09/2008: Prof. David Metcalf


Prof. David Metcalf
Chair of the United Kingdom
Migration Advisory Committee


“Assessing skill shortages and the need for selective
non-EEA labour migration in the United Kingdom”


Ü Eurasylum: The Migration Advisory Committee (MAC) was established by the UK government in 2007. It is tasked with providing independent, transparent and evidence-based advice to the relevant public authorities about labour market shortages that can sensibly be filled by migration. The MAC was also established to underpin the new points-based system for migration to the United Kingdom by advising on which occupations should be designated as shortage occupation. Can you guide us through the key aims, activities, composition and modus operandi of your Committee?

Ü Prof. David Metcalf: The UK is moving to a new points-based system (PBS) of immigration. It consists of 5 tiers, each of which represents a possible route for non-European Economics Area (EEA) nationals to enter the UK to work, train or study. Tier 1 covers highly skilled individuals. Tier 2 covers skilled workers with a job offer to fill gaps in the UK labour force. Tier 3 relates to low-skilled workers and is presently suspended. tier 4 concerns students. Tier 5 is for youth mobility and temporary workers.

The Migration Advisory Committee (MAC) was established in 2007. Our initial task, completed in July 2008, related to Tier 2. We analysed occupations and jobs to determine: (i) skill level; (ii) whether or not there is a labour shortage; (iii) and whether it is sensible to fill any shortage from outside the EEA. But the MAC will range more widely than the issue of labour shortages. We have now been tasked to advise on the likely impact on the UK labour market of relaxing existing labour market restrictions on nationals of Romania and Bulgaria, and whether it would be sensible to do so. In the future we will be allocated other projects. In each case the MAC reports and advises but final policy is determined by Ministers.

What is the composition of the MAC? It is an unusual government-appointed Committee because it is economics-based. There are five members with economics and labour market expertise: myself, as chair, Dr Diane Coyle, Dr Martin Ruhs, Professor Jonathan Wadsworth and Professor Robert Wilson. In addition there are two ex officio members: Professor Mike Campbell providing links with the Commission for Skills and Employment and Jonathan Sedgwick representing the UK Border Agency. There is a small secretariat of 9 comprising civil servants with analytical, policy and administrative skills.

The MAC is independent of the government. Our aim is to provide independent, transparent, evidence-based advice  normally via written reports  to the government on the issues we are asked to examine. Perhaps the best analogous institution is the 9-person Low Pay Commission (of which I was previously a member) which recommends the rate for the national minimum wage but where the government can accept or reject the recommended rate.

Methods of investigation of the MAC turn on the tasks given and the time available. The members all have day jobs in academia or consulting. We meet formally approximately once a month but such formal meetings are just the tip of the iceberg.

Consider the just-released investigation into labour shortages. We wrote an initial paper setting out our understanding of labour shortages and the evidence required to demonstrate shortage. We met with our formal Panel (consisting of CBI, TUC, Department of Health and Bristol Chambers of Commerce) and larger informal Forum. We took evidence from over 100 organisations and visited some 50 firms who submitted evidence. I spent time in the kitchens of Londons Chinatown, the horse gallops of North Yorkshire, an engineering factory, a major City Bank, a care home and many other places. MAC colleagues had similarly varied experiences. In addition, members were undertaking econometric work on skills and shortages; setting up case studies on ten key sectors; and giving talks and lectures at various workshops.

This substantial activity reflects the fact that the MAC had over half a year to complete its labour shortage report. By contrast, we have just two months to report on the A2 restrictions. Therefore we are likely to devote relatively more time to gathering written and oral evidence from key stakeholders and less to visiting organisations.

Ü Eurasylum: In January and February 2008, the MAC published two reports on data and methodology for identifying occupations where migration can sensibly help to fill skilled labour shortages. The reports consider, in particular, how to measure the skill level of an occupation; how to assess whether there is a shortage of labour with the appropriate skills in the current labour supply; and how to assess whether it is sensible for migrant labour from outside the EEA to be used to fill that shortage, keeping in mind that employment of third country nationals may only be one of the various possible response to labour shortages. Can you discuss, briefly, your key methodological approach to (and possible limitations in) this exercise, including issues of data sources and indicators, and the criteria used to determine the appropriateness of future inflows of non-EEA migrant labour in specific sectors?

