Enterprise & Skills Review

Enterprise & Skills Review

Enterprise and Skills Aspire 19
Alan McGregor
TERU
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Adam Smith Business School researchers support Scotland’s Enterprise & Skills Review

Professor Alan McGregor and his colleagues Alex McTier and Victoria Sutherland, were commissioned by the Scottish Government in the summer of 2016 to provide research support for the Enterprise & Skills Review.

The focus of the team was on the skills aspects of the review, principally around the services and activities of Skills Development Scotland and the Scottish Funding Council. Within this, the emphasis was on work-based learning, further and higher education.

The research on skills and on enterprise followed broadly the same approach. There were two principal elements:

  • The review of relevant work by key global agencies, such as the organisation for Economic Co-operation and Development (OECD) to identify best practice features of high performing skills systems;
  • An in-depth review of skills support structures and agencies in ten economies similar in scale to Scotland. These economies were deemed to be successful in economic terms, with high economic growth, for example, where this was underpinned by highly effective systems for raising skill levels and productivity. The economies included Denmark, Finland, Singapore and Switzerland.

Evidence on Scotland’s Comparative Performance

In 2004, TERU carried out a study for Futureskills Scotland that compared Scotland with OECD economies, as well as EU and UK regions. In relation to the comparison with member countries of OECD, divided into four league tables, the key findings were that Scotland was:

  • Around the bottom of Division 2 for GDP per capita and productivity;
  • Well established in Division 1 on skills indicators, mainly qualifications based.

An analysis by Scotland’s Chief Economist in July 2016 shows that Scotland is:

  • Roughly, in the same place on GDP and productivity indicators – but also around the bottom of Division 2 on earnings inequality;
  • Well up Division 1 on skills (proxied by qualifications) indicators, and top of the league in terms of percentages with tertiary sector qualifications.

There are two interesting observations on these findings:

  • There seems to be a significant gap in comparative performance between where Scotland stands on skills and qualifications versus growth and productivity, and also earnings and equality;
  • There seems to have been little change over time in this pattern, although the earlier analysis did not consider earnings inequality.

Why is it that Scotland’s significant growth in investment in education and training over the last decade or so and its rise up the international qualifications hierarchy has not led to an improvement, at least in international rankings on growth and productivity?

  • Are we providing skills (qualifications) to too many people relative to demand, leading to extensive graduate under-employment, for example?
  • Are we providing the wrong types of skills in terms of level and specificity?
  • Or what else is going on?

Finding an answer to these questions was beyond the scope of the research commissioned by the Scottish Government.

Key Findings

A number of key findings emerged from the research carried out by TERU for the Scottish Government’s enterprise and skills review:

  • International evidence generally suggests that increasing the skills of the low skilled is critically important for promoting regional growth, more so than expanding higher education;
  • Increasing skill and qualification levels can drive up productivity, but only where these skills are effectively utilised in the labour market;
  • Inequality in the distribution of skills investment has a direct impact on earnings inequality;
  • Effective systems for assessing current and anticipating future skill needs are essential to drive effective investment, but very few economies have high performing systems to bring through labour market intelligence.

The central finding from the research on the ten-comparator economies was the great diversity in terms of skills, policies, institutional structures, funding models, etc. across this small group of economies. In effect, high economic performance can be achieved with quite different skills, priorities, policies, structures and processes.

Principal Conclusions

A number of conclusions were drawn from the research evidence:

  • There is virtually no systematic and robust evaluation evidence on the effectiveness of the skills systems;
  • Related to the above, there are no robust and recent estimates for rates of return to individuals, the economy and society more generally in terms of public investment in further education versus higher education versus work-based learning;
  • We could find no systematic and recent evaluations of key processes underpinning the effectiveness of skills systems, such as provision of labour market intelligence, careers information, advice and guidance, etc.;
  • In relation to skills systems and process, it is much easier to isolate the differences as opposed to the similarities across economies that are equally successful in terms of performance measures such as economic growth, productivity and employment rates.

Recommendations for Scotland

Based on the research a number of recommendations were made, principally the following:

  • There is no clear guidance from the review of comparator economies on ‘best in class’ institutional arrangements for Scotland’s skills system;
  • Key processes are seen to be important in international reviews and an early focus in Scotland on improving significant labour market intelligence and building a new system to estimate rates of return to public investment in further education versus higher education versus work- based learning could generate significant value;
  • Scotland needs to address a number of issues highlighted in OECD studies in particular:

-    Investing more and more effectively in up-skilling those who are currently employed in low skilled and/or low earning jobs;
-    Developing more concrete actions to tackle the high level of skills under-utilisation in Scotland;
-    Assessing how Scotland stands in relation to inequality in skills provision, given that a strong link to earnings inequality has been established in international studies.

Taking Recommendations Forward

The final phase of the study involved presentations on the analysis, key findings and recommendations to four key groups that included:

  • A small group of senior Scottish Government civil servants as well as senior staff of Highlands & Islands Enterprise, Scottish Enterprise and Skills Development Scotland;
  • Scottish Government officials drawn from various teams dealing with employment and skills issues;
  • Senior managers from Scottish Government, key agencies and local government;
  • A wider stakeholder group chaired by Keith Brown, the Cabinet Secretary for Economy, Jobs and Fair Work.

These workshops provided a good opportunity to explain the rationales for the recommendations, andadditionally allowed the research team to say in fairly blunt terms things that had to be presented in a more circumspect fashion in the report, which was published in August 2016.

Initial Impacts

In the Scottish Government’s report on Phase 1 of the Enterprise and Skills Review, published in October 2016, three actions were identified in relation to skills. Two of these reflected recommendations in TERU’s research report:

  • The need for a significantly enhanced use of labour market information in skills planning;
  • A review of the effectiveness of public investment in learning and skills across age groups and sectors of the skills system. Subsequent to the publication of the Phase 1 report, the Scottish Government has established a number of project work streams that will provide the more detailed material actions to be published in the Phase 2 report of the Enterprise and Skills Review. Of the five work streams, two are focused on working on key recommendations from TERU’s report – enhancement of labour market intelligence and evaluation of the rate of return on public investment in the different parts of the skills system.