Using the evidence IFS Conference, 3 April 2009

1. Using the evidence • IFS Conference, 3 April 2009 Bob Butcher Senior Economic Adviser, DIUS

2. UK USA EU • Prosperity depends on jobs and productivity – and both depend on skills • Employment – UK is 4th in EU; 8th out of 30 in OECD • Productivity – UK is 10th out of EU 15; 15th out of 30 in OECD UK Jobs and Productivity:An International Challenge … Source: Labour Market Trends (May 2005), O’Mahoney and Van Ark (2003)

3. Are we closing the gap at the moment?

4. Implications from evidence • Britain has a relatively low skill base • People in Britain currently have low interest in education and training • Employers seem content to operate in a low skill low productivity environment • But there is political desire for Britain to be prosperous, as a country, as individuals and as firms, and generally thought that a world class skills base is necessary for all three

5. Implications from evidence (2) • How to achieve this aim • Improving the education of young people is important but we don’t want to write off the current cohort of adults • Stimulate individual demand – drivers include employer demand, economic returns, leadership by colleges and providers; ? Behavioural economics • Stimulate employer demand – employers do invest in training; in other countries employers invest more; but employers are essentially only responding to opportunities • Increase levels of skill – Says Law. How to ensure that not only are skill levels increased but that they are used fully. In 2002/03 there were 52,000 adults achieving a full Level 2 quaification in FE, now it is 320,000 of which around half in FE colleges.

6. Train to Gain • Train to gain – incentivises an increase in workforce skills • Demand led – employers decide to participate, direct what training and who is trained (within what is on offer) • Result – rather than a higher skilled workforce out there, the result is a higher skilled workforce right in the firms themselves, an opportunity for improving productivity directly • Evaluation by employer and individual surveys is pretty positive • The programme has grown from the initial small scale pilots to a massive exercise, taking half what was the adult college budget • Impact evaluation – IFS have been involved at different points. We are at the early stages of matching TTG firms with the ONS productivity database (ABI) and aim to estiamate productivity improvement through that

7. Recession • Response to recession • Greater flexibility to help adults at risk of unemployment or redundancy • Incentivising colleges and providers to focus on employment outcomes, including sustainable employment and progression • Greater flexibility to help firms, especially SMEs, eg enabling them to spend down time re-training • Not just surviving the recessoin, but investing to be competitive when we come out of the recession

8. Skills strategy – twin track • Low returns for vocational qualifications led to twin track approach • Increase skills and training of adults • Improve the quality and delivery of qualifications so that economic value increases

9. Large scale research shows substantial positive returns to VQs gained as adults as well as young people (though NVQ2 less positive) The comparison here is between people who have the qualification listed and those who have at most a level 1 qualification Source: Jenkins et al (2007): The Returns to Qualifications in England, Updating the Evidence Base on Level 2 and Level 3 Vocational Qualifications. CEE Discussion Paper no. 89.

10. The comparison here is among those with no qualifiation at age 26 and between those who go onto gain an NVQ2 and those who do not. Longitudinal research finds strong wage benefits for those gaining an NVQ2 during their 20s and 30s - around 20% • Sample sizes are not large. • Overall effect for NVQ2 is 19.5%; for women it is 23% and for men 16%, but for men it is not significantly different from zero. Wage returns to accredited lifelong learning Source: de Coulon et al, 2008 An Analysis of the benefit of NVQ2 qualifications acquired at age 26-34

11. UK Productivity as %age of Europe’s UK Productivity:… a sectoral challenge … Good Poor

12. Skills activism • Productivity is low in Britain • It is low in most sectors and for most firms • Little seems to be being done to improve productivity sector by sector. Might have been a key role of Sector Skill Councils, but that has not happened generally • Skills are a part of the solution, perhaps a large part • Ministers keen to ensure that such issues at least the key areas of the economy are addressed. Currently working out how best to do that.

13. UK Jobs and Productivity:… and a national/regional challenge … Source: Office of National Statistics- GVA data 2006; Employment data Q4, 2007

14. … with major variations in skills across nations and English regions. Source: ONS Regional Snapshot, 2007

15. Development of evidence • Great interest in applying the test of economic value • HMRC data matched with FE learner data • Labour Force Survey and learner data • Train to Gain employers and ONS productivity survey • Research will be commissioned to • understand more fully the returns to NVQs • explore age of acquisition, subject • expand apprenticeship analysis • greater understanding of impact on employment • New iinternational research on adult skills - OECD PIAAC • New basic skills needs survey in England • Possible new research on impact of basic skills learning • Behavioural economics on adult incentives to learn