Chapter 5. Using skills effectively in work and society

This chapter presents the portion of the OECD Skills Strategy Dashboard that pertains to using skills effectively, allowing for a comparative assessment of country performance. It explores a series of policy priorities relating to the use of skills, including: 1) promoting labour market participation; 2) promoting social participation; 3) expanding the pool of available talent; 4) making intensive use of skills in the workplace; 5) reducing skills imbalances; and 6) stimulating demand for high-level skills.

    

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

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Box 5.1. Key policy lessons on using skills effectively in work and society

Promote labour market participation. Developing skills will only have the desired impact on the economy and society if those skills are made available to the labour market. Identify barriers to work and intervene early to promote equal opportunities. Create the right incentives to work by accompanying safety nets with an effective activation strategy. Assist displaced workers by intervening prior to displacement with re-employment measures, including counselling and reskilling that are well-informed by information about skills needs.

Promote social participation. A balanced set of cognitive, social and emotional skills can support adults in achieving positive social outcomes and increased social engagement. Governments can raise awareness about the benefits of using one’s skills to participate in civil society. They can also introduce incentives to overcome barriers to using skills in civil society, including time off work or financial incentives for volunteering.

Expanding the pool of available talent. Attract the right skills from abroad, improve transparency of skills and provide language training. Migrants now account for about one in ten people living in OECD Member countries; however, they are more likely to be over-qualified. Highly educated migrants also have lower employment rates than their native-born counterparts. Governments should engage with employers to ensure that foreign qualifications are recognised, and to secure early work experience for migrants. Providing language training reduces a significant barrier to work; ideally, this training should be provided on the job.

Support employers in making better use of employees’ skills. Governments can support firms by raising awareness about the benefits of improved organisation and management practices that contribute to better skills use, including teamwork, task discretion, mentoring, job rotation, applying new learning, incentive pay, and flexible working hours. Governments can also disseminate good practice, develop diagnostic tools to help firms identify room for improvement, promote knowledge transfer and offer management skill development programmes. Interventions should be targeted to small- and medium-sized enterprises (SMEs) who face cost constraints in implementing new management and organisation practices.

Reduce skills imbalances. Support reallocation of skills and labour to the occupations, regions and sectors that most need them by reducing barriers associated with internal mobility and make labour markets more flexible. Competency-based occupational frameworks can facilitate better skills matching by making skills more visible.

Stimulate demand for higher-level skills. To avoid economies getting trapped in “low skills equilibria”, policies can shape demand for high-level skills. Combine government support for research and development with education and training policies to simultaneously boost demand and supply for skills that complement high-tech production. Fostering collaboration between academic institutions and firms, and removing barriers to entry for firms also encourages demand for higher-level skills.

Introduction

One of the aims of the OECD Skills Strategy was to broaden the discourse on skills to encompass not only the supply of skills but also the demand for skills. The degree to which skills are used in both the economy and society has significant implications for the returns that countries can expect to receive from their investments in skills. Supply-side interventions will only achieve the desired productivity gains if they are accompanied by simultaneous actions to boost the demand for, and effective use of, skills. Indeed, the failure to fully utilise skills could result in a waste of the initial investment in human capital and depreciation and obsolescence of the skills left unused (Guest, 2006[1]). Several countries have developed successful policies and practices to make the most of the available skills supply in order to support the economy, spur innovation and growth, and strengthen social cohesion.

As discussed in Chapter 1, the 2019 OECD Skills Strategy recognises the inter-related nature of activating and using skills. This chapter combines these two concepts and presents key policy messages for using skills effectively in all facets of work and society.

This chapter will first present a set of quantitative indicators that allow for a comparison of how effectively countries make use of their skills supply. It then explores a series of policy priorities, outlining the key challenges faced by countries and their underlying causes, and proposes policies and practices that can address them.

Assessing performance in using skills effectively

Through its experience working with countries on national skills strategy projects, the OECD has identified a set of key indicators to assess the overall performance of countries in developing relevant skills and using skills effectively. These are presented in the OECD Skills Strategy Dashboard. This dashboard allows countries to make a preliminary assessment of the comparative strengths and weaknesses of their skills systems and facilitates analysis of potential trade-offs or synergies in skills policies.

Table 5.1 presents the portion of the Skills Strategy Dashboard pertaining to using skills effectively. The indicators included in this dashboard were chosen to reflect a broad definition of “skills use” in the labour market, where participation in the labour market, the use of skills in the workplace, and the alignment between skills supply and skills demand are considered. Given that the use of skills is also important for engaged and active citizenship, the dashboard includes a measure of the use of skills in everyday life as well. The dashboard also includes measures of the extent to which skills are being used evenly across different groups in society (i.e. men and women, age groups).

Table 5.1. OECD Skills Strategy Dashboard: Using skills effectively in work and society
Table 5.1. OECD Skills Strategy Dashboard: Using skills effectively in work and society

1: For Belgium (Flanders) and United Kingdom (England and Northern Ireland), a combination of regional (PISA and PIAAC on the level of Flanders, England and Northern Ireland) and national data have been used depending on the source.

Note: The Skills Strategy Dashboard has a focus on outputs of the skills system. A list of relevant indicators has been selected and aggregated and normalised in such a way that a higher value and being among the “Top 20%” reflects better performance. Colours in the dashboard represent the quintile position of the country in the ranking. The "x" indicates insufficient or no available data for the underlying indicators, and dotted circles indicate missing data for at least one underlying indicator. Data was not available for all aggregate indicators for all countries, particularly due to absence in the Survey of Adult Skills (PIAAC). An explanation of the underlying indicators is provided in the Annex A.

Countries with inclusive labour markets tend to see strong overall labour market performance

Almost all the top-performing countries with respect to employment and labour force participation tend to have small differences in performance between men and women and different education levels even when adjusted for relevant characteristics. Good examples are the Scandinavian countries, New Zealand and Switzerland. Still, strong overall labour market performance is not a guarantee for an inclusive labour market. In Japan, for example, employment and labour market participation are high, but there are still comparatively large differences between the employment of men and women. In the Czech Republic and Slovenia, employment levels are above OECD averages, but the low educated are lagging behind. Such countries could see significant potential benefits in encouraging all groups to enter (or re-enter) the workforce (see the section below, “Promoting labour market participation: Reducing barriers to work and activating displaced workers”).

