Global expansion and uncertainty: skills shortages

What a skills shortage is

A skills shortage exists when employers cannot recruit enough workers with the skills, qualifications or experience they need at the going wage. Shortages are common in digital technology, engineering, healthcare and skilled trades. Causes include rapid technological change, education systems not keeping up, ageing populations and retirement, emigration of skilled workers (brain drain) and restrictions on immigration.

Impact on international competitiveness

International competitiveness is a business's (or country's) ability to sell goods and services abroad at prices and quality that beat rivals.

Skills shortages reduce it by:

• pushing up wages as firms compete for scarce workers, raising unit costs;
• lowering productivity and quality if posts are filled by less skilled staff;
• delaying projects and limiting growth (orders turned away);
• reducing innovation, so products fall behind rivals';
• forcing expensive recruitment from abroad or outsourcing.

The June 2024 series paper (20 marks) asked whether a skills shortage is the most limiting factor on international competitiveness; the extract reported that 54% of surveyed digital firms said they had lost competitive advantage because of skills shortages. Good answers compared skills with other factors such as exchange rates, regulation and supply chain disruption.

Business responses

Train existing staff (cost and time, and trained staff may be poached); raise pay and benefits; recruit internationally; automate tasks; outsource or offshore work to countries where the skills are available; work with schools and universities (apprenticeships, sponsorships); redesign jobs. Government responses include education reform, training subsidies and skilled-worker visas.

Worked example

A software firm needs 40 developers but can recruit only 26. Each developer generates $150,000 of revenue a year. Calculate the revenue lost per year.

1. Vacancies = 40 - 26 = 14
2. 14 x 150,000 = $2,100,000

Answer: $2.1 m of revenue lost each year.

Check yourself

1. A firm needs 120 engineers but has only 93. What percentage of the posts are unfilled?
   Show answer

   22.5 %. 27 / 120 x 100 = 22.5%.

2. A skills shortage pushes the average salary from $52,000 to $57,720. Calculate the percentage increase.
   Show answer

   11 %. 5,720 / 52,000 x 100 = 11%.

3. Wages are $57,720 a year and each worker produces 2,400 units a year. Calculate the labour cost per unit.
   Show answer

   $24.05. 57,720 / 2,400 = $24.05.

4. International competitiveness means
   • the ability to sell abroad at prices and quality that beat rivals
   • having the highest wages in the world
   • exporting more than importing
   • being a member of a trading bloc
   Show answer

   the ability to sell abroad at prices and quality that beat rivals. It is about winning sales against foreign rivals on price and quality.

5. Explain how a skills shortage can reduce a firm's international competitiveness.
   Show answer

   Firms must pay higher wages to attract scarce skilled workers, raising unit costs, so they must raise prices or accept lower margins compared with overseas rivals.. Higher costs or lower quality weaken the firm against foreign rivals.

6. Which response to a skills shortage gives the business most control over the skills its workers gain?
   • Training its own staff
   • Outsourcing the work to another firm
   • Waiting for wages to fall
   • Cutting output
   Show answer

   Training its own staff. In-house training shapes skills to the firm's needs.

7. Explain one drawback of training staff to overcome a skills shortage.
   Show answer

   Training costs money and takes time before staff become productive, and once trained, workers may be poached by rivals offering higher pay.. Training is a long-term, risky investment.

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Sources

• Pearson Edexcel International Advanced Level in Business specification (first teaching 2018)
• Pearson Edexcel IAL Business WBS14/01 mark scheme, June 2024 series (published August 2024)

Last updated 8 November 2026. Spotted a mistake? Tell us.