Organisation for Economic Co-operation and Development
Issues for Effective Skill Development
Mark Keese
Directorate for Employment, Labour and Social Affairs
World Bank Workshop on “Skills for Employability in the 21st Century”, Washington, 8 June 2009
Outline
Focus of presentation on adult education and training
Basic facts: is there an underinvestment in skills, who gets training, which skills are important?
Key issues for effective public programs and policies
Learning more about the importance of generic skills: the OECD’s new survey of adult skills -- PIAAC
2
Basic facts about training and skills
3
Why is there a need for public progams?
Moreover, participation in adult education and training is very unequal and may reinforce rather than reduce social inequalities (although Carneiro and Heckman, 2004, do not find this for the US) Typically lower at older ages Higher for more highly educated Also lower for other vulnerable
groups in the labour market such as ethnic minorities, immigrants and persons with disabilities
And lower in smaller firms
Partly reflects pattern of economic returns to training, e.g. subsequent wage growth tend to be higher for younger and more educated workers
× The extent to which there is an underinvestment in skills is still an open question
Nevertheless, economic theory provides a number of potential reasons for policy intervention in skill development Training and capital market
imperfections Poaching Market power of employers For an overview of these issues,
see OECD (2006a) and Bassanini et al. (2007)
4
Large inequalities in training participation
Source: European Adult Education Survey.
Panel B. Age
Panel A. Gender
Panel C. Educational attainment
0.0
20.0
40.0
60.0
80.0Total Men Women
0.0
20.0
40.0
60.0
80.0
100.0 ISCED0-2 ISCED3-4 ISCED5-6
0.020.040.060.080.0
100.0 25-34 35-54 55-64
Chart 1. Participation in education and training, 2007 (% of each population group)
5
Outcome of training need to be assessed in larger context of employability
Impact of training on employability is sometimes greater for the more disadvantaged e.g. has a bigger impact on
labour market participation of high-school grads than university grads
This wider impact on employability may be discounted by employers
Hence potential role for efficiency-enhancing public policies to encourage greater training among low-participation groups
Which may also help reduce social inequalities
* Percentage-point impact of a 10% increase in the number of years of education or training.Source: OECD Employment Outlook , 2006, based on the European Community Household Panel (1994-2000) and the US National Longitudinal Survey of Youth (1992-1998).
Panel A. Estimated change in the probability of being unemployed
Panel B. Estimated change in the probability of participation
-0.40-0.30-0.20-0.100.00
Men
Women
25-34
35-44
Less than upper secondary
Upper secondary
More than upper secondary
Gen
der
Age
Educ
ation
al
attai
nmen
t
United StatesEU15
0.00 0.10 0.20 0.30 0.40 0.50
Men
Women
25-34
35-44
Less than upper secondary
Upper secondary
More than upper secondary
Gen
der
Age
Educ
ation
al
attai
nmen
t
United StatesEU15
Chart 2. Training has a positive effect*
6
Overall level of development plays only a partial role
Skill acquisition rises with economic development but at a diminishing rate
Wide dispersion of countries around “trend” suggests policy settings matter too
ARG
AUS
AUT
AZE
BEL
BRABGR
CAN
CHL
COL
HRV CZEDNKEST
FIN
FRA GBR
GRC
HKG
HUNISL
IDN
IRL
ISR
ITA
JPN
JOR
KOR
KGZ
LVALTU
LUX
MEXMNE
NLDNZL
ISL
POL
PRT
ROM
RUS
SRB
SVK
SVN
ESP
SWE CHE
THA
TUN
TUR
DEU USA*
URY
y = 63.015ln(x) - 157.58R² = 0.7178
250
300
350
400
450
500
550
600
0 10000 20000 30000 40000 50000 60000 70000
PISA
read
ing s
core
(mea
n)
GDP per capita ($US in PPPs)* 2003 score for the United States.Source: OECD for PISA scores and World Bank for GDP per capita.
Chart 3. PISA mean reading scores and GDP per capita, 2006*
7
Key issues for public programs and policies
8
When to invest?
In some cases, early investments in skills may be best because: The returns accrue over a
longer time period than those made later in the life-cycle
Early investments (in cognitive and non-cognitive skills) raise the productivity and ease of acquiring skills later on
But as also pointed out by Heckman (in Cunha, Heckman, Lochner and Masterov, 2005), early investments need to be followed up by later investments to be productive
Chart 4. “The Heckman Diagram” Rates of return to human capital investment across
the life-cycle*
Where in the life-cycle is it most effective to invest limited public resources in skill development?
* Initially setting investment to be equal across all ages.Source: Cunha, Heckman, Lochner and Masterov (2005).