More highly skilled countries are more likely to have citizens who use their skills intensively at home and in daily life

Various countries with highly skilled populations, including Canada, New Zealand and the Scandinavian countries, appear to use adults’ skills more intensively outside of the workplace in everyday life than in most OECD Member countries. For instance, such citizens read financial statements, write articles and use information and communication technology (ICT) skills for online services. Conversely, in countries with relatively low levels of skills, for example, Chile, Greece, Italy and Turkey, the use of skills at home is among the lowest in OECD Member countries. However, there are also countries with high skills proficiency that score low in the use of these skills outside of the workplace. In Japan, in particular, the use of literacy and ICT skills outside of work is low despite the high average level of skills. Since skills use outside the workplace is associated with engaged and active citizenship, countries should encourage their citizens to actively apply their skills in daily life (see the section below, “Promoting social participation: Raising awareness of the benefits of civic engagement, and supporting the use of skills in society and daily life”).

Not all countries that perform well at developing skills also do a good job of ensuring that these skills are used intensively at work

Many countries combine strong performance in skills proficiency with high levels of skills use in the workplace (Figure 5.1). Some countries use the skills of their population intensively in the workplace despite having relatively low-skilled workforces. The United States is the strongest example here – the US workforce generally performs at average or slightly below average on skills development (both PISA and PIAAC) but is a top performer in terms of using skills in addition to strong overall labour market performance. This demonstrates that despite some deficiencies in skills development, skills can be used intensively, with positive consequences for productivity and earnings (see the section below, “Making intensive use of skills in the workplace: Improving work organisation and management practices to make full use of employees’ skills”). Conversely, some countries with highly skilled workforces are not optimally using their skills. One example is Japan, where a highly skilled adult population scores below average in the use of skills and where labour shortages are also large. These countries could potentially reap large benefits in terms of wages and productivity by making better use of existing skills, and by putting more people to work.

Figure 5.1. Adult skill levels and the use of skills in the workplace
Figure 5.1. Adult skill levels and the use of skills in the workplace

Note: The figure is based on indicators from the OECD Skills Strategy Dashboard, using normalised scores of the following aggregated indicators: “How strong are the foundational skills of adults?” and “Do workplaces make intensive use of skills?” both based on PIAAC scores.

Source: OECD calculations based on (2018[2]), Survey of Adult Skills (PIAAC) (database), 2012/2015, http://www.oecd.org/skills/piaac/.

 StatLink https://doi.org/10.1787/888933928046

The adoption of high-performance work practices can help promote the intensive use of skills at work

Several practices in the workplace are known to have a positive impact on employee performance (Figure 5.2). This includes, for instance, practices related to the flexibility of work, working with colleagues, planning one’s own activities, and various management practices. The dashboard shows that countries that perform well in the adoption of these high-performance work practices (HPWPs), also generally have comparatively high levels of skills use in the workplace; this is particularly the case in the Scandinavian countries, Australia, Canada, United Kingdom (England), the Netherlands, New Zealand and the United States. This finding underscores the need to expand the adoption of HPWPs to support the effective use of skills (see the section below, “Making intensive use of skills in the workplace: Improving work organisation and management practices to make full use of employees’ skills”).

Figure 5.2. High-performance workplace practices and the use of skills in the workplace
Figure 5.2. High-performance workplace practices and the use of skills in the workplace

Note: The figure is based on indicators from the Skills Strategy Dashboard, using normalised scores of the following aggregated indicators: “Do workplaces make intensive use of skills?” and “Are firms designing workplaces to use skills effectively?”, both based on PIAAC scores.

Source: OECD calculations based on (2018[2]), Survey of Adult Skills (PIAAC) (database), 2012/2015, http://www.oecd.org/skills/piaac/.

 StatLink https://doi.org/10.1787/888933928065

Minimising skills imbalances entails not only developing relevant skills but also recruiting new talent with relevant skills and improving the allocation of labour

Skills imbalances refer to misalignment between skills demand and supply in an economy and can comprise skills mismatches as well as skills shortages and surpluses. The presence of skills imbalances can indicate that an economy is dynamic, with jobs and skills needs that are being rapidly transformed. However, all other things being equal, persistent skills imbalances should be minimised as they have a number of negative impacts, including a higher risk of unemployment, lower wages, lower job satisfaction and lower productivity. Still, there is no simple way to reduce imbalances, as evidenced by the lack of a strong relationship between the indicator of skills imbalances and the various indicators of skills development (see Chapter 4) and effective skills use (this chapter). This finding underscores that reducing skills imbalances requires taking a multi-pronged approach, involving, among other things, creating responsive education systems, providing effective career guidance, and supporting continuous skills development over the life course as well as through attracting migrants with relevant skills (see the section below, “Expanding the pool of available talent: Attracting the right skills from abroad, improving the transparency of procedures for skills recognition, and providing language training”), and developing labour market institutions and policies that support labour mobility and flexibility (see the section below, “Reducing skills imbalances: Improving the alignment between the supply and demand of skills”).

Policies to promote innovation can strengthen demand for higher levels of skills

The adoption of policies that promote innovation (e.g. research and development [R&D] expenditure, promoting research, securing innovative property such as patents, copyrights, and trademarks, and supporting innovative international co-operation) can also stimulate the demand for higher levels of skills and, by extension, help countries move up the value chain. This finding underscores the importance of aligning policies that impact the supply of skills with those that impact demand for skills to ensure that they are mutually reinforcing (see the section below, “Stimulating demand for high-level skills: Supporting firms’ innovative activities, and removing obstacles to growth”).

Promoting labour market participation: Reducing barriers to work and activating displaced workers

Developing skills will only have the desired impact on the economy and society if those skills are made available to the labour market. Giving people opportunities to participate in the labour market and making full use of their skills at work improves individual well-being and strengthens economic growth. This section discusses the challenge of attaining labour market participation among all groups in society and reviews good practices for removing barriers to work and for activating those workers displaced by structural changes in the economy.

The challenge: Persistently high long-term unemployment and low activation of some groups

While the unemployment rate has declined to below, or close to, pre-crisis levels in almost all countries, the recession has left its scars with persistently high long-term unemployment in many OECD Member countries. Long periods of unemployment are associated with discouragement and the loss of human capital and skills, making reintegration efforts more difficult.

Furthermore, there are marked differences in labour market participation as well as the incidence of long-term unemployment between regions and population groups within OECD Member countries. High unemployment and weak labour market attachment of some groups reflect a range of barriers to working or moving up the job ladder, and often a combination of barriers for the most disadvantaged groups.