Ü Prof. David Metcalf: Under tier 2 of the PBS there are three possible entry routes. First, via intra-company transfer. Second, via the resident labour market test  advertising the job but getting inadequate applications  plus points based on pay and qualifications. Third, where the MAC states there is a labour shortage (assuming the government agree our recommendations). The shortage route is the most attractive because it directly yields the requisite number of points required for entry.

How is a labour shortage determined? First, the occupation or job must be skilled. Second, it must be in shortage. Third, it must be sensible to fill this shortage from outside the EEA. There are challenging issues of method, data and judgement concerning each of the three hurdles.

Two immediate interrelated issues must be mentioned. The standard occupational classification (SOC) contains 353 4-digit occupations (eg civil engineer). This is typically the most disaggregated level for which national data on earnings, employment and vacancies exist. But often evidence relates to much more finely grained jobs (eg contaminated land engineer). The Office of National Statistics lists 26,000 job titles and maps them into the SOC but even then we got evidence about jobs not detailed in the 26,000. Therefore, one of our major tasks was to dovetail statistical evidence from top-down national data sources like the Labour Force Survey with detailed, extensive bottom-up evidence provided by stakeholders.

Is it skilled?

There is no unique, objectively-defined measure of skill. Nonetheless, individual jobs under Tier 2 of the PBS need to be skilled to at least National Qualifications Framework (NQF) level 3. It follows that the shortage occupation lists should contain only occupations and job titles at this level or above.

To assess this, we have looked at factors that might indicate whether an occupation is relatively skilled. These include qualifications held by people within that occupation, average earnings and skill level within SOC2000. Other indicators of skill, such as on the job training or experience and innate ability required to carry out the job to the appropriate level, are important too and were considered through our bottom-up analysis.

For our purposes, we defined an occupation as top-down skilled if at least two of three criteria are satisfied: 50 per cent or more of the workforce are qualified to level 3 or above; median hourly earnings for all employees is GBP 10 or more; and the occupation is defined as skill level 3 or 4 in SOC2000. Applying these criteria, 192 occupations out of 353 satisfy our definition of skilled. It was mostly, for our purposes, appropriate to assume that all jobs within these occupations are skilled. In addition, our bottom-up analysis allowed for the fact that there may be some specialised skilled jobs within less skilled occupations.

Is there a shortage?

As with skill, there is no universal definition or measure of shortage. However, two key lessons emerge from the UK and overseas literature. First, although these attempts at identifying shortages of skilled labour are based on different methods, it is apparent that most approaches do not rely on a single indicator of shortage. So we have examined a range of indicators in our top-down analysis of shortage.

Second, the differences between the approaches suggest that there is no single, infallible way of measuring shortage, making it crucial that quantitative analysis is contextualised by background information and knowledge of the labour market. So we have paid careful heed to the bottom-up evidence on shortage.

For our top-down analysis we identified four basic sets of indicators. These were: employer-based indicators (e.g. reports of shortage from skill surveys); price-based indicators (e.g. relatively rapid earnings growth); volume-based indicators (e.g. employment or unemployment); and other indicators of imbalance based on administrative data (e.g. vacancies or vacancy/unemployment ratios). Within these four categories we identified 12 indicators in total and carried out analysis to determine the appropriate threshold between shortage and non-shortage for each.

We do not use our top-down analysis to draw a firm line between shortage and non-shortage occupations. However, we consider there to be particularly strong top-down evidence of potential shortage if an occupation passes our shortage threshold on 50 per cent or more of the indicators. Twenty out of 192 skilled occupations do this.

When considering the bottom-up evidence for shortages we have assessed it by looking at the same broad groups of indicators that the top-down evidence considers. This included looking at factors such as whether wages are increasing more than average and vacancies are increasing faster than jobs are being created.

Is it sensible?

The concept of sensible can be interpreted in many different ways, but any definition depends on the underlying policy objectives. In some cases, government objectives or policies may relate to particular sectors or occupations. For example, immigrant labour has in recent years played a key role in supporting particular government priorities in areas such as healthcare. However, we do not assume that immigration, or the use of immigrant labour to sustain wages at below the market rate, is necessarily the best way to meet government objectives in particular sectors.

