce skills – up skilling evident More graduate demand

16. Very few graduates out of work

17. Returns to qualifications

18. NI ‘in the pack’ regionally for graduate concentrations

19. Sectorally – lower graduate share in ‘traditional’ and secondary activities Worthy of note

20. 18,000 less graduates than structure suggests Would move NI to just below the UK graduate average

21. Where would the 18,000 be?

22. Less managers and science professionals

23. Lowest concentrations of managers and professionals

24. 30,000 less managers than structure suggests?

25. Focus on key sectors - manufacturing A key weakness

26. Focus on key sectors – business services Again a key weakness – sub-sector structure likely to be a factor

27. Towards degree subject analysis – lower in science and arts

28. Exploring STEM – 6,000 less than structure suggests More business graduates yet lower than expected share of managers

29. Subject analysis – manufacturingStrengths in maths / computing, business – weakness in engineering

30. Subject analysis – business servicesStrength in business – weakness in maths and science

31. STEM – lowest regional concentration

32. Business administration – star performer Demand or supply-led?

33. Creative – lowest regional concentration

34. Subject mix new graduate entrants to labour market - HESA

35. Skills forecasts – the forward picture

36. Approach • Leitch / IER & CE - developed quantified views on long-run trends in skills requirements “One method would be to gather information from Sector Skills Councils (SSCs) about their assessments of recent trends and possible futures. This information would typically be qualitative, and often very specific, but would provide well-grounded ‘bottom-up’ information. Such assessments often suffer from excessive influence from very recent trends, but the same could be said of other methods. We do not pursue this approach. Rather, we focus on quantitative methods, intended to complement a qualitative assessment, to give some idea of scale and a means of aggregating to allow summary lessons to be drawn”

37. Gathering data • To estimate demand flows: • Expansion demand is taken from base forecasts – change in employment stock (e.g. rising stock for professional services, declining stock for manufacturing) • Replacement demand is based on flows data drawn from the LFS – leavers due to retirement, looking after home etc. i.e. replacement demand creates a need for workers even in declining sectors • Though replacement demand flow analysis should be done separately by industry / occupation there are sample size complications so UK aggregates are often used • An issue over skills inflow not requiring training is important (for example moving industry, returning from sickness) - this raises a net / gross issue

38. Summary baseline forecasts - occupations Assumes average annual net migration of 700 pa 2008-2020 (almost 10,000 pa 2006-07)

39. Summary baseline forecasts – walk through • 4,000 pa expansion in net jobs (people-based) • 57,000 leavers pa to retirement, death, unemployment, inactivity, other occupations and out migration • 42,000 returnees to labour market pa from unemployment, inactivity and other occupations • Net requirement of 19,000 persons pa from education and in-migration, of which 14,000 expected to be required from ‘education’ after forecasting migration joiners (based on recent trends and economic conditions) • To put this into context annual young person age cohort is 25,000 [though roughly 5,000 FT first year enrolments at non-NI HEIs, undergrad and postgrad]

40. Skill level entering employment - NVQ Note: broadly similar, higher level 5 into employment in UK. More L2 and L3 from education in NI Seems high – verification with DETI underway

41. Summary baseline forecasts - NVQ Note: this takes account of sectoral and occupational shifts and educational ‘creep’

42. Summary baseline forecasts - graduates subjects Note: extreme care must be exercised – this uses recent trends as indication of demand into given occupations (may not be desired)

43. Planning and enabling a ‘better’ Northern Ireland

44. Towards an ‘upper scenario’ • Extremely complex process • Easier to say where we want to get to (more jobs, more productive, richer) than how • To date no ‘accepted’ vision of how ‘aspirational’ growth will be delivered in terms of employment sectors (PfG target and activity focused) • Gathering a consensus is complex probably un-achievable • Oxford have consulted with key representatives, reviewed the Sector Skills Councils, MATRIX reports and priority sectors documentation and used their economic understating to determine a plausible ‘upper scenario’ • This is based upon the approach in the Leitch Review and achieving the PfG productivity aim • Sectoral balance based on Oxford’s views drawn from the examined qualitative and quantitative views of elsewhere • Note: Far from definitive

45. PfG key goals • PfG key goals (examples) • Halve the private sector productivity gap with the UK average (excluding the Greater South East) by 2015 • Increase the employment rate from 70% to 75% by 2020 • Secure inward investment commitments promising over 6,500 new jobs by 2011, of which 5,500 will provide salaries above the Northern Ireland private sector median • 70% of new FDI projects secured to locate within 10 miles of an area of economic disadvantage • Increase the number of tourists visiting each year from 1.98m to 2.5m by 2011 and increasing tourism revenue from £370m to £520m each year by the same date • Ensure by 2015 that 80% of the working age population is qualified to at least GCSE level or equivalent • Increase by 25% the numbers of students, especially those from disadvantaged communities, at graduate and postgraduate level studying Science, Technology, Engineering and Mathematics (STEM subjects) by 2015

46. Closing the productivity gap – the challenge PfG target

47. Leitch – understanding the process • Higher skills, better generic skills and improved managerial capacity → drive innovation, be more creative, take advantage of technological change and harness skills of employees → higher productivity → implication for employment by sector, occupation and skill level. i.e. supply-driven scenario • Assumed impact on labour productivity equal to increase in an index of the quality of labour. i.e. better skills → better returns personally and to whole economy • Adjusted sectoral economic model to reproduce these assumed changes in labour productivity at a sectoral and aggregate level • Formed views on the extent to which each sector’s increase in productivity came about through higher output, or lower employment, or some combination • Employment by sector then used as inputs for subsequent model of profile of occupations and qualifications to complete the picture and check that outcomes broadly consistent with the initial improved skill base assumptions • Role of demand - although supply-side improvements are a prerequisite, the more important factor is stimulating the demand among employers for more highly skilled workers

48. Higher skills – can mean lower jobs • Less jobs 1 • Skill improvements could be translated into productivity gains (i.e. ‘lean’ manufacturing) without much or any increase in output, resulting in a fall in employment. E.g. where demand is fixed and little scope to improve product quality • Less jobs 2 • Where higher skills lead to rise in general level of wages in the economy, firms in low value-added activities have to pay more and respond in part by changing the character of jobs to raise productivity, but also by exiting from activities that are no longer viable • More jobs • Where improved quality of labour results in improved quality of output as well, likely to increase the volume demanded (including exports) and/or increase the price customers are willing to pay and increase employment Note also multiplier job impacts in secondary sectors

49. Leitch – two high skill scenarios • Catch up scenario • Future in which sectors that have performed less well in past decade are regarded as offering the greatest scope for improvement → greater investment in skills and a stronger relative improvement in those sectors • Restructuring scenario • Future in which sectors that have performed less well in the past decade are regarded as being most vulnerable to the impact of globalisation and technological change in the future → greater investment in skills in the same sectors that saw the largest increase in the skills index in the last decade • Implication • Although the two scenarios result in a somewhat different pattern of value added and employment by sector, the implications for output are similar • Whole-economy increase in the annual rate of growth of value added per workplace job (productivity) is 0.1–0.2%

50. Leitch – UK restructuring scenario (note less jobs) Key