Even in the absence of an economic downturn, ongoing changes in the economy due to digitalisation, globalisation and population ageing have led many workers to lose their jobs and to become “displaced workers” (see Chapter 3 for a more detailed discussion of the consequences of these megatrends). While a portion of displaced workers move quickly into new jobs that match or exceed the quality of the job they lost, others experience a lasting decline in their earnings capacity, due to long-term unemployment, large wage reductions on the post-displacement job or a combination of the two (OECD, 2018[3]). Compared to the average employee, displaced workers tend to use less mathematics, less cognitive, interpersonal and verbal skills in their pre-displacement jobs, and more craft and physical skills, suggesting that they may be ill-equipped to move into expanding sectors that may be more demanding in terms of the level of skills required (Quintini and Venn, 2013[4]). As set out in the new OECD Jobs Strategy (Box 5.2), policies to help workers move from declining businesses, industries and regions to those with higher growth prospects will be essential to deal with the rapid transformation of economies resulting from megatrends. Such policies in support of labour market dynamism should be accompanied by policies to help displaced workers maintain and upgrade their skills (OECD, 2018[5]).

Box 5.2. OECD Jobs Strategy 2018

In 1994, the OECD Jobs Strategy was released to provide a set of policy guidelines to OECD Member countries to tackle high and persistent unemployment. This was followed by a revised version in 2006 and again in 2018. The 2018 OECD Jobs Strategy provides guidance on policies that enable workers and firms to harness the opportunities provided by new technologies and markets while helping them to cope with the required adjustments and ensuring that the fruits of growth are broadly shared. It continues to emphasise the importance of job quantity for strong and sustained economic growth, but it also recognises job quality in wage and non-wage working conditions and labour market inclusiveness as central policy priorities. Policy recommendations are organised around three principles:

  • Promote an environment in which high-quality jobs can flourish. Strong labour market performance requires a solid macroeconomic framework, a growth-enhancing environment and skills that evolve in line with market demand. Policies need to strike the right balance between employment flexibility (to ensure that resources are reallocated to their most productive uses) and stability (to foster learning and innovation in the workplace).

  • Prevent labour market exclusion and protect individuals against labour market risks. Take a preventative approach to labour market inclusiveness by strengthening equality of opportunities, so that socio-economic background does not act as a key determinant of success in the labour market. Tackle barriers to the acquisition of education and skills by individuals from disadvantaged backgrounds through targeted interventions during (pre-) school years and in the transition from school to work. Adapt working conditions to workers’ needs over the life course: by making it easier to combine work, care and social responsibilities and preventing the development of work-related health problems, this increases labour force participation over a working life, narrows gender gaps and reduces the risk of poverty and exclusion.

  • Prepare for future opportunities and challenges in a rapidly changing labour market. Helping workers move from declining businesses, industries and regions to those with the highest growth prospects should be accompanied by policies to help individuals maintain and upgrade their skills, assist lagging regions, strengthen social safety nets, and enhance the role of social dialogue in shaping the future world of work. Link education and training to individuals rather than jobs and make them more accessible, to accommodate the fact that increased fragmentation of production processes and the likelihood that workers will move between jobs more frequently may reduce incentives for firms and workers to invest in firm-specific skills. Ensure that workers remain protected against labour market risks in a world where flexible forms of work may increase by guaranteeing that everybody has access to social protection and is covered by basic labour market regulations.

Source: OECD (2018[5]), Good Jobs for All in a Changing World of Work: The OECD Jobs Strategy, https://doi.org/10.1787/9789264308817-en.

Good practices

Addressing barriers to work

Expanding the supply of skills in the longer term requires making labour markets more inclusive through increasing the labour market participation of groups that are currently at the margins of the labour market. These groups – notably youth, older workers (especially those with low qualifications), people with caring responsibilities (mostly mothers with children), people with disabilities and immigrants and refugees – typically face multiple barriers to access full employment and good quality jobs and to make use of their skills in the labour market. Relative to prime-aged men, employment rates are generally lower for these groups (Figure 5.3). Common barriers to work include lack of adequate education, skills and/or work experience, health problems, care responsibilities and childcare costs, lack of transportation, social problems and insufficient financial incentives to take up work.

As mentioned, the new OECD Jobs Strategy advocates strengthening equality of opportunities so that socio-economic background does not act as a key determinant of success in the labour market. This requires tackling barriers to the acquisition of education and labour market skills by individuals from disadvantaged backgrounds through targeted interventions during pre-school years (i.e. participation in pre-school education), school years (i.e. preventing early school leaving), in the transition from school to work and second-chance educational programmes for early school leavers who are unable or unwilling to return to a standard school (OECD, 2018[5]). Interventions are most effective when there is co-ordination across the range of programmes and services at the regional and local levels, involving employment services, vocational education and training providers and economic development agencies (OECD, 2016[6]).

Improving labour market inclusiveness also requires a life-course perspective, to avoid an accumulation of individual disadvantages that require costly interventions at a later stage. To reduce the risk of workers becoming trapped in low-quality jobs or joblessness, they should have ongoing opportunities to develop, maintain and upgrade skills through learning and training at all ages, as explored in Chapter 4. Similarly, working conditions should be adapted to workers’ needs over the life course; for instance, by making it easier to combine work, care and social responsibilities, and by preventing the development of work-related health problems. This not only increases labour force participation over a working life but also narrows gender gaps and reduces the risk of poverty and exclusion (OECD, 2018[5]).

When workers lose their jobs, safety nets like unemployment insurance can help them to avoid poverty and deprivation, which act as barriers to future employment. However, current social security systems are still largely based on the notion of an employer-employee relationship, and in over half of G20 countries with available data, the self-employed have no access to unemployment benefits (OECD, 2017[7]). Adapting social security systems to the new world of work may require a fundamental paradigm shift, where entitlements are linked to individuals rather than jobs and are portable from one job to the next. In the United States, social security accounts are already “multi-employer.”

Figure 5.3. Some groups are significantly under-represented in employment
Employment-to-population ratio, selected OECD Member countries
Figure 5.3. Some groups are significantly under-represented in employment

Note: Data refer to persons aged 25 to 64 in Panel A; data refer to persons aged 15 to 64 in Panels B, C and D.

