UK productivity has shown a relative decline since the late nineteenth century and as a consequence the UK has moved from being one of the most productive industrialised countries in the World to occupying only a middle-ranking position with regard to its OECD neighbours. This has caused policy makers to seek underlying causes and one of the most durable concerns has focused on skill levels in the UK. The most straightforward comparisons of qualification levels in the workforce for different countries demonstrate that the UK has lower skill levels than our competitor nations. This may therefore be a contributor to the productivity gap. More complex research has implicated skills much more convincingly. The NIESR group of matched plant studies (begun in the mid 1980s) compared various UK industries with their competitors and sought to understand different approaches to production and the contributing factors including skills, investment in capital equipment and maintenance practices. Across a wide range of studies, UK producers tended to produce lower quality goods and be less productive. The studies strongly implicated skills gaps as contributing to these differences in productivity performance. NIESR have calculated that skill gaps contribute as much as a fifth of the productivity gap between the UK and Germany. Other research has confirmed this relationship and that better educated workforces are associated with higherproductivity and other organisational outcomes.
Research has also lent support to the impact of training on productivity. For instance, work by IFS has suggested that an increase of five percentage points in the proportion of workers trained raises value added per worker by four per cent. As might be expected, better performing firms also tend to have better
qualified and better trained employees.
The research which has focused primarily on skills is complemented by a body of literature which has explored skills in the context of wider people management policies. This burgeoning body of research shows strong associations between what have been termed ‘high performance working practices’ and firm performance. Amongst the high performing practices frequently included are those to do with the development and training of staff but the exact practices studied and the way they are measured might vary.
There is still healthy debate on just which practices are most strongly associated and the degree to which practices need to be aligned internally to create cohesive bundles of practice or externally to align with the organisational strategy. However, the research does present a persuasive argument for good people management. Yet despite the evidence of beneficial effects the uptake of such practices in the UK has been relatively low.
The literature is also helpful in cautioning against too simplistic an interpretation of the contribution of skills to performance. Skills and training are nested within a wider system where organisations use skills differently. Some compete on a quality basis and therefore call on a higher skilled workforce, others compete on cost and therefore produce goods to a lower specification with a lower demand for skills. We have also seen that skills are only one aspect of performance. Increasingly the literature reflects the role of good management and the motivation and morale of individuals.
We propose a model of human capability within organisations reflecting both the development and deployment of capability from both an individual and organisational perspective. Skills are one key element of this mix but need to be seen in context.
Parts of this model have been much better explored and researched than others. Any attempt to develop policy in raising skill levels and productivity needs to consider the impact of the wider aspects of the model and the implications of these gaps.
Contents
Executive Summary
Skills Pay: The contribution of skills to business success
Introduction
The productivity challenge
- A national issue
A regional issue
A sectoral issue
A firm issue
The skills and workforce development challenge
- Comparative skills profiles
Skill deficits
Training and development
Linking training and skills to performance
- Benefits to and through the individual
Benefits to the firm
Embedding skills within the wider context of HR practice 29
- High performance work systems
Other intervening factors
- Low skill equilibrium
Critical role of managers in organisational
- performance
Conclusion and implications for action
- Inputs to and deployments of capability
The individual/organisational partnership
A model of business performance
Implications for research and policy
Bibliography
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Skills Pay: The contribution of skills to business success
