Good Practice in Adapting to Changing Skill Needs

This essay is included in the new book from the Parliamentary Network on the World Bank and IMF: The Future of Work for the People we Serve. To sign up for the launch of the book as well as a conference on the future of work and inequality, click here!

Katharine Mullock, Labour Market Economist, Directorate for Employment, Labour and Social Affairs, OECD

Skills mismatch and shortages are costly for individuals, employers and society in terms of reducing pay, lowering productivity and dampening growth. Therefore, tackling these skill imbalances should be a high priority for policy. But what can de done? A new OECD report (Getting Skills Right: Good Practice in Adapting to Changing Skill Needs) provides examples and insights into the practical ways in which governments improve the matching of skill supply and demand through policy. It is based on five in-depth country reviews of Spain, France, Italy, the United Kingdom and South Africa. Policy makers should find the examples provided useful when considering ways of improving their own country’s policy responses.

Across the five countries covered in this review (and indeed, across all OECD countries), technological progress, globalisation and demographic shifts have contributed to a changing demand for skills. A remarkable convergence is found in the types of skills that are in shortage and surplus across the five countries. Based on the OECD Skills for Jobs database, skill shortages emerge primarily in non-routine cognitive skills (e.g. complex problem solving, fluency of ideas) as well as in skills related to science, technology, engineering, or mathematics (STEM), including knowledge of computers and electronics. Surpluses appear predominantly in routine non-cognitive skills (e.g. manual dexterity).

While some degree of imbalance between the supply and demand for skills is inevitable, persistent skill imbalances are costly for individuals, employers and economies. The objective of this new report is to help policy makers to minimise such costs, by providing a comparative assessment of policies in place in the five countries reviewed that help to reduce skill imbalances. The report focuses on examples from education, employment, migration and industrial policies (see Figure 1). A number of good practices are identified:

• To reduce the misalignment between the skills needed by employers and those that students graduate with, it is crucial to ensure that higher and further education provision is responsive to skill needs in the labour market. For instance, the Higher Education Funding Council of England (HEFCE) distributes public funds to higher education institutions in a way that promotes policy objectives, like the development of facilities related to high-demand STEM training. Funding arrangements like these allow governments to steer the mix of provision in favour of subjects for which there is high labour market demand.

• To promote resiliency as the demand for skills changes, adults should have access to opportunities and incentives to invest in lifelong learning. Opportunities for lifelong learning are particularly important for low-skilled workers, who are less likely to receive training from their employers, but who may most need to upskill or retrain to remain employable in the context of technological change. In the United Kingdom, the Union Learning Fund receives public funding to subsidise learning activities that trade unions identify as important to their members. Union learning representatives actively recruit older and low-skilled workers to participate in training activities. Also, training rights that are not tied to jobs but instead to individuals are becoming more important with the emergence of new forms of working arrangements (i.e. casual, temporary or part-time contracts), as such working arrangements tend to be characterised by shorter tenure and lower likelihood of receiving training from employers. France, for instance, grants training leave rights to individuals which are preserved upon job loss and transferable between employers.

• Migration policy should also facilitate entry of high-demand skills into the country. For instance, in both France and the United Kingdom, employers can bypass the requirement to demonstrate adequate efforts to recruit a suitable candidate on the local labour market if the candidate is qualified to fill a position on the country’s shortage occupation list, thus helping to reduce skill shortages through migration.

• In countries with high levels of underqualification (including France, South Africa and England), validation of non-formal and informal learning strengthens the signalling power of skills acquired on the job, thus improving skill matching. For instance, in South Africa, a well-established system of recognition of prior learning has enabled validation of skills for people who had been denied access to formal education under apartheid.

• On the demand side, policies that stimulate the demand for higher-level skills and qualifications can reduce over-qualification. As a bonus, they can also contribute to higher productivity, growth, better job quality and well-being. For instance, Italy’s Industria 4.0 and Spain’s Industria Conectada 4.0 propose to shift each country’s productive system towards greater use of higher value-added technologies, which should stimulate demand for the growing supply of higher-level skills and qualifications.

• Of course, the success of all policies directed at skill imbalances hinges critically on the quality of the underlying information about skills needs. To ensure the accuracy and relevance of such information, providers of skill assessment exercises must engage with stakeholders in the production and use of skill needs information. For instance, in France, the Réseau Emploi Compétences (REC) brings providers of skills needs exercises together with decision makers in order to create dialogue and reinforce cooperation through joint projects.

The optimal policy response to skill imbalances will be unique for each country. Most importantly, it will depend on which factors are driving skill imbalances in that country. For instance, in some cases shortages in high-level skills are generated by rapidly rising demand, while in others they arise from supply-side factors like an unresponsive education system. Even so, the good practices identified in this report should help policy makers to learn from the experiences of other countries, and to consider ways to improve their country’s policies to successfully reduce skill imbalances.