The argument for investment in R&D goes as follows.
The more innovative an economy is the greater level of economic output it will produce. The more output an economy produces the wealthier a country will be and by extension its citizens will enjoy higher wages, better public services, and a greater quality of life.
Innovation is dependent on two things. The first is the infrastructure to make innovation happen. The great universities, laboratories, equipment, and less prosaically the roads, broadband, and public transport, that facilitate the physical transfer of ideas. The second is human capital. The educated workforce that can turn the raw materials of our collective knowledge into new products and services which make the economy strong and society better.
The ideal scenario has two major assumptions. The first is that the products of innovation will be widely felt in the economy to spur economic growth and these benefits will be felt by the workers who are not taking part in R&D intensive activities. In other words, private activities have a spill over benefit to the public at large. The second is that human capital will be allocated efficiently where the best people to do R&D will be placed in the best roles and the market will reward them for their time.
This means that work in R&D should return higher wages through the input (people’s labour) and through its output (a more productive economy.) A new independent report for DSIT has raised questions on whether the benefits of R&D are felt evenly either by its producers or the population at large.
Skill issue
As the report highlights there is little empirical evidence on the kind of R&D workforce the UK needs. The evidence of which kinds of people in which kinds of roles will spur which kinds of R&D activity is poorly understood across geographies, it is poorly understood which specific skills are needed, and it is poorly understood which skills are needed to meet the R&D challenges of the future.
This is surprising when we learn that 56 per cent of all business R&D spend is spent on staff and the number of people working in roles essential for R&D activity has grown by over a million in the past eleven years. Owing to changes in R&D accounting methodology it’s hard to suggest whether R&D activity or spending intensity has increased at the same rate. It is however true that there are regional imbalances in R&D spending, R&D intensive roles generally pay more, and despite an increase in the R&D workforce the UK’s overall productivity levels remains frustrating low.
Successive government industrial strategies, incentives, and supply-side reforms, aimed at any kind of redistribution of the proceeds of R&D activity may not have been an effective counterweight to the incentives of business to simply invest where they will see the largest private returns.
Imbalances
There is a distinct problem that the R&D workforce is imbalanced. Some parts of the R&D economy, particularly roles like software, have an underrepresentation of women, a significant number of people with level four and above qualifications, and growth is rapid in London and the South East. There is both a demographic and geographic equality issue which means the benefits of R&D investment are not broadly felt across the UK population.
This is bad on its own terms. It is not a good outcome for society that the public investment in R&D through subsidies, tax credits, capital investment, infrastructure, and the myriad of kinds of corporate welfare, is producing a workforce which has gendered earning inequalities amongst even the highest paid R&D workers (albeit this less than some parts of the labour market), where growing investment is concentrated in the most economically prosperous part of the country, and where there is significantly more instability for the least qualified workers.
As the report points out, academic literature demonstrates that a more diverse workforce is good for economic growth, productivity, innovation, and entrepreneurship. The inequality of inputs limits the UK’s innovation potential, which in turn impacts how widely the benefits of R&D are felt. Compounding this innovation trap is the UK’s poor record at in work training, geographic inequalities in access to jobs, challenges with university pipelines into specific skills, and geographic imbalances in hard to fill vacancies.
Universities
The solution to a more dynamic R&D workforce does not fall exclusively at the door of universities. As the report highlights, universities are churning out large numbers of graduates in subjects aligned to the R&D intensive roles. However, there is a significant undermatching in those graduates then being able to deploy their skills in the labour market. There is also a significant gender imbalance in university recruitment into STEM programmes which then leads into the imbalances in the workforce.
Interviewees for the report also suggested that university CPD for R&D industries could help close skills gaps and redefining their commercial approaches with SMEs could help with the workforce challenges. Yes, but it also doesn’t feel like universities should be responsible for the permanent reskilling of their graduates. Again, in work training in the UK is low.
The labour market in R&D is the product of every step up to someone entering the workforce and then the conditions once they are in it. At the current trajectory the UK will have an ever large R&D workforce but the expansion in its size will not occur conterminously with a geographic or demographic expansion of its impacts.
Universities are not factories that churn out graduates with neatly aligned skills to the ever changing demands of the labour market. However, this report does convincingly point out that the UK’s economy benefits from diverse firms and more diverse firms will only happen with more diverse graduates.
