The skills shortage threatening to derail Europe’s hopes of recovery

Despite record youth unemployment levels throughout much of the continent, several major firms operating in Europe still claim they are facing a massive skills shortage that threatens to undermine its competitiveness and stymie economic recovery.

The CEOs of Volvo and Siemens, two of Europe's largest industrial companies, added their voices to the debate last month, warning that engineers were increasingly hard to find and that this would force companies such as theirs to move research and development facilities to countries such as China and India.

Olof Persson, chief executive of Volvo Group, suggested that by 2025 Europe's deficit in engineers could reach 500,000, while his counterpart at Siemens, Peter Löscher, said that qualified immigration to the EU needed to be considered as part of the remedy.

The ICT sector is where the most pain is being felt with a Europe-wide shortfall of 700,000 professionals by 2015 predicted.

In April, the European Commissioner for Digital Agenda, Neelie Kroes, heralded a "Grand Coalition for ICT skills" that will invest €4.5 million in its first 12 months, with further funding promised.

The initiative will focus on raising awareness of the opportunities in the ICT field, including sub-sectors such as cyber security where the deficits are especially acute.

The EU Commission also aims to tackle the problem by collecting commitments from companies, social partners and education players to provide new jobs, internships, training places, start-up funding and free online university courses. Companies such as Nokia, Telefónica, SAP, Cisco, HP, Alcatel-Lucent, Randstad, ENI and Telenor Group have pledged support.

A report earlier this year from the International Labour Organisation (ILO) observed that the skills mismatch is actually worsening as a consequence of continued high levels of unemployment.

The new jobs becoming available often require competencies that the unemployed do not have, and these skills mismatches make the labour market react more slowly to any acceleration in economic activity.

It noted that for some workers “occupational downgrading” may be the only answer – in other words taking a job below their skill level – compounding the skills deficit.

IBEC's Tony Donohoe says that moving people out of long-term unemployment is a major challenge, even when economies lift.

He notes that Ireland’s long-term unemployment rate was high even back in the mid-1990s when the economy was enjoying 6 per cent growth rates.

Current figures suggest that long-term unemployment – defined as being without work for 12 months or more – accounts for 62 per cent of the total unemployed figure.

“There’s a whole range of issues there including skills and social welfare dependency that have to be addressed as well as having the economic environment right,” he observes.

Education is an obvious culprit. Cyclical downturns in sectors such as ICT, notably the dot-com crash in the noughties, don’t help either as college entrants switch to seemingly more robust sectors.

The Oireachtas committee on jobs, in a report last year on the sector, identified a significant gap between the ICT skills which are taught in schools and third-level colleges and those required to take up job opportunities in the technology sector.

Part of the problem is the time lag between curriculum development and the arrival of qualified graduates in the marketplace.

Education clearly has a role to play and, in the case of Ireland, ICT is just one aspect of the skills gap that education could address.

Given that most of the growth in the world economy will come from the so-called Brics countries, our poor performance in languages is a worry, says Donohoe.

“As a small export driven economy, it’s disappointing that we have not addressed this issue adequately,” he notes.

Michael McDonnell, of the Chartered Institute of Personnel Development (CIPD), believes that closer linkages need to be made between employers and the unemployed.

His organisation, along with IBEC and others, is participating in a pilot programme this summer that involves senior HR managers mentoring the unemployed in four centres around the country.

He also feels that skilling the existing workforce is part of the solution. Where a firm has identified that its existing workforce will no longer be employed at some specified time in the future, he suggests an option where they be released for a number of days to be retrained at a cost to the State.

This should be viewed “in the round” and not as an attempt to let the employer off the hook, he says.

'Qualified' immigration
"To get an industry into Ireland requires major subsidies from the government. This is just an extension of that principle around the idea of skills. It's something that government, employers, colleges and indeed union should embrace."

McDonnell says that loosening up migration should also be considered. “It would only be politically acceptable if you start by looking at what you can do with the existing pool of unemployed. Once that’s done though, it has a clear role to play in addressing the skills gap.”

Sweden is one country that has traditionally supported immigration, but as the social unrest there in recent weeks' shows, immigration is not without its difficulties.

While many talk about restricting migration to so-called “qualified” immigration, the common recognition of qualifications is among the barriers that need to be overcome.

Moreover, managing the ebb and flow of the skills requirement is not easy as economic conditions can change rapidly over relatively short periods of time.

The construction industry is, of course, the classic boom-and-bust skills story, but there are others which don’t involve the bursting of overinflated bubbles.

With a major skills shortage in nursing at the time, more than 3,800 nurses were recruited here from the Philippines between 1999 and 2000. By 2011, graduate nursing classes were having to emigrate on mass due to lack of employment opportunities.

There is growing recognition, however, that blaming governments and third-level institutions for this problem isn’t the answer. Organisations need to address their own skills gaps.

Ed Boswell, US leader for people and change at PwC, who was in Dublin recently, says the global skills shortage presents an opportunity for Ireland if it can quickly rise to the challenge.

He says that increasingly human resources directors will play a major part in strategic FDI decisions, adding that the HR profession needs to develop an enabling role rather than the supporting role that it traditionally played.

“HR directors can play a huge role if they can articulate and use research to substantiate that Ireland has a highly educated workforce with the appropriate skills base and work ethic.”

Talent management
Boswell notes that in a local survey his own firm found that 33 per cent of Irish businesses say that talent constraints significantly impacted company performance and 55 per cent of Ireland's HR leaders are experiencing skills shortages. These figures are broadly in line with the international experience, he says.

An effective talent management programme, that is properly measured, can have a huge impact on redirecting key talent in the areas needed most and such programmes can go a very long way to addressing the skills gaps identified, Boswell notes. He says that formal talent management programmes are likely to grow in popularity in the coming years.

Ryan Shanks, managing director of Accenture talent and organisation in Ireland, agrees and says that in-company learning can be a key focus for companies who want to leverage their existing talent.

According to Shanks, companies can build specific skills in relatively short time frames by establishing on-site learning academies, focused on delivering highly relevant training, using innovative technology.

Applying an entrepreneurial approach to the sourcing and building of talent can also help organisations manage the ebbs and flows of demand, particularly for jobs such as call centre representatives or software engineers, he notes.

“Employers also need to explore the innovative practice of borrowing and lending employees from one company to another, where the company is experiencing a temporary decrease in demand to one where there is a temporary need,” he says.

“Although this practice is in its infancy, there is evidence that it is catching on.”