Source: Panel A: OECD dataset: Educational attainment and labour-force status, http://stats.oecd.org/Index.aspx?DataSetCode=EAG_NEAC. Panel B: EU-SILC 2012 except: 1) Australia: Survey of Disability and Carers 2012, Australian Bureau of Statistics, 4430.0 - Disability, Ageing and Carers, Australia: Summary of Findings, 2012; 2) Canada: Canadian Survey on Disability, 2012, Statistics Canada. Table 115-0005 - Labour force status for adults with and without disabilities, by sex and age group, Canada, provinces and territories; 3) Norway: LFS 2012 Q2, http://www.ssb.no/en/arbeid-og-lonn/statistikker/akutu; 4) United Kingdom: LFS 2012; 5) United States: Survey of Income and Program Participation, SIPP 2008 Panel, wave 13, September 2012 to December 2012, http://www.census.gov/programs-surveys/sipp/data/2008-panel.html. Panel C: OECD Family Database, www.oecd.org/social/family/database.htm. Panel D: OECD dataset: NUP rates by place of birth and sex, http://stats.oecd.org/Index.aspx?DataSetCode=MIG_NUP_RATES_GENDER. Panels E and F: OECD dataset: LFS by sex and age - indicators, http://stats.oecd.org/Index.aspx?DataSetCode=LFS_SEXAGE_I_R.

 StatLink https://doi.org/10.1787/888933928084

Safety nets should also be accompanied by an effective activation strategy, which combines measures to ensure that jobless people have the motivation to search actively and accept suitable jobs (e.g. through appropriate tax and benefit incentives), with actions to match job seekers with suitable opportunities (e.g. job search assistance, direct referrals, subsidised employment) and interventions to increase the employability of the least employable (e.g. training and work-experience programmes; OECD (2015[8])).

Public employment services are increasingly putting emphasis on matching job seekers to jobs on the basis of skills, rather than qualifications or work experience. Qualifications and job experience are not a perfect indication of the skills a worker possesses (Quintini, 2011[9]; OECD, 2013[10]), and skills-based approaches to matching may be both more inclusive and more effective. They are more inclusive because they open opportunities to workers who have acquired relevant skills through informal training on the job but lack a formal qualification. They may also be more effective since employers can specify the particular skills they require, rather than being constrained by poor approximations of these skills, like qualifications or job experience. In Flanders (Belgium), the public employment services use the “Competent” database to match job seekers with jobs on the basis of skills (Box 5.3).

Box 5.3. Country practices: A skills-based approach to job matching

In Belgium (Flanders), the “Competent” database is used by the Flemish public employment service (VDAB) to match job seekers with vacancies based on skills requirements, rather than by the traditional qualification and work experience requirements. With the current digital matching tool, employers may enter vacancy information, including location, qualification requirements, as well as skills requirements. At the same time, job seekers who subscribe to VDAB complete an online profile, selecting the skills that they possess. Jobseekers and employers receive a list of vacancies/jobseekers which correspond to a least 80% of their profile/vacancy requirements. The Competent database is updated frequently to ensure that it is responsive to changing skills needs in the labour market.

The VDAB will soon launch a new version of the digital matching tool (Projectfiche Constructiv), which is intended to make it even more user-friendly. Using text analytics, the tool is trained to “read” uploaded job vacancies and CVs, to recognise patterns and to extract relevant information. Doing so produces a list of qualifications and work experience, which the tool then translates into skills requirements using the Competent database. In this way, the new tool will simplify the process of inputting skills possessed or skills required for job seekers and employers, respectively.

Source: OECD (2019[11]), OECD Skills Strategy Flanders: Assessment and Recommendations, https://doi.org/10.1787/9789264309791-en.

Activating displaced workers

A crucial difference between displaced workers (i.e. individuals who lose their jobs for economic reasons) and most other groups is that it is often possible to initiate re-employment services during the notice period prior to displacement (e.g. setting up a temporary employment office in a factory that will soon close). These early intervention services appear to be quite effective. In Australia, early support to employees affected by the closure of Australia’s car manufacturing industry meant that by the time the last plant closed in 2017, 84% of former employees had reportedly found new employment or entered retirement (Box 5.4).

However, early intervention services are not used as widely as would be desirable, often being limited to workers affected by mass layoffs. Some countries make services available to regions or sectors affected by structural change. In the Netherlands, following OECD recommendations (2017[12]), the country made changes to its use of sectoral training funds to promote reallocation of labour from declining to expanding sectors. (Box 5.4) provides additional examples of countries that make early intervention services available to all displaced workers, including those in smaller firms.

Box 5.4. Country practices: Activating displaced workers

The Skills and Training Initiative in Australia is part of the Growth Fund, which is an AUD 155 million fund to support businesses and regions affected by the closure of Australia’s car manufacturing industry. It is co-financed by government and industry. Taking advantage of long lead times in advance of factory closures, onsite transition centres provided employees with informed career guidance, recognition of prior learning, and retraining based on occupations and sectors in demand. These services were also made available to workers in the supply chain. Furthermore, the factory invited possible new employers to visit the factory to see the type of work that employees were doing in order to facilitate their re-employment. Survey evidence found that 84% of former factory employees had found new employment or entered retirement at the time of plant closure.

Based on collective agreements between social partners in a sector or occupation, job security councils (JSCs) in Sweden are actively involved in the process of restructuring and provide advice and consultation to employers and trade unions at an early stage, while also providing transition services (individual counselling, career planning and job-search assistance) to redundant workers. JSC activities are financed by employer contributions (typically 0.3% of the payroll). JSCs distribute the risk and costs of restructuring among its members while allowing access for workers in small- and medium-sized enterprises. Around 80% of JSC participants find a solution (either employment or retraining) within a period of seven months. This high share was sustained even during the crisis of 2008-10.

In Denmark, regardless of the size of a firm, warning pool funds can be used to establish a temporary employment service in a workplace, where caseworkers from the local job centre deliver job-search assistance and help workers build an individual job strategy. Counselling services are provided during the notice period, preparing workers for their displacement. Supplementary warning pool funding can be granted to support retrenched workers after their notice period through counselling and career clarification courses (up to two weeks), work-study programmes (internships and education) or language courses (up to eight months). Support for skills-upgrading is granted either for skills in current or future demand (as determined by the regional labour market authority). Skills-upgrading must be planned within 14 days after displacement, begin no later than 3 months after displacement and end at least 6 months after displacement.

Source: OECD (2018[13]), Getting Skills Right: Australia, https://doi.org/10.1787/9789264303539-en; OECD (2015[14]), Back to Work: Sweden: Improving the Re-employment Prospects of Displaced Workers, https://doi.org/10.1787/9789264246812-en; OECD (2016[15]), Back to Work: Denmark: Improving the Re-employment Prospects of Displaced Workers, Back to Work, https://doi.org/10.1787/9789264267503-en; OECD (2017[16]), OECD Skills Strategy Diagnostic Report: The Netherlands 2017, https://doi.org/10.1787/9789264287655-en.

