Understanding how the labour market will change in the future is essential to meet demand

By Dr Lisa Morrison Coulthard, NFER Research Director for Optimal Pathways Development

Friday 12 May 2023

This blog post was first published in The Edge Foundation's 'Skills Shortages in the UK economy' bulletin in May 2023.

A number of megatrends and events are expected to shape the world of work in the coming decades. These include Brexit and the COVID-19 pandemic, as well as longer-term trends such as the adoption of technology in the labour market, and major demographic and environmental change.

Understanding the types of skills needed most for work in the future, and how this demand will be met, is essential. However, the nature of this transformation and its implications for the workforce are not currently well understood. These gaps in the evidence need to be addressed. Without evidence-based long-term planning to help affected workers re-skill / upskill and to help young people to develop the right skills while in education, there is a real risk the current skills mismatch will be further exacerbated.

Looking to the future

The aims of the NFER The Skills Imperative 2035: Essential skills for tomorrow’s workforce research programme is to fill this evidence gap. The literature review published in March 2022 highlighted that these megatrends are expected to change the role workers play in the labour market, both in terms of their jobs and the skills needed, with a greater demand for skills that complement the new technology. The second suite of reports cover a series of future labour market projections produced by The Institute for Employment Research (IER) at Warwick University, working in collaboration with Cambridge Econometrics (CE). These reports highlight the potential impact of these megatrends on the size and composition of the labour market in 2035.

The structure of the labour market will undergo substantial changes

The projections show the economy is changing slowly but steadily and inexorably in favour of the service sectors. By 2035, there will be significant changes in the skills required to succeed in the labour market.

The projections also indicate that the adoption of technology in the labour market is forecast to affect millions of jobs by 2035. Job losses are expected to be focussed among largely male dominated, blue collar manual occupations, especially in areas where automation is possible, as well as among less skilled white-collar non-manual occupations. This includes jobs such as elementary administration, secretarial, and related occupations such as receptionists and personal assistants. This is a key group who are likely to need re-skilling so they can find other jobs elsewhere in the labour market.

However, far from being all doom and gloom, faster technological change and improving the provision of social services will also create many more new job opportunities. These are likely to offset the jobs displaced due to the adoption of technology, in particular in higher skilled jobs and healthcare roles. There are projected to be 2.6 million new jobs by 2035, the majority of which will be taken by women.

There will still be many opportunities, even in declining occupations

Most of these new jobs - nearly 90 per cent - will be in professional and associate professional occupations. Science, research, engineering, and technology 14 Skills shortages in the UK economy – The Skills Imperative 2035 professionals will experience the largest net increase in job openings (+0.90 million) between 2020-35, followed by health and social care associate professionals (+0.60 million).

In contrast, there will be reductions in employment levels for administrative and secretarial jobs and skilled trades. Elementary administration and service occupations are expected to see the largest employment decline by 2035 (-0.52 million), followed by secretarial and related occupations (-0.20 million).

However, the projections show that the level of replacement demand (meaning job openings created by workers leaving the workforce for reasons such as retirement, caring, etc.), are generally much larger than net changes in occupations. The future labour market will, therefore, continue to be very dynamic, creating new employment opportunities even in declining sectors and occupations.

A more qualified workforce

The workforce is also projected to become increasingly well-qualified. More young people are anticipated to continue their education and acquire more and higher level qualifications, replacing those who are leaving the labour market who are generally less qualified.

Consequently, the number of economically active people with a postgraduate degree level (or equivalent) is projected to double from 2020 levels to about 8.3 million by 2035.

The need for co-ordinated action led by government

Given the nature of the challenges presented by these projected labour market changes, it is essential that there is co-ordinated action led by government. NFER recommends that under the Cabinet Office, a crosscutting body is established, to work effectively across government departments and with employers and other relevant stakeholders to ensure that the detailed implications of these changes are understood; as well as how best to ensure a strategic cross-sector response, drawing on views and expertise from across and outside government.

Moreover, assessment is also needed at a regional and local level to determine what these projections mean for employment and output growth in specific sectors or industries and what action industry leaders and regional and local partners, need to take.

For more information, please visit the Skills Imperative 2035 webpage.