Employers are reporting shortages of skilled labour, yet unskilled workers are sitting idle on welfare. Many commentators think both problems can be solved by more education and training, but this paper disputes this. The solution to the skills shortage lies in policies like delayed retirement and increased female participation in the workforce. The solution to unskilled joblessness lies in generating more unskilled employment.
Many welfare recipients are unskilled. Demand for their services has fallen over the last forty years because of technological change and globalisation. Fewer than 60% of unskilled men aged twenty-five to fifty-nine are now in full-time employment.
There are only two possible ways to get unskilled welfare recipients into jobs. One is to offer them education and training in the hope they will gain the skills employers want; the other is to reduce the cost of employing unskilled labour so they can find jobs.
The training option is widely supported by commentators, but while it helps mature age women return to the labour force, it achieves much less for other groups and has little impact on overall employment levels. There is also widespread support for increasing the number of students remaining in school to year 12, but we are now encountering diminishing marginal returns as more students are pushed through courses for which they are not suited.
Education and training improves the earnings and job prospects of higher ability people but does not lead to comparable outcomes for those of lower ability. Commentators have confused average benefits with marginal benefits.
Persistent calls for more education and training ignore the distribution of intelligence in the population. The employment prospects of those in the bottom quartile of the IQ distribution will not be helped by more spending on education and vocational training courses from which they are unlikely to benefit. The best way to help them is to increase the demand for unskilled labour and to equip them with the social skills needed to perform these jobs successfully.