Rate of return
9
Importance of context
As World Bank’s own research shows (Fiszbein and Schady, 2009) Conditional Cash Transfers (CCTs) have proved effective in raising school attendance
But do not necessarily lead to better learning outcomes if not complemented by improved teacher quality and better nutrition and health
ALMPs for youth have not always been very successful
Other barriers to learning such as substance abuse may need to be tackled as well
Skill development programs need to take account of wider policy settings and barriers to learning to be effective
Relative to men, women’s outcomes from training programs are just as positive, if not more so, but they are more likely to be over-educated or over-skilled Family responsibilities may
restrict training and increase likelihood of working in low-skilled, part-time jobs
Role for family-friendly employment policies
Disabled – mobility issues
For older workers, early retirement policies may discourage training as well as the types of training on offer (see OECD, 2006b)
10
Targeting the low skilled: what works?
Inequality in training participation does not just reflect the provision of training by firms Some studies suggest that
demand for training by women (in Europe) exceeds supply (offered by firms), but this is not the case for low-skilled and older workers
Range of measures have been tried in OECD countries (train-or-pay and levy-grant schemes, tax deductions)
But issues of deadweight loss, substitution, effects, administrative costs, etc.
How can firms be given incentives to train low-skilled workers and other groups who generally receive less training? And while they may raise
overall participation, they have proved less successful at tackling training inequality
May be more effective to tackle inequality in training participation through co-financing of individuals rather than firms
e.g. individual learning accounts, leave schemes, loan schemes, vouchers, etc.
But there are also similar issues here too of deadweight loss, administrative costs, asymmetric information, etc.
See OECD, 2003 and Bassanini et al., 2007 for a fuller discussion of these themes.
11
Effectiveness of training programs for the unemployed
Previously, evidence suggested that training programs for the unemployed had very little if no positive impact on employment outcomes e.g. Martin and Grubb (2001)
More recently, evaluation studies of longer-term outcomes have reported more favourable outcomes
e.g. see Card, Kluve and Weber (2009) for a meta-analysis of these evaluation studies
Are Active Labour Market Programs (ALMPs) involving training as opposed to job-search assistance or wage subsidies very effective?
But in many instances reasons why ALMPs work or don’t work not fully understood Again, broader economic and
social context needs to be considered
Clear that need to tailor programs to needs of different groups, i.e. horses for courses approach
In some cases can involve quite radical and expensive measures
e.g. for at-risk youth, early and sustained interventions and residential programmes have had some success (see OECD’s Jobs for Youth review)
12
Soft or hard skills?
Skills needs are evolving in response to technological & organisational change and globalisation
Traditionally, focus on provision of “hard skills”, i.e. occupationally-specific skills
Some evidence of growing importance of “soft” skills in addition to cognitive skills such as literacy and numeracy Successive waves of the UK Skills
Survey point to significant wage premia for “soft” skills such as self-direction and communication skills
And to rapid growth in use of computer skills at work (Felstead et al., 2007)
× Are these findings for the US the same elsewhere, including for developing countries?
Which skills should public programs invest in?
Chart 5. Change in labour demand in terms of routine and non-routine tasks, United States
40.0
45.0
50.0
55.0
60.0
65.0
1960 1970 1980 1990 2002
Mea
n ta
sk in
put
as p
erce
ntile
s of
the
196
0 ta
sk d
istr
ibuti
on
Routine manual
Nonroutine manual
Routine cognitive
Nonroutine analytic
Nonroutine interactive
Source: Estimates supplied by Levy and Murnane.
13
Catering for business needs – up to a point
First, some countries and regions may be stuck in a low-skill, low-pay equilibrium and raising skill demand should be a priority If region “unattractive”, raising
supply of more-skilled workers may be ineffective if offset by out-migration
Second, future skill demands are hard to predict (including importance of hard vs. soft skills) and skill shortages may be temporary Role for public policies in: providing
information on skill profiles (e.g. U.S. O*NET system, Canada’s Essential Skills & Workplace Literacy Initiative); and certifying training, training institutions and prior learning
For further discussion of these issues, see OECD, 2006c
Skill development programs should tie in with business needs but should avoid a short-term focus
* The data refer to: i) the percentage of firms reporting that a shortage of skilled
labour was an impediment to production; and ii) the degree of capacity utilisation
reported by firms.Source: Results of National Bank of Belgium's quarterly business survey
(http://www.nbb.be/belgostat).