The success of early intervention services depends on having a long notice period prior to displacement. Active engagement with social partners combined with the development and use of skills anticipation exercises, like forecasting and foresight exercises (discussed in Chapter 4), can assist in providing early warning of declining demand by occupation, sector or region.

Policy recommendations for promoting labour market participation

In light of the findings and practices above, the following policy recommendations can help countries promote labour market participation (Box 5.5).

Box 5.5. Policy recommendations: Promoting labour market participation
  • Intervene early to prevent barriers to work. Promote equal opportunities to avoid socio-economic background from determining labour market outcomes through its influence on the acquisition of relevant labour market skills or as a source of discrimination. Workers should have ongoing opportunities to develop, maintain and upgrade skills through learning and training at all ages, to prevent individual disadvantages from accumulating over time.

  • Create the right incentives to work. Provide adequate safety nets accompanied by an effective activation strategy that combines measures to ensure that jobless people have the motivation to search actively and accept suitable jobs, with actions to match job seekers with suitable job opportunities, and interventions to increase the employability of the least employable through training. Efforts to match job seekers with suitable job opportunities should consider the use of skills-based matching tools.

  • Assist workers in transition prior to their displacement. The reallocation of displaced workers between firms, industries and regions should be supported by early intervention and re-employment measures, including counselling and reskilling. Since successful intervention depends on long lead times, active engagement with social partners and the development and use of skills anticipation exercises are needed.

Promoting social participation: Raising awareness of the benefits of civic engagement, and supporting the use of skills in society and daily life

Not only do the previously mentioned global trends affect the economy and labour markets, but they also underpin societal developments. For example, the rise of digital platforms has had a polarising influence on the media we consume, so that increasingly we connect with those who have similar interests, backgrounds and perspectives. The rise of new flexible forms of work, the ongoing automation of certain tasks and jobs, and demographic shifts may also be contributing to widening social inequalities, with diverging opportunities for young versus old, high versus low-skilled workers, and adults in, versus out, of the labour market.

These developments have implications for social cohesion, and throughout OECD Member countries, there are indications that social cohesion is under pressure. For instance, many countries are experiencing an erosion of trust in government, a decrease in social support (measured as the share of people who report having a friend or relative whom they can count on in times of trouble), and a drop in voter turnout in the last decade (OECD, 2017[17]).

Skills can play a crucial role in improving social cohesion. For instance, a balanced set of cognitive, social and emotional skills can support adults in achieving more positive social outcomes. To realise the full social potential of skills investments, skills should be used actively in both daily life and civil society.

The challenge: Supporting the use of skills in daily life and civil society

There is substantial evidence concerning the positive effect of education and skills on social outcomes (OECD, 2015[18]; OECD, 2016[19]), and these outcomes are enhanced when citizens actively contribute their skills at home, at work and in the community. Figure 5.4 shows that over and above the effect of having literacy skills, the actual use of literacy skills in everyday life – for example by reading books and news and writing articles and reports – is associated with higher social trust, greater volunteerism, stronger political efficacy and better health. Moreover, positive social outcomes reinforce each other. For example, the likelihood of trusting other people increases by 5 percentage points when one is active in volunteer work [calculations based on the Survey of Adult Skills (PIAAC) (OECD, 2018[2])].

Figure 5.4. The effect of the use of skills on positive social outcomes
Percentage point increase in the likelihood of positive outcomes when reading skills are used intensively at work and home, beyond the effect of literacy proficiency
Figure 5.4. The effect of the use of skills on positive social outcomes

Note: Regression controlling for literacy proficiency, educational attainment, gender, parental educational attainment and age. Only adults aged 25-64 were included in regression, and employed for regressions on the use of reading skills at work. For the social indicators, the following definitions have been used: high trust is reflected in (strongly) disagreeing with the statement of trusting only a few people, regular volunteerism is defined as participating in volunteer work at least once per month, and political efficacy is reflected in (strongly) disagreeing with the statement of feeling of no influence.

Source: OECD calculations based on OECD (2018[2]), Survey of Adult Skills (PIAAC) (database), 2012/2015, http://www.oecd.org/skills/piaac/.

 StatLink https://doi.org/10.1787/888933928103

Other studies provide additional evidence on how the use of social skills at work and in daily life affect social views and behaviour. Working in a team and sharing information with colleagues, for example, is associated with more favourable views of society, including enhanced trust in others (Borgonovi and Burns, 2015[20]). Furthermore, the use of skills can indirectly have a positive effect on society through its effect on the skills development of other individuals, especially children. When parents read books and tell stories to children, it raises the likelihood that the child will develop stronger skills with related social outcomes (OECD, 2012[21]).

Beyond the positive externalities of applying skills in everyday life, building an actively engaged society also depends on the extent to which skills are effectively applied in civil society, community and associational life. Social participation can occur in various forms, including the participation in formal and informal organisations such as religious groups, sport and recreational groups, and political parties. Data show that there is significant diversity across countries in terms of the level of social participation, the type of organisations that people participate in, and the intensity of participation (passive or active membership) (OECD, 2015[22]).

A concrete example of social participation is involvement in volunteer activities. Across OECD Member countries, only a relatively small share of adults report regularly participating in volunteer work. Furthermore, participation depends heavily on individual characteristics, with the unemployed and low-skilled demonstrating especially low participation. On average, 14% of the unemployed are involved in volunteer work, compared with 17% of the employed and 22% of retirees [calculations based PIAAC (OECD, 2018[2])]. While adults with high levels of literacy proficiency are most likely to volunteer regularly, there is no OECD Member country where more than 40% of its highly skilled adults regularly participate in volunteer activities (Figure 5.5). This means that there is considerable room to more fully utilise skills to the benefit of society.

Figure 5.5. Participation in volunteer work at least once per month, by literacy level
Figure 5.5. Participation in volunteer work at least once per month, by literacy level

Source: OECD calculations based on OECD (2018[2]), Survey of Adult Skills (PIAAC) (database), 2012/2015, http://www.oecd.org/skills/piaac/.

 StatLink https://doi.org/10.1787/888933928122

How people use their skills outside of work may matter more for social cohesion in the context of global trends. Not only are demographic trends leading to a larger share of the population outside the labour force (i.e. more retirees), but automation and more flexible forms of work may also contribute to a larger share of adults spending more time outside of work. Policies that encourage participation in civil society, community organisations and associations can help maximise the social returns on investments in skills.

