Changing Skills Demand in the Workplace:
Global and Regional Perspectives
SeminarGrowth Strategies
for Secondary Education in AsiaSeptember 19-21, 2005Kuala Lumpur, Malaysia
Hong TanLead Economist, WBI
Goals of Presentation
Provide an overview of global trends and their likely impacts on the labor market and on skills demand in the workplace
Skills broadly defined to include formal education (secondary & tertiary in particular), vocational education & training, and training within firms
What skills will be in high demand in workplaces of the future, and what role will they play in raising incomes, improving productivity & competitiveness
What issues do these raise, and what implications will changing skills demand have for education and training policy
Key Global Trends Affecting Labor Markets and Skills
Economic Restructuring Transition economies – from planned to market
economies Downsizing of the public sector, privatization of
SOEs, growth of the private sector Shift from agriculture to industry and services
Globalization and International Trade Integration into international markets Foreign capital and labor flows Technology transfer to developing countries
Growth of the Knowledge Economy Growing importance of information and knowledge in
production of goods and services Diffusion and use of information and communication
technologies (ICT)
There has been a shift from agriculture to employment in industry and services …
Early 1960’s
1980
Late 1990s
0 10 20 30 40 50 60 70
World
Middle East & N.Africa
Sub-SaharanAfrica
Latin America &Caribbean
Asia
E. Europe and C.Asia
High income
ILO, World Employment Report, 2001
Service sector employment – 1960s to 1990s
And restructuring that often tends to increase job turnover…
making jobs and job security more volatile
Job creation and destruction
-20
-15
-10
-5
0
5
10
15
20
% o
f to
tal em
plo
ym
en
t
J. creation, new firms J. creation incumbents J. destr. exits J. destr. incumbents
United States
1.4
1.45
1.5
1.55
1.6
1.65
1.7
1.75
1.8
1965 1970 1975 1980 1985 1990 1995 2000
Rat
io o
f h
ou
rly
wag
es
College Plus/High School Wage Premium 1967-1997
Source: Murphy & Welch, Relative Wages in the 1990s, unpublished
Rising relative returns to higher education in many OECD countries…
College Wage premiums risen in US in the past 2 decades
Source: Blom, Holm-Nielsen, and Verner, “Education, Earnings and Inequality in Brazil: 1982-1998” World Bank (2001)
As well as some developing countriesFor example, Brazil and Mexico
60
70
80
90
100
110
120
130
1982 1984 1986 1988 1990 1992 1994 1996 1998
Tertiary
Upper sec
Primary
Lower sec
BRAZILSimilar changes over time seen in Mexico with returns to higher education rising and that to primary education falling-- Lachler (1998), “Education and Earnings Inequality in Mexico”
Driven in part by trade liberalization …
Sanchez and Schady (2002) find coincident timing of trade liberalization and widening then narrowing relative wages of the more highly educated Chile reformed first -- mid-1970s to 1980s – followed by
Mexico, then Argentina, Colombia, and Brazil in 1990s Relative wages of more educated widened then narrowed
first in Chile, then Mexico, though the last 3 countries have yet to narrow
Explanation: Integration into world economy is like a technology shock, with a transitional increase in demand for more educated workers, and a rise in their relative pay (at least until supply response)
Annual Growth Rate of Skilled Employment in Selected Countries, 1981-1996 (in %)
-2
0
2
4
6
8
10
Total Employment Professional and Technical
ESkilled jobs have grown faster than less skilled
jobs despite higher pay
Possible Explanations for Rising Relative Skills Demand
Skills-Enhancing Trade — imports of capital equipment—complementary with skills and embodied technology—raise relative skills demand (Robbins)
Skill-biased Technical Change — new technology developed in skill-abundant advanced countries are skill-biased, and raise relative skills demand in developing countries through technology transfer (Berman)
Skills Adaptable to Change – in periods of change, education and training that enhances “ability to deal with disequilibrium” is more valued, and in greater demand (Schultz, Welch)
Skill-biased Technical ChangeEmpirical Evidence
Tests of SBTC in labor demand studies: Industrialized countries -- Autor, Katz, and Krueger
(1998) for the USA, Machin and Van Reenen (1998) for OECD countries
Developing countries -- Tan (2000) for Malaysia; Pavcnik (2002) for Chile; Hur, Seo and Lee (2003) for Korea
Strong evidence of: Capital-skill and capital-education complementarity SBTC as shown by positive relationship between wage
(employment) shares of tertiary educated and skilled occupations and R&D expenditures and use of new technology
Magnitude of this training sector not often apparent to educators / policymakers In fact, investments in continuing education and training may exceed investments in formal education Growing body of evidence on post-school training based on individual data. Main findings:
More educated workers not only get more training, they get training more often over their worklife Returns to training are substantial and comparable to the returns to education Training and the returns to training are higher in industries that experience faster technical change
Source: Lillard and Tan (1990), Private Sector Training: Who Gets It and Why?
