What is a skills shortage?


A skills shortage occurs when the demand for a particular skill is greater than the supply of qualified workers.

A skills shortage occurs when the demand for a specific skill is greater than the supply of qualified workers in a particular industry, occupation or geographic region. When this happens, there are not enough workers with the required skills to fill available job positions.  

Skills shortages can arise for various reasons, including:  

  • Rapid technological advancements outpacing the development of corresponding skills in the workforce 
  • Evolving industry needs caused by shifts in market conditions, consumer preferences or industry trends 
  • Demographic changes, such as an aging population or declining birth rates 
  • Inadequate education and training systems, or a mismatch between the skills taught and those needed by employers 

History of skills shortages 

In the late 18th and early 19th centuries, the Industrial Revolution brought about significant shifts in labour demand as it created the need for workers with specialised skills in manufacturing, engineering and machine operation. These shifts resulted in early instances of skills shortages as the demand for certain skills outpaced the available supply. 

Throughout the 20th century, advancements in technology led to a need for workers with specialised technical skills. However, the speed of technological change often outpaced the availability of qualified workers, resulting in persistent skills shortages in emerging fields. 

Healthcare, engineering and technology are examples of sectors who have faced ongoing skills shortages. This is due to factors such as rapid technological advancements, changing regulatory requirements and the need for specialised knowledge. Regarding the latter, these sectors often require workers with advanced degrees, specific certifications or specialised training, which is why demand is often greater than supply.  

Recent trends in skills shortages 

In the past few years, the Covid-19 pandemic, Great Resignation, and digital and green transformations have exacerbated global skills shortages. These shortages have been prevalent across many different industries, occupations and geographic regions.  

In the UK, for example, 13.3% of businesses surveyed by the Office for National Statistics reported experiencing a shortage of workers in 2022. In the US, it’s been estimated that more than 85 million jobs will go unfilled because there aren’t enough skilled people to take them.  

In the IT sector specifically, 70% of the global organisations surveyed by Statista reported experiencing a skills shortage in tech in 2022. The global healthcare sector has also been hit especially hard. 

According to the European Commission’s 2023 report on skills shortages and structural changes in the labour market during Covid-19, most shortages and their drivers were already present before Covid-19 but became more prominent during the pandemic. Digitalisation was found to be the key driver of skills shortages, while the green transformation’s contribution was of smaller magnitude.  

Addressing skills shortages in sector-specific areas often involves a multi-pronged approach. This includes initiatives such as strengthening educational and training programs in relevant disciplines, reskilling and upskilling initiatives, promoting STEM education, incentivising talent attraction and retention, fostering public-private collaborations and adapting immigration policies to facilitate the entry of skilled workers from abroad. 

Advantages of skills shortages 

  • Increased demand for skilled workers drives up wages, providing better earning potential and financial incentives for workers with in-demand skills 
  • Job security may be enhanced for individuals possessing sought-after skills, as their expertise becomes more valuable and they are less likely to face unemployment or job instability 
  • Skill shortages can lead to increased investment in education and training programs to develop a pipeline of skilled workers, thereby improving the overall quality and competitiveness of the labour force 
  • International talent attraction and migration may increase, fostering diversity and bringing in fresh perspectives and knowledge from different parts of the world 
  • Industries experiencing skill shortages may gain a competitive advantage if they can attract and retain the limited pool of available skilled workers, leading to increased productivity and business growth 

Disadvantages of skills shortages 

  • Reduced productivity and efficiency due to the lack of skilled workers to perform critical tasks and meet business demands 
  • Increased labour costs as employers may need to offer higher wages and benefits to attract and retain the limited pool of skilled workers available 
  • Limited innovation and slowed technological advancements as industries may struggle to find skilled workers capable of driving progress and adopting new technologies 
  • Increased competition among employers for the limited pool of skilled workers, which can result in a talent war and poaching employees from other companies 
  • Increased reliance on outsourcing or offshoring to compensate for the lack of skilled workers domestically, which can have implications for job security and local employment 

Case study 

In the past couple of years, greenhouse gas emissions have reached an all-time high – which, according to the Intergovernmental Panel on Climate Change, will require immediate and deep reductions across all sectors. As green technology, green coding and green systems architecture have the power to lower the energy consumption involved in processing code and enhance efficiencies among IT systems, SThree experts expect demand for these skills to dramatically increase in the coming months. However, only 30-50% of candidates and employees currently possess these skills, meaning that a skills shortage is on the horizon. Find out more about what this means for both candidates and employers here.