This book has three interrelated purposes.

The first, addressed in Part I, is to provide major reasons why the free market system may fail to provide adequate incentives for the acquisition of skills. For a long time mainstream economists used to believe that the Invisible Hand would invariably lead people to acquire skills as long as the resulting benefit to society exceeded the associated cost. Over the past decade, however, there has been an emerging realization that this is not so. But the new research is fragmented and the old views die hard. This book attempts to bring some of the most interesting and potentially significant market failures in providing skills – several of which have received little if any attention so far – under one cover. In doing so, it sets the stage for reasoned debate about government provision and regulation of training.

The second purpose, addressed in Part II, is to examine some salient empirical consequences of these problems using a portfolio of examples concerning the effects of different types of ‘skills gaps’, that is, deficiencies in the availability of trained employees. For brevity, these examples focus mainly on the UK and a limited number of other European countries. The consequences range from microeconomic problems, such as deficient productivity, insufficient innovation, and specialization in the production of goods that are of insufficient quality, to macroeconomic problems such as poor export performance, and insufficient competitiveness. They are meant to tell us what sorts of things to look for when we seek to assess whether a country's economic performance is impeded by insufficient production of skills.