65
67
69
71
73
75
77
79
81
83
85
0
2
4
6
8
10
12
14
Skill shortages (Left scale)
Capacity utilisation (Right scale)
Chart 6. Skill shortages in Belgian manufacturing*
14
Examples of joined-up regional initiatives
Source: OECD project on “Striking the Right Balance: Local Skills and Strategies”.15
Examples of joined-up regional initiatives
Source: OECD project on “Striking the Right Balance: Local Skills and Strategies”.16
Examples of joined-up regional initiatives
Source: OECD project on “Striking the Right Balance: Local Skills and Strategies”.17
Implications for design of programs
Relevant Relevant to labour market needs
of individuals and firms
Effective and affordable Stimulates cost-effective
investment in human capital that improves employment and social outcomes
Needs evaluation
Accessible Tackles time, cost & mobility
constraints and information gaps
Personalised and flexible Takes into account individual
needs of participants and employers and can adapt to changes in these needs
Considerable heterogeneity in: Participation decisions and
training outcomes across different groups of individuals and across countries
Skill needs of firms by sector and size
Therefore, no one-size fits all training policy or program is possible
× And fundamental questions of how much to invest, in whom and in what form are not always easy to answer
However, some general principles should be followed to encourage and REAP the benefits of greater investment in human capital18
Improving the knowledge base: the new PIAAC survey of adult
skills
19
The OECD Programme for the International Assessment of Adult Competencies (PIAAC)
Measures of literacy, numeracy & problem-solving skillso Direct assessment
Measures of skill formation & outcomes o Background questions
on adult learning, labour-market status, earnings, health …
Measures of generic skills used at workoJob Requirements Approach (JRA)
Household-based survey of population 16-65 (minimum of 5000 respondents per country) to be held in 2011
28 (mainly OECD) countries participating
20
PIAAC: a new window on adult skills
Expanding direct assessment to problem solving skills in context of IT and component literacy skills
Extending skill measures to broader range of skills used at work
Tightening focus on links between skills and labour market outcomes Determine importance of “soft”
skills
Measuring comparably both formal and less formal training and barriers to training
PIAAC will extend and improve on the work of previous international surveys of adults skills by:
Key workplace
skills
Cognitive skills
Physical skills Learning skills
Interaction/social skills
Reading, Writing, Maths, IT,
Problem Solving
Stamina, Strength, Dexterity
Influence, Self-direction, Horizontal
interaction, Client interaction
Required to learn things, Keep up to date, Help others
learn
Objective: To provide assessment of adult literacy in the information age,
covering 4 broad domains of competency
Problem solving in an
IT context
Literacy Literacy component
skills
Numeracy
Types of skill use covered in the JRA module
Direct assessment module
21
Conclusions
The current economic downturn is a salient reminder of difficulty of predicting specific skill needs and risk of subsidising redundant skill development if merely reacting to short-term business needs
Perhaps need to shift focus of public policies and programs with respect to adult education and training towards more generic skills that won’t become quickly outdated – e.g. basic literacy, numeracy and general computing skills
Important to provide better and more timely information on training opportunities, quality and outcomes to allow firms and individuals to make their own judgements about appropriate training
Lastly, as always, need for better data on training and skill needs and more evaluations of existing skill development programs
PIAAC will fill part of this knowledge gap as well as the OECD’s current reviews of VET and regional skill strategies but much more remains to be done in co-operation with other international bodies such as the World Bank
22
For further information:
23
Citations Bassanini, A., A. Booth, G. Brunello, M. De Paula and E. Leuven (2007), “Part II. Workplace Training in
Europe” in G. Brunello, P. Garibaldi and E. Wasmer (eds), Education and Training in Europe, Oxford University Press, Oxford.
Card, D., J. Kluve and A. Weber (2009), “Active Labor Market Policy Evaluations: A Meta-Analysis”, IZA Discussion Paper No. 4002, February.
Carneiro P. and J. Heckman (2004), “Human Capital Policies” in A.B. Kreuger, J. Heckman, B Friedman (eds) Inequality in America: What Role for Human Capital Policy?, MIT Press, Cambridge, M.A.
Cunha, F., J. Heckman, L. Lochner and D. Masterov (2005), “Interpreting the Evidence on Life Cycle Skill Formation”, NBER Working Paper No. 11331, May.
Felstead, A., D. Gallie, F. Green and Y. Zhou (2007), Skills at Work, 1986 to 2006, ESRC Centre on Skills, Knowledge and Organisational Performance.
Fiszbein, A. and N. Schady (2009), Conditional Cash Transfers: Reducing Present and Future Poverty, A World Bank Policy Research Report, The World Bank, Washington, D.C.
Martin, J.P. and D. Grubb (2001), “What works and for whom: a review of OECD countries’ experiences with active labour market policies”, IFAU Working Paper, 2001:14.
OECD (2003), “Upgrading Workers’ Skills and Competencies”, Chpt. 5, Employment Outlook: Boosting Jobs and Incomes, Paris.
OECD (2006a), “General Policies to Improve Employment Opportunities for All”, Chpt. 3, Employment Outlook: Boosting Jobs and Incomes, Paris.
OECD (2006b), Live Longer, Work Longer, Paris.
OECD (2006c), Skills Upgrading: New Policy Perspectives, Paris.
24