Skill imbalances in the UK labour market: 1979-99

This paper investigates the evolution of skill imbalances in the UK labour market over the past two decades. Movements in the relative ease with which firms can recruit skilled workers can affect unemployment, inflation, and productivity. Any assessment of changes in the skill balance is complicated by the fact that different indicators often send conflicting messages. Such conflicts could reflect the underlying definitions of skilled and unskilled workers, as well as differences in the sensitivities of each measure to alternative market shocks. Our analysis casts doubt on the reliability of standard measures of unemployment dispersion across educational groups, and the Confederation of British Industry ratio of skilled and unskilled labour shortages, as measures of skill imbalance. The gap between the demand for, and the supply of, educated labour has in fact increased steadily over the past two decades, particularly for those workers with graduate-level qualifications. So the apparent decline in the NAIRU over the recent cyclical upswing cannot be attributed to an improvement in the relative ease with which firms can hire educated workers.