Good practices

Raising awareness about the benefits of using skills outside of work in daily life and civil society

To improve social and civic engagement, governments can introduce promotional campaigns and provide information about the benefits of social participation. While there is a need to raise civic engagement across all groups, these initiatives should target the groups that show the weakest performance in measures of social and civic engagement, e.g. the unemployed and low-skilled. In addition, as demonstrated by PIAAC data, the use of skills in daily life contributes to better social outcomes. Therefore, reading books and news, and writing articles and reports should be promoted; campaigns could potentially play a role in stimulating these activities (see Box 5.6 for examples).

It is important to build awareness of the benefits of skills use in life and society at a young age since early learning helps to develop stronger outcomes in the future (OECD, 2015[18]). For instance, adults should be made aware of the importance of reading to their children to support their development, and in schools, a culture of engagement can be promoted through community involvement, as well as organising debates on political or social issues. The importance of early learning is discussed in more depth in Chapter 4.

Facilitating and incentivising the use of skills in society

Governments can also facilitate the use of skills in society through policies that help adults to overcome barriers. For many adults, work, family and/or social obligations are a barrier to more active use of their skills in civic life. Implementing labour market policies that give employees more flexibility, such as time off for volunteering, can help overcome these barriers (Do-it Trust, 2016[23]). For example, in England and Wales (United Kingdom), any public sector worker and employees working in a company with at least 250 employees are entitled to 3 days of paid volunteering leave per year (Heywood, 2015[24]).

Financial incentives can also be used to support greater social and civic participation, including subsidies or tax deductions of costs or time related to social participation (e.g. cost of membership of organisations, or tax deductions for donations defined as “public purpose”, as is practiced in the United States), or by providing additional benefits to individuals currently outside the labour market who participate in such activities (e.g. a supplement to social assistance payments for jobseekers engaging in volunteer activities with not-for-profit or charitable organisations). Another way for governments to support social participation is to centralise information about volunteer work opportunities (see Box 5.6 for an example).

Box 5.6. Country practices: Promoting social participation

Organised by the European Union, EUread is an initiative that brings together organisations that promote reading. Founded in 2000, EUread promotes the exchange of knowledge, experiences and concepts across organisations, and aims to jointly develop strategies for the promotion of reading. Its intention is to raise awareness that a strong structural framework for the promotion of reading on a national and European level should be developed. Members include institutions from Austria, Belgium, Czech Republic, Denmark, Finland, Germany, Italy, the Netherlands, Norway, Poland, Portugal, Switzerland and the United Kingdom. The group’s work includes organising campaigns, contests and other events and offering awards and prizes.

In the Netherlands, an online database of citizen initiatives (bewonersinitatieven), named MAEX, provides information about volunteer initiatives and social enterprises. While part of a foundation, it is supported by municipal governments. All local initiatives are published on this website. Each of these initiatives has a profile describing what they do, what value they deliver for their target group, and who can get involved. In addition, MAEX facilitates transactions between initiatives on the one hand, and funds, volunteer organisations, companies, governments and knowledge institutions on the other hand. For example, money can be donated via MAEX or people can connect to initiatives, creating an efficient method for companies and individuals to invest in an initiative.

In Canada, to incentivise volunteering, the Canada Revenue Agency introduced tax credits for volunteering, where individuals can claim the time spent on volunteering work against taxes owed. For instance, when providing volunteer work for emergency services, such as firefighting, a CAD 1 000 tax exemption is applied. There are some conditions, however, including that the individual may not normally work in the same public authority or with comparable duties.

Source: EURead (2019[25]), “About us”, https://www.euread.com/about-us/; MAEX (n.d.[26]), “Homepage”, https://maex.nl/; Government of Canada (2018[27]), “Emergency service volunteers”, https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/special-situations/emergency-volunteers.html.

In schools, a culture of civic engagement can be promoted through mandatory community involvement, as well as by organising debates on political or social issues. Under mandatory service learning programmes, active participation in volunteer activities is part of curricula. There is evidence that service learning programmes can lead to higher probabilities of volunteering in adulthood, enhanced political activity and more positive views of societal participation (Griffith, 2010[28]; Astin et al., 2006[29]).

Positive attitudes towards the political system and overall belief in one’s ability to influence political decisions can be enhanced by taking part in the democratic process. Low voter turnout and a general lack of interest in politics are prevalent in many OECD Member countries (OECD, 2015[30]). Policies that reduce barriers to voting, and those that encourage political participation, for example by promoting online campaigns and public debates, can incentivise adults to use their skills in civil society.

Policy recommendations for promoting social participation

In light of the findings and practices above, the following policy recommendations can help countries promote social participation (Box 5.7).

Box 5.7. Policy recommendations: Promoting social participation
  • Promote the use of skills outside of work. Given the positive social benefits of using skills outside of work, governments can introduce measures to stimulate and promote this behaviour (e.g. campaigns to promote reading).

  • Raise awareness about the benefits of civic engagement. Build an awareness of the benefits of active and engaged citizenship from a young age. The government can introduce promotional campaigns, centralise information about volunteer opportunities, and provide information about the benefits of using one’s skills in civic and social life (e.g. through volunteering, donating and investing in the community).

  • Promote service learning in schools. Making volunteering activities an obligatory part of school curricula could encourage young people to apply their skills to everyday life, starting from an early age.

  • Reduce barriers and incentivise adults to use skills in civil society. Policies and practices can be introduced to overcome barriers, including giving employees more flexibility, such as time off work for volunteering. Financial incentives could be targeted at individuals who are not currently working, as they face tighter income constraints and participation in such activities could help avoid their skills from atrophying.

Expanding the pool of available talent: Attracting the right skills from abroad, improving the transparency of procedures for skills recognition, and providing language training

Making the most of migrants’ skills is another important consideration in promoting skills use, as migrants now account for about one in ten people living in OECD Member countries (OECD/EU, 2018[31]). In some OECD Member countries, the migrant population is even larger (Canada, Israel, Luxembourg, New Zealand and Switzerland), with migrants accounting for one in five people or less (OECD, 2019[32]). The share of foreigners in total employment has risen sharply in most OECD Member countries over the past decade. During that time, many countries saw new immigrants comprise between one-quarter and one-half of new entries to the labour force (Figure 5.6). OECD Member countries have seen record inflows of asylum seekers and refugees in recent years, with the refugee population in OECD Member countries tripling between 2013 and 2017 (OECD, 2019[33]) Labour migration — migration for the purposes of employment — is a common feature of all OECD economies. It is a relatively small channel, comprising no more than one-third of all permanent migration in any OECD Member country and between 10% and 13% overall (OECD, 2018[34]). Temporary migrants allow countries to meet labour demands at different skill levels through rapid recourse to workers from abroad. In 2016, there were about 2.6 million temporary foreign workers admitted to OECD Member countries, excluding posted workers within the European Union.

