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

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Basic facts about training and skills

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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)

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Large inequalities in training participation

Source: European Adult Education Survey.

Panel B. Age

Panel A. Gender

Panel C. Educational attainment

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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)

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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

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Chart 2.  Training has a positive effect*

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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

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y = 63.015ln(x) - 157.58R² = 0.7178

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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*

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Key issues for public programs and policies

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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

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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)

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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.

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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)

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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

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Source: Estimates supplied by Levy and Murnane.

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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).

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Skill shortages (Left scale)

Capacity utilisation (Right scale)

Chart 6.  Skill shortages in Belgian manufacturing*

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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

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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

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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

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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

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For further information:

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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.

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