Put simply, if employers can’t find the skills they need and employees can’t use or develop the skills they have, something is going wrong in the relationship between the labour market and the skills development system. Of course, the nature of this relationship depends on public policy as much as it depends on employers and employees themselves.

Our new survey report, released last month, aimed to explain the interdependencies and reasons for any difference and to shine a light on some of the experiences and perceptions of employers in Scotland in relation to skills development. This article summarises some of the key findings in it.

The current labour market

In line with recent reports, labour and skills shortages are a real problem for Scottish employers, with 41% of all employers reporting some hard-to-fill vacancies. Out of those who have hard-to-fill vacancies, we see that the proportion of skills shortages is worse for SMEs than for large businesses, who are more likely to report a higher proportion of labour shortages.

This tight labour market, however, results in upwards pressure on job quality, not least when it comes to pay and benefits. There is also an increased willingness to hire apprentices and upskill employees, which presents a golden opportunity for public policy to harness this. Employers should also learn from their peers and look at ways to improve job quality to boost retention and improve recruitment prospects.

The importance of vocational skills

The biggest gaps in recruitment as well as for existing employees are in technical, vocational and specialist skills. This is seen in the kind of occupations that are proving the hardest to fill, as well as the breakdown by type of skill missing. This further underlines the crucial importance of apprenticeships and further education in meeting the skills demands of organisations. However, there is a gap in the relationship between employers and the skills development system. Only 22% use further education colleges to deliver training and 52% do not offer any apprenticeships at all.

Both employers and policy-makers have a role to play here. The Government has to fund training opportunities and get better at signposting through business support services. Employers have to show initiative, assess their own training needs, approach local training providers and co-invest – be it through apprenticeship hires, or through direct learning and development spending.

Strategic skills development

The importance of a strategic approach to skills is highlighted throughout the report. Putting in place strategic workforce planning, training plans and training budgets are positively correlated with an understanding of skills within organisations and their preparedness for the future, especially when it comes to automation and upskilling needs. Organisations who take a strategic approach to skills are more likely to have increased L&D spending, are more likely to offer apprenticeships and be aware of available skills policy initiatives. Employers should learn from these findings and put additional effort into training – even if they think they have a good understanding of their own organisations.

In general, driving up skills demand through a better understanding of current and emerging skills needs depends on good people management. We find a strong relationship between organisations who report adequate people management training and their understanding of skills and future preparedness. Building up people management capability requires action from employers themselves, but the Scottish Government could also offer better business support and consultancy services.

Are young people prepared for work?

Those employers who hire young people directly from school, college or university are rather negative about their preparedness for work. Some of the most concerning findings are around the gaps in literacy and numeracy – worse in Scotland than England – which are linked to school education.

Coupled with the poor preparedness for work of those hired directly from school and schools being rated the least effective when it comes to developing the skills organisations need, this suggests a negative perception of schools across Scotland. Of course, there are ways in which employers can play their part – by building closer links to local schools, engaging with pupils directly or offering more placements and internships.

Opportunities for apprenticeships and upskilling policy

The findings also show there is a clear opportunity to boost apprenticeships and upskilling policy right now, as employers look towards them to deal with skills/labour shortages and existing skills gaps. Apprenticeship hiring incentives are most likely to help the smallest of businesses, in line with our previous public policy recommendations. But we have also uncovered clear gaps in awareness of the types of apprenticeships on offer. Out of those organisations that don’t offer any apprenticeships, 69% are not aware of foundation apprenticeships and 70% are not aware of graduate apprenticeships.

Furthermore, we again find evidence that the Apprenticeship Levy has not had the desired impact, with only less than a third (28%) of Levy-payers saying they increased their spending on training and 46% saying it decreased or remained unchanged.

Awareness of Scottish skills initiatives

One of the most striking findings in the report was the lack of awareness about some of the key Scottish skills-related initiatives, which is of real concern. The fact that 52% of small businesses have not heard of any of them should be a wake-up call to the Scottish Government and its agencies and lead to improvements in business support, signposting and targeted advertising. That being said, awareness itself will not lead to use, as we have shown too, although more investigation is needed to uncover the reasons for this.

What is clear, however, is that the potential to reach more organisations is considerable. For example, we find that over 70% of businesses who say they upskill their employees to fill skill gaps or respond to labour shortages are unaware of the three key Scottish upskilling initiatives. We also find that 85% of Levy-payers who say they can’t access their funding (or don’t know if they can) are unaware of the Flexible Workforce Development Fund – the majority of which is ringfenced for use by Levy-payers.

It is in all our interests to ensure people can develop their skills and use them in their workplace, to see employers able to respond agilely to a changing economy and for the country to reap the benefits of boosted productivity as a result. After two extraordinary years, it is time for skills to take centre stage – both in organisations and in Government.