Same Forces Operating for Post-School Training of Workers
And in Enterprises Some Stylized Facts about In-Firm Training
Training level differences by countries’ income level
Within countries, uneven incidence across firms higher among larger firms, FDI firms, export-oriented
firms, and in higher-tech sectors Educated workers more likely to get training Most important training sources
in-house programs, private schools. buyers and suppliers public training institutes are a less important source Higher productivity impacts of in-house and private
sector training vs training from public sector providers Strong empirical evidence that training is
associated with increased wages and productivity Cross-sectional survey data as well as panel firm data
Incidence of In-Firm Training Variesacross regions and countries
Incidence of formal training by region
0.00
10.00
20.00
30.00
40.00
50.00
60.00
South Asia Af rica Europe and
Central Asia
East Asia Latin America
and the
Carribean
Total
Percentage of firms that train formally
0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00
PakistanMorocco
IndiaPhilippinEthiopia
BangladeUgandaZambia
MoldovaNicaraguTanzaniaElSalvad
KenyaMalaysia
HondurasGuatema
PolandBrazil
EcuadorChinaTotal
Source: Investment Climate Surveys in 20 countries (early 2000s)
Within countries, incidence of training varies across firms by technology level
Train by innovation
0102030405060708090
% Don't innovate
Innovate
Source: World Bank Investment Climate Surveys
Malaysia: Training Associated with Recent Introduction of New Technology
0
10
20
30
40
50
60
70
Micro Small Medium Large
new technology in last 3 years
no new technology in last 3 years
% increasing training investments
0
10
20
30
40
50
60
70
Micro Small Medium Large
increased training in last 3 years
Productivity Effects of Training -- Taiwan 1986
0
20
40
60
80
100
%
ApparelTextile
Chemicals
TransportElectronics
Plastics
Paper
High-Tech FirmsLow-Tech Firms
And productivity impact of training is greater with new technology
Source: Tan, Aw and Batra (1995)
Firm-level studies consistent with SBTC Bresnahan-Brynjolfsson-Hitt (2002), US (379 firms)HJ Seo – JJ Hur (2004), Korea (2000 firms)H Tan (2000), Malaysia (2,300 firms)
ICT adoption / intensity of ICT use correlated with:changes in work organization – from vertical to more decentralized and team-oriented organizationsincreased screening of new hires, use of educated labor, in-service training, and use of quality control methods firm performance and competitiveness
ICT Changing Work Organization and Demand for Education and Skills
Tan (2000) “Malaysia: Technology and Skill Needs”
Panel study of adoption of ICT (12 types), skills and its productivity outcomes. Main Findings:
Probability of ICT adoption positively related to skill mix of workers, skilled occupations in particular Employers deliberately alter skill mix prior to ICT adoption, to include more professional, technical and skilled workers Evidence of productivity (learning) gains with years of experience using ICTLearning gains from ICT adoption larger for training firms than for non-training firms – after 4 years, 31% gain versus 14% gain
ICT, Skills, and Firm Performance Example of Malaysian Manufacturing
More workers with more education – rising relative pay reflects growing demand for more educated workers
Skills that are portable across jobs – rising job turnover favors broader skills set rather than specific ones
Competencies demanded by employers – problem solving, numerical skills, ability to work in teams, and communication skills
Familiarity with ICT – growing demand for IT skills
Ability to learn – changing economic environment and work organization requires continuing education & training in the workplace
Summary Skills Demanded in the Workplace
Improve Supply-Demand Match for Education and Training
Better labor market data on skills demand and its supply from ALL providers of education and training, both public and private Provide information on career opportunities, and the associated returns to different educational, training, and career choices
Expand Access to and Quality of Education and VET
Expand enrollments in higher education and vocational training institutions as warranted by market signals Financing constraints will require opening up sector to private education institutions and private training providers Reform education and VET institutions to make them more responsive to market and employer needs
Summary and Implicationsfor Education and Training - 1
Better coordinate education and training system
Many countries have fragmented education and training systems under different agencies, often duplicating offerings and with no transferability of skills across institutions. Skill demands vary and skill needs may be better met by some institutions – either public or private – than by others
Caution in Vocationalizing Secondary Education
High cost and questionable relevance of vocational education to employer needs Rising job and occupational mobility makes more general, broad competencies more important than specific vocational education Job specific training best left to private sector and employers who know their skill needs But this will vary depending on country institutions
Summary and Implicationsfor Education and Training - 2
Accreditation of Education and Training Provide quality assurance to potential users – institutions, students, workers and employers – about quality Promote recognition and mobility of credentials, and multiple pathways to skill acquisition both pre- and post-labor market entry Potentially important way of reflecting employers skill needs in establishing education and training standards
Curriculum reform improve content and pedagogies to strengthen problem solving, learning-to-learn skills, provide training in IT and languages for work in global economy and environment of change
Summary and Implicationsfor Education and Training - 3