Scale-up Growing Pains — The European Skills Shortage

The European Skills Shortage

It’s no secret that in recent years the technology industry has been an increasingly significant source of growth for the global economy. In Europe, the technology industry is growing 5 times faster than the rest of the economy, with GVA up 194% (2016) from its relative value in 2002. This explains why 90% of the European tech community are either optimistic about the future of European tech or maintained the same level of optimism for the last 12 months. However, there is a problem which threatens to undermine the industry which is a source of growth in so many economies; a skills shortage.

Supply vs. Demand

As the tech industry continues to grow exponentially, so does the need for a digital workforce. The increase in demand for digital skills has contributed to driving unemployment in Europe to its lowest level in 10 years (6.8%). However, the demand for tech talent is beginning to outstrip the supply, creating the skills deficit which threatens to compromise the long term success of the industry.

In Europe, there are already signs that the shortage is having a real effect, with 48% of companies reporting shortages in AI, cybersecurity and robotics, among a number of other digital roles. With the tech sector attracting record investment to Europe’s otherwise dismal economy, which grew only 0.2% in Q3 2018, the skills shortage doesn’t only put the growth of the tech sector at risk but exposes the vulnerability of the flatlining European economy at current.

Regional Reckoning or Continental Crisis

The problem is not selective to specific European countries either; as exemplified by the year on year increase in tech job postings that have gone unfilled for 6 months or more (46% in the Netherlands, 42% in Spain, 42% in Belgium and 33% in France). The European Commission (EC) has said demand for new information and communications technology (ICT) jobs is up 120,000 a year in Europe, which Andrus Ansip of the EC, says could lead to a shortage of “more than 800,000 skilled ICT workers throughout the continent by 2020.”

However, Atomico’s 2018 tech report found that while many areas with high tech investment lacked talent, other areas with low investment had rich talent pools. This has led to clear migratory paths for tech talent, which has proved essential for scale-ups in developed hubs.

Importing Talent

Mature tech hubs are increasingly reliant on the import of skilled digital workers from other areas in order to meet the growing demand. The UK, Germany and France were the top three locations for migrating talent in 2018, attracting 20.9%, 15.2% and 11.1% of international movers respectively.

However, the number of European workers in the UK fell by 50,000 in the final 3 months of 2017, compared to a 225,000 increase during the same period in the previous year (ONS). This presents a serious risk for developed tech communities as a large portion of their tech talent comes from other areas, in the UK for example, over a fifth of startup talent comes from other countries in the EU.

While a talent shortage may see mature tech hubs struggle to maintain their growth, less developed tech hubs across Europe are seeing greater increases in growth rates. According to Atomico’s 2018 tech report, the 20 fastest growing tech hubs in Europe include Zug, Novosibirsk, Ghent and Katowice. This could lead to a long term trend of entrepreneurs and investors migrating to these less-developed, higher growth tech hubs which have greater access to resources.

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Big Dogs vs. Small Players

As the demand for digital skills continues to outstrip the supply, businesses have begun offering better contracts to potential employees. Benefit packages, for example, have become increasingly competitive, offering higher salaries, generous pensions and better health insurance. This is already contributing to wage growth in the UK, which has hit a 10 year high. Competing with these higher salaries is proving difficult for the often cash-poor scale-ups community. Co-Founder of Plentific, Cem Savas, noted that,

“One of the hardest factors for startups is competing with banks and the likes of Amazon, Salesforce and Google for talent.”

To combat wage competition, scale-ups have been offering a better work-life balance along with alternative employee benefits such as stock options. Flexible workspaces have become a persuasive tool for attracting talent due to their strong communities, events and social activities. Scale-ups are renowned for having relaxed, flexible work environments and open plan offices; encouraging cooperation and communication. Larger companies such as Lloyds have invested in replicating modern workspaces on a larger scale.

Is There a Solution?

Education is Key

As technologies evolve, employees can quickly find themselves working with an outdated skill set. In fact, 44% of adults in Europe have either low levels of digital skills or none at all. This is despite 85% of all European jobs needing at least a basic digital skills level (ESJS). MIT professor, Thomas Malone asserted that,

“People will need to keep learning throughout their lives to continue to be productive.”

A skills gap is a strong indication that more can be done at an education level as university graduates have a lower chance of being under-skilled. Education boards seem to be slow in adapting to this increased demand as few schools are teaching beyond basic ICT skills as a mandatory part of their curriculum. In the UK, the government has become more active in funding efforts to develop digital skills at an educational level, aiming to prevent the need for re-skilling at a later stage.

This may not be a long term solution as in 2030, it is anticipated that the average person entering the workforce will have to adapt their skills 8 to 10 times throughout their career. However, there are more options available to help people develop advanced digital skills without attending higher education, a tool that will be key to the constant learning and relearning that will be increasingly necessary in the workforce, E-learning.

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E-learning is the new Learning

The growth in online learning platforms, or E-learning, has enabled people to take skills development into their own hands. Digital skills like programming and robotics can be learned through these online platforms with nothing more than a computer and internet connection. Research and Markets forecast the E-learning industry to grow to $325 billion by 2020. One example is Code.org, an online platform for learning to code, which received huge support from tech giants like Facebook, Amazon and Microsoft. Employers are also offering these platforms to their employees at the company’s expense, incentivising them to hone their current skills and develop new ones. At Techspace, for example, online development platform, Sunlight, is a benefit for employees who are given a set budget to spend on courses, books and workshops.

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Government Intervention

Governments are taking steps to tackle this issue before it becomes severe. In 2018, France adopted a policy giving employees €800 a year to spend on developing professional skills. The UK government has agreed to set aside over £61 million and to grant a 50% increase in immigration visas for technology firms in an effort to address the shortage. From the budget, £21 million will go towards expanding ‘Tech City’ into a nationwide network called ‘Tech Nation’, a direct effort to help sustain the growth of the tech industry. Similarly, the UK government invested £20 million in the creation of the Institute of Coding,

“A key part of the government’s efforts to drive up digital skills through the Industrial Strategy, will equip people of all ages with the skills they need.”

These efforts are especially important at current, given the anticipated level of job displacement that technologies such as AI are expected to create through automation. In the US, it is expected that 1.4 million workers will be displaced in the next decade. Thankfully, 95% of those displaced employees can be moved to other roles which require similar skills and offer higher salaries. The problem is, with the average cost of re-skilling an employee at $24,000, the total cost is anticipated to be $34 billion.

Conclusion

Government intervention will hopefully see a long term trend of up-skilling and re-skilling employees across the EU. While this is a solution which will take time to have a significant effect, the current battle for talent is seeing large companies increase salaries and smaller companies improve working environments and benefits, both positive outcomes for tech employees. As these benefits improve in the tech sector, it will likely incentivise more people to develop digital skills independently with E-learning platforms. As education boards slowly begin to encourage digital skills being taught at a younger age, we will likely see more young people leave school with a strong foundation of technical abilities.

However, should the shortage become more severe, developed tech hubs risk losing momentum, which may see investors move to smaller tech communities which are seeing faster growth. Needless to say, 2019 will be another exciting year for tech, hopefully for the right reasons.