In view of their importance to the skills supply in OECD Member countries, this section looks at how best to attract skilled migrants and to make optimal use of their skills.

Figure 5.6. New immigrants account for a large part of the increase in the labour force in selected OECD member countries in the past decade
Components of labour force growth 2005-15
Figure 5.6. New immigrants account for a large part of the increase in the labour force in selected OECD member countries in the past decade

Source: OECD (2019[35]), Recruiting Immigrant Workers: Korea, https://doi.org/10.1787/9789264307872-en.

 StatLink https://doi.org/10.1787/888933928141

The challenge: Attracting relevant skills from abroad and making full use of them in the labour market

Attracting migrants with relevant skills is an important element of equipping countries to respond to the challenges associated with population ageing, skills mismatches and building a knowledge-based society. A key challenge facing OECD Member countries is how to make full use of migrants’ skills despite obstacles including language barriers and poor recognition of foreign credentials.

On average, low-educated immigrants and their native-born peers have comparable employment rates. In contrast, in virtually all OECD Member countries, employment rates of highly educated immigrants are lower than those of their native-born counterparts. And even when such immigrants are employed, they have an almost 50% higher chance of being over-qualified for their jobs than their native-born peers. These obstacles are particularly pronounced for those with qualifications from abroad (Figure 5.7).

Figure 5.7. Employment rate of highly educated foreign- and native-born populations, excluding those still in education, aged 15-64, by place of diploma, 2015/16
Figure 5.7. Employment rate of highly educated foreign- and native-born populations, excluding those still in education, aged 15-64, by place of diploma, 2015/16

Source: OECD/EU (2018[31]), Settling In 2018: Indicators of Immigrant Integration, https://doi.org/10.1787/9789264307216-en.

 StatLink https://doi.org/10.1787/888933928160

OECD Member countries are thus failing to fully exploit the potential that skilled immigrants offer, and qualifications and work experience from abroad, particularly from non-OECD Member countries, are widely undervalued. One reason is that immigrants often acquire their work experience in different languages and labour markets. Similarly, their qualifications may come from education systems that may perform – or are perceived by employers as performing – less effectively than those of the host countries, and indeed qualifications obtained abroad are associated with lower skills as measured by skills tests (OECD, 2007[36]; OECD, 2014[37]; Bonfanti and Xenogiani, 2014[38]; Sharaf, 2013[39]; Li and Sweetman, 2013[40]).

But even among young people from immigrant families who have been raised and educated in the host country, it is clear that they too face barriers to integration in OECD Member countries. This is especially the case in Europe (OECD, 2010[41]), and particularly for those whose parents are low-educated (OECD, 2017[42]; OECD, 2018[43]). Several other factors are thus at work, including low levels of contact with potential employers, limited access to the networks through which many vacancies are filled, and lack of knowledge of how the labour market functions, especially for higher-skilled positions (OECD, 2007[44]; OECD, 2008[45]). Mentorship programmes can help tackle such obstacles and have met with some success. But discrimination is also a factor: evidence shows that candidates with foreign-sounding names often have to submit twice as many job applications as people with otherwise similar qualifications and experience but with a name that sounds “native” (OECD, 2013[46]).

Good practices

Attracting the right skills from abroad

For many countries, migration complements the domestic skills supply and can be a useful lever in rectifying skills mismatches and addressing skills shortages. With that in mind, various policy measures can support the attraction and retention of migrants with skills relevant to the domestic labour market.

For some countries, attracting sufficient candidates is a challenge, requiring promotion and outreach abroad. The past few years have seen a proliferation of information websites advertising employment possibilities for skilled foreign candidates, such as “Make it in Germany” or “Work in Sweden”. Some of these websites allow users to easily check their eligibility for visa programmes, such as Austria’s points-calculator for qualified foreign professionals. As at times employers are reluctant to recruit internationally even when shortages in firms are acute (OECD, 2013[47]), a number of countries work with employers to explain how to integrate foreign workers into workplaces where they have not traditionally been employed. For instance, Japan conducts periodic information and training sessions for firms, often linked to job fairs for foreign talent, through its Employment Service Centres for Foreigners (OECD/ADBI/ILO, 2015[48]).

Beyond outreach, a second way to attract foreign talent is to offer favourable permit conditions, including the right to bring family members, the right for family members to work, rapid acquisition of permanent residence and, possibly, citizenship. The past decade has seen competition among OECD Member countries to offer favourable terms to the highest qualified foreign workers. A points-based system for issuing permits with favourable conditions was introduced in Korea in 2010, Austria in 2011 and Japan in 2012. But there is a limit to how far favourable policy can boost the attractiveness of countries for the highest qualified mobile workers; other factors, such as business environment, income and opportunities, and settlement prospects play a more important role (OECD, 2014[49]).

Some countries take an active role in training international migrants under skills mobility partnerships (SMPs). The hope is that some of those who undertake training remain rather than migrate, and those who stay have higher employability and productivity. For example, under recent pilot programmes, official development assistance (ODA) is used to fund training in the origin country with an option for future employment in the destination country. This modernisation of traditional guest-worker programmes has been used in partnerships between Spain and Morocco, for example, as well as in Italy and Moldova. Similarly, under nurse recruitment programmes in Finland, Norway, Germany, and Italy, the destination country works with origin-country partner institutions or recruiters to train to specific requirements. International study is one of the most common forms of SMP, with more than 3 million international students in OECD Member countries. Retention rates in destination countries are typically in the range of 30-35%, which means that many students move on to other countries or return to their country of birth. Those who remain can provide an important source of skills; in France, they account for a large share of first work permits (OECD, 2017[50]). In countries where the vocational education and training (VET) system is well developed, investing in VET training in the destination country can be an attractive option for employers since it provides a guarantee regarding the quality of education as well as the opportunity to develop language skills in a working environment. For instance, Germany has done this in “MobiPro” in the context of intra-EU mobility.

In attractive countries where the pool of interested and qualified candidates is not a problem, or for occupations where an abundance of skilled workers are available globally, the challenge is rather to limit, filter or select those authorised to enter. Countries have a number of tools to secure skills while protecting domestic employment (OECD, 2014[51]). Methods include identifying occupations and sectors where international recruitment is authorised (shortage lists, as in Spain) or forbidden (non-eligible lists, as in Ireland). An alternative is to labour-market test each request to ensure that the skills cannot be found locally. Labour market tests are used in most OECD Member countries when an employer requests a foreign worker; usually, employers must post the vacancy for a fixed period. Some labour market tests, such as in Canada, require employers to detail the methods used to recruit and the reason why staff could not be trained. Other countries are satisfied when the job meets certain wage criteria (as in some programmes in the United States). Shortage lists sometimes exempt employers from these requirements, as in Latvia. In Sweden, employers may recruit for any job, as long as they offer a salary in line with collective bargaining agreements (OECD, 2011[52]).

Setting caps on numbers is a blunt method to limit entry of migrants and is usually based on quantitative indicators balanced against reviews and stakeholders’ views. When available slots are over-subscribed, countries have to decide how to attribute permits, whether via random methods or ranking by points-based systems. Here, too, skills shortage lists can contribute to prioritising certain applicants, as in the United Kingdom. A two-step selection, called “expression of interest,” was pioneered in New Zealand and is now used in Australia and Canada to manage and select permanent economic migrants (Box 5.8). It is also used in Korea to select the most adaptable candidates in a programme aimed at low-skilled workers (OECD, 2019[35]).

Box 5.8. Country practices: Expression of interest system

New Zealand pioneered the first expression of interest (EoI) system in 2003, in the context of a wider review of its supply-driven permanent migration system. The introduction of the two-step EoI process moved New Zealand from a policy of “passive acceptance of residence applications” to a more “active selection of skilled migrants” (Merwood, 2008[53]).

An EoI system is a two-step application process: 1) selection for the pool; and 2) selection to apply (Figure 5.8). Potential migrants express an interest in migrating to New Zealand and are admitted into a pool if they meet certain criteria, which aims to maximise the economic contribution of migrants. Once in the pool, they may be selected and receive an invitation to apply. Candidates who do not receive an invitation to apply to a specific migration scheme are dropped from the pool after a fixed period.

Before EoI, applications were assessed on a “first come, first served” basis, leading to long queues, which frustrated employers and left short-term demand unaddressed. Caps were quickly reached early in the filing period, while higher-scoring applications submitted later entered the queue.

Figure 5.8. Selection under the EoI model
Figure 5.8. Selection under the EoI model

Source: OECD Secretariat analysis based on Immigration New Zealand’s website.

Improving the transparency of procedures for skills recognition and providing language training

Once migrants have entered the country, it is important to ensure that they have opportunities to use their skills in the workplace. To integrate adult immigrants, the point of departure is to take stock of their qualifications and skills. The available evidence suggests that procedures for recognising foreign qualifications and converting them into their host-country equivalents are highly valued by employers and are associated with better labour market outcomes. Yet, few immigrants have their qualifications recognised. One reason is the lack of transparency surrounding the procedures and the large number of actors involved, particularly in heavily regulated professions. Several OECD Member countries have responded by establishing contact points to inform applicants about the process (OECD, 2017[54]). But lack of transparency is still an issue in most countries. Those who do not manage to translate their foreign qualifications into a host-country degree of a similar level should receive assistance to bridge the gap between their qualifications and the requirements of the host country (Box 5.9).

While immigrants have many under-valued skills, they also need to develop new ones – most notably the host country's language. Immigrants who report language difficulties have over-qualification rates that are 25 percentage points higher than similar immigrants with stronger language skills (Damas de Matos and Liebig, 2014[55]). Not surprisingly, governments spend more on language training than on any other component of immigrant integration policy. But in order to be effective, training must account for individual skills needs and be geared towards labour market integration. One way to do this is to provide vocation-specific language training, ideally on the job (Box 5.9). Although such training is costly, it is an investment that appears to pay off (OECD, 2014[56]).

Refugees and humanitarian migrants face higher hurdles than other immigrant groups in having their skills recognized and integrating into the labour market, due to lower education levels and slow transitions to employment (OECD, 2019[33]). Efforts to help refugees find and stay in work – by simplifying pathways to access the labour market, skills recognition, and language support – are critical to helping them to integrate and contribute productively to the skills supply.

Box 5.9. Country examples: Improving the transparency of procedures for skills recognition and providing language training

Improving the transparency of procedures for skills recognition

Austria offers various supports for new arrivals regarding the recognition of foreign qualifications, including contact points, an online portal, and individual grants for recognition.

In Germany (Frankfurt), an outreach programme targeted at women with higher qualifications, called “start, change, get ahead” assigns highly skilled migrant women a personal mentor. For the duration of one year, the mentor shares knowledge, experience and networks with the migrant. Parallel to the mentoring, the programme provides professional counselling, upskilling, intercultural training and skills recognition support. Within one year, about half of the participants managed to obtain a job aligned with their qualifications.

Providing language training

In Belgium (Flanders), the third step in the immigrant integration programme is to direct participants to the Flemish employment service (VDAB), which offers job-oriented language courses, including “Dutch in the Workplace”.

In Portugal, vocation-specific language courses are part of the “Portuguese for All” training scheme that is available at no cost to the immigrant population. Vocation-specific language courses are available for the sectors of retail, hospitality, beauty care, civil construction and civil engineering. Vocation-specific language courses are also part of the Intervention Programme for Unemployed Immigrant Workers.

Source: OECD (2017[54]), Making Integration Work: Family Migrants, Making Integration Work, https://doi.org/10.1787/9789264279520-en; OECD (2014[56]), International Migration Outlook 2014, http://dx.doi.org/10.1787/migr_outlook-2014-en; OECD (2014[57]), OECD Skills Strategy Diagnostic Report: Austria 2014, https://doi.org/10.1787/9789264300255-en; OECD (2018[58]), Skills Strategy Implementation Guidance for Portugal: Strengthening the Adult-Learning System, https://doi.org/10.1787/9789264298705-en.

Policy recommendations for expanding the pool of available talent

In light of the findings and practices above, the following policy recommendations can help countries expand the pool of available talent (Box 5.10).

Box 5.10. Policy recommendations: Expanding the pool of available talent
  • Improve the channels of recruitment for labour migrants. Develop a clear labour migration framework that allows for a flexible response to changes in labour market demand. Explore the possibility of skills mobility partnerships, which link training to migration opportunities. Work closely with employers to ensure that certifications are trusted and fit their needs.

  • Improve the recognition of foreign qualifications