Understanding the Economic Impact of Skills Gaps – February 2020

Practice area: Education and Labour Markets
Client: Pearson
Published: 10 February, 2020
Keywords: quantitative analysis

London Economics were commissioned by Pearson to investigate the impact of skills gaps on the performance of UK businesses using data from the 2017 Employer Skills Survey (ESS).


A skills gap exists when an employee is deemed to be not fully proficient by their employer. Using information from the 2017 Employer Skills Survey (covering 87,000 UK based employers), the key findings of the analysis identified that:

  • more than 3% of UK employees were perceived as being not fully proficient by their employer; however, there is large variation in the skills gap density by occupation, employer size, industrial sector and region.
  • In terms of what particular absence of skills was contributing to skills gaps and required improvement
    • 20-25% of skills gaps – irrespective of occupation – are related to deficiencies in either literacy or numeracy; however, the lack of computer literacy/basic IT skills was also widely highlighted
    • The gap in specialist skills is mentioned for all occupations, with peaks in excess of 20% for Professionals, Associate Professionals, Skilled Trades and Caring, leisure and other services’ staff
  • Approximately 78% of the largest employers indicated that the skills gap had an adverse impact on their performance (64% for micro employers).
  • The most commonly cited impact associated with skills gaps is the increase in workload for other staff. However, there was also widespread difficulties in introducing new working practices, increasing operating costs and having challenges in meeting quality standards.
  • Compared to employers with a skills gap density of 1%-10%, the analysis indicates that for employers with a skills gap density of between 11% and 20%, there is a 5.5 percentage point increase in the likelihood of being impacted to a major extent, and  that as the skills gaps density becomes more severe, the likelihood of being adversely impacted increases.
  • Almost all employer outcomes were adversely impacted by the existence of skills gaps (irrespective of the nature of the skills gap); however, reading and understandingcomplex problem solving and to a lesser extent writing, basic numerical skills and specialist skills were identified as particularly damaging.