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winter 2008 issue
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Inequality and the credit crunch: ameliorating the effects through skills developmentBy Matilda Gosling, Senior Research & Policy Manager Income inequality is a scourge of our times, and a policy issue that is relevant both to the developed and the developing world. Despite a strong logical case for a link between income inequality and uneven skills development, little thinking has been developed in this area - which is why CSD has focused on the issue. Our research shows a strong association, and that a better balance between the supply of skills and the demand for them can help to address the internationally important issue of income inequality. But why is inequality a problem? Some have argued that inequality creates incentives for individuals to invest in education; if, as low-skilled workers or students, people can see that the most highly trained individuals are earning excellent money, it gives them a reason to spend time and money on skills improvement. It has also been shown, however, that inequality affects access to education - richer people can get high quality education more easily, which compounds the problem. Inequality is also linked to higher poverty, economic insecurity and rising levels of crime. It can therefore be damaging to both societies and economies. The root causes of inequality are manifold, but there is a strong argument to be made in favour of the link between inequality and the supply and demand of skills. When there are insufficient people qualified to a particular level to meet employer demand, there are lots of vacancies and few people to fill them. Employers therefore pay more to recruit and retain staff. At the other extreme, when there are significantly more people qualified to a particular level than employers need, there are too many people for the jobs available, leading to falling salaries and high unemployment. The ideal scenario is somewhere in between; for each given skills level, the right number of people are qualified and in the workforce to meet employer demand. This results in low income inequality (because the peaks and troughs in salary that are associated with imbalances in supply no longer exist), and also in a balance between high employment levels (good for workers) and low vacancies (good for employers). An imagined scenario demonstrating how this works for level 2 chef qualifications can be seen below. At times of threatened global recession, the need to balance the supply and demand of skills becomes even more important. Many people are made unemployed, usually from industries in which an individual’s skills base will need updating in order to find employment elsewhere. Reskilling is as important as upskilling during these times. People at risk of unemployment need the skills to be able to move away from sectors where there are too many individuals for the numbers of jobs available, towards sectors that are expanding even in times of global turmoil, such as green energy. Governments and businesses have a tendency to tighten the purse strings for training when there are other economic demands at play. We believe that the opposite needs to be the case to ensure long-term economic and social prosperity. For further information, as well as references for the points made above, please see CSD’s Working Paper No.1, A Better Balance between the Supply and Demand of Skills: Addressing Income Inequality in China and India. |
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