Understanding Skill Mismatches and Regional Mobility

Why is it important to study skill mismatches at the regional level and what is the potential impact on regional productivity and economic performance?

Analysing skill mismatch at the regional level is important for several reasons. First of all, different regions exhibit distinct industry compositions and workforce dynamics, leading to variations in skill demand that can be masked by country-level analyses. For instance, certain regions may experience shortages of specific skills, while others face surpluses, necessitating tailored policy interventions. Secondly, regional disparities in educational attainment, training programmes, and migration patterns can exacerbate the uneven distribution of human capital across regions. Therefore, understanding these regional imbalances is crucial for developing targeted policies to align skill supply with local demand.

Skills mismatch can result in inefficiencies within the labour market, where job vacancies remain unfilled due to employers being unable to find workers with the necessary skills, while some individuals may face challenges in securing employment despite having the relevant skills. When workers are mismatched in terms of skills, productivity may decline, thus impacting competitiveness and economic development. Ultimately, addressing regional skill mismatch can enhance productivity, competitiveness and economic growth within a country.

What are the findings on geographic mobility patterns and what are the potential policy implications?

Undoubtedly skill mismatch varies by region, but this is intrinsically linked with mobility. If workers were perfectly mobile, they would move to areas where their specific skills are most in demand and that pay the highest returns. However, there are many constraints to mobility, such as family commitments. We estimated regional transition probabilities from, and to, regions of the UK and found that mobility is heavily concentrated among the young and educated populations in regions such as London and the South-East, with little change over time in the decade from 2009 to2019. This suggests that mobility trends may be exacerbating regional inequalities, as areas with already higher concentrations of skilled workers continue to attract top talent, potentially leading to a “brain drain” from other parts of the country.

In terms of potential policy implications, policymakers should consider investment in amenities, affordable housing and quality of life factors that could make smaller cities and towns more appealing destinations for skilled workers, especially for young professionals. Additionally, strengthening local educational institutions and vocational training programmes and aligning them with regional industry needs could help mitigate the impact of skilled labour outflows.

What about skills demand? Do we simply need more graduates? How will automation and AI affect future skill demands and regional imbalances, and what actions should be taken?

Our preliminary results indicate that demand for advanced technical skills among graduate workers is concentrated in hubs like London, East Anglia (particularly Cambridge) and the area extending from Oxford to Bristol, known as the “Golden Triangle.” Conversely, demand for non-graduate technical workers is more dispersed, with significant concentrations in the West Midlands and the North West. Areas such as Essex, Lincolnshire and Merseyside show low demand for both graduate and non-graduate technical workers. One explanation is that “techie” graduates migrate to regions with higher wages and amenities, while firms in other areas facing skill shortages rely on non-graduates from further education (FE) colleges. Alternatively, firms outside the Golden Triangle may produce less tech-intensive outputs, requiring workers with some technical knowledge. This is likely in regions with low demand for graduates or non-graduate “techies”. Therefore, simply increasing the number of graduates in specific regions may not increase regional productivity, especially if there is an insufficient number of graduate-level employment opportunities. This situation could lead to a higher rate of graduates relocating from the region.

As automation and AI technologies advance, we will see a reshape in skills demands, potentially exacerbating regional imbalances. Regions with a strong focus on emerging technologies may experience increased demand for skills in areas like programming and human-machine collaboration. Conversely, areas with a higher concentration of tasks susceptible to automation could face skill surpluses or mismatches. Policies that promote STEM education and digital literacy early on can create a workforce adaptable to technological change in all regions. Moreover, collaborative initiatives among employers, educational institutions and policymakers are crucial for identifying emerging skill requirements and implementing focused retraining programs for displaced workers arising from technological changes.

Notes:

This interview is based on findings from an ongoing project, funded by The Productivity Institute (TPI). The project is led by Prof Mary O’Mahony (KCL) and co-lead by Prof Augustin de Coulon (KCL) and Dr Larissa Marioni (NIESR).