We examined the availability of alternatives to employing non-EEA immigrants in response to a shortage of skilled labour. This included considering whether immigrants are in some cases employed primarily as cheap labour, as well as efforts being made to fill the shortage by other means. We also considered whether bringing in immigrants would affect the skills acquisition of the domestic workforce, including potential disincentives to up-skill workers. Finally, we examined wider impacts on the UK labour market and economy, including the impact on employment opportunities for UK resident workers.

In practice, the question of sensible is very likely to be specific to sectors and/or occupations. We rely heavily on bottom-up evidence. However, there are a limited number of numerical indicators available that might provide context to the bottom-up evidence, including the shares of non-EEA immigrants already employed in an occupation and the percentage of the workforce in receipt of training.

There are some issues which, although important, are beyond our remit when we consider the question of sensible. First, there are the potentially important implications that immigration has for immigrants and their countries of origin. Second, beyond any labour market and economic effects, our terms of reference do not include the social impacts of immigration. The Migration Impacts Forum was set up to look at the social effects of immigration. Third, we are not in a position to make judgements based on factors such as national security implications of immigrants working in sensitive areas.

A question that falls within our remit, but which presents a clear challenge, is the potential trade-offs between the short run and long run. For example, bringing in immigrants to fill shortages may be essential in the short run to ensure the survival of businesses or the provision of crucial services. However, in the long run it may reduce the incentives to invest in the training and up-skilling of UK resident workers, and therefore contribute to maintaining or even increasing dependence on immigrant workers in the long term. Our approach to such difficult issues has been to make our decisions in a balanced, consistent and transparent manner.

Ü Eurasylum: On 9 September 2008, you submitted your first report on skills shortages in the United Kingdom, which will be used alongside the launch of Tier 2 of the new points-based system for migration. The report also reviews the current work permit system, including the ways employers use the system. It further conducts a conceptual and empirical review of the nature and determinants of employer demand for migrant labour, and the alternatives to migration for responding to labour shortages in key sectors of the UK economy. Can you discuss some of the key findings and conclusions of this report?

Ü Prof. David Metcalf: The previous work permit system essentially covered just three sectors  health, engineering and teaching. Yet over one million workers were employed in the designated shortage sectors. By contrast, the MAC examined the whole labour market and therefore lists many more shortage occupations and jobs. Nevertheless the numbers employed in these shortage sectors is substantially lower than previously at some 700,000.

Here are some examples of occupations and jobs included in the shortage list. First, there are some complete 4-digit occupations such as civil engineering, ships officers and quantity surveyors. These pass on 5 or 6 of the 12 shortage indicators and have solid supporting bottom-up evidence.

Second, in some cases a sub-set of a 4-digit skilled occupation is included. Examples include maths and science teachers and some specialist nurses. Teaching and nursing pass on only 1 out of 12 shortage indicators so there cannot be a national shortage but there is strong bottom-up evidence concerning specifically maths and science teaching and operating theatre nurses.

Third, a skilled segment of a non-skilled 4-digit occupation is sometimes included. Skilled chefs are a nice example. Overall, chefs and cooks do not pass on any of our 3 skill indicators but clearly there is a skilled segment within the 4-digit occupation. There is good bottom-up evidence concerning, for example, pay movements, production technology and attempts at EU recruitment. The challenge is to define skills. We met this head on and, as the industry advised us that between a quarter and a third of the workforce are skilled, we took the 70th percentile of the earnings distribution as the skill benchmark. A similar method was applied to senior care workers.

Finally, 10 4-digit occupations passed half or more of the 12 indicators but we had not received bottom-up evidence concerning shortage. Examples include welding trades and midwives. We will discuss our findings with the sector bodies in the coming months.

The MAC Report details many occupations and jobs where shortages were asserted but no compelling evidence was produced. These include social workers, IT specialists (where some firms argued for inclusion on the list but the sector skill panel advised there was no shortage) and architects.

The shortage occupation list refers to the UK but the MAC also set out a brief additional list for Scotland which includes: speech and language therapists; nurses in the care of the elderly at band 5 and above; and manual filliters of frozen fish.