The productivity price of skills

We commissioned a report from London Economics to understand the likely impact of skills gaps in your business.

Leading economics consultancy London Economics has analysed the Employer Skills Survey to identify and quantify how shortfalls in skills are impacting UK firms through loss of business to competitors, delayed development and increased operating costs.

We commissioned the work to inform our algorithm development: it has allowed us to shape our learning recommendations to mitigate the cost of skills gaps in our business clients.

London Economics analysed the Employer Skills Survey, which is based on over 90,000 interviews with firms of all sizes and sectors across the UK. The resulting correlations have been incorporated into Filtered’s magpie learning recommendation engine, prioritising learning content recommendations with a likely higher impact on client firm’s productivity. 

Sophie Hedges, the lead economist undertaking the analysis at London Economics, said “the new analysis of the ESS illustrates both the incidence and the adverse impact on firm-level performance associated with a range of different skills gaps. The analysis also provides a strong rationale for firms, irrespective of their size, to invest in skills to rectify the potential negative consequences.”

Insights include:

• Skills gaps in reading and understanding increases the probability that the establishment will lose business to competitors by 6.2 percentage points compared to an establishment with no skills gap in reading and understanding.

• In fact, reading and understanding consistently appears as one of the strongest drivers of negative firm outcomes. 

• For SMEs, the incidence of skills gaps increases with firm size (tiny firms tend to be appropriately skilled, but as firms get bigger matching skilled resource to requirements seems to become harder). (Small firms report an incidence of skills gaps of just 2%, compared to 7% for firms with more than 250 employees.) 

• But when skills gaps do occur in very small firms, they are more likely to have a major impact (a major impact was reported in 23% of firms where skills gaps were identified).

• Gaps in IT/computer literacy, basic numeracy and complex numerical skills also increase the probability of increasing workload for other staff (by 6.4, 5.2 and 4.1 percentage points respectively):

We are making the research freely available in the hope that it provides a platform for further innovation. Please get in touch if you are interested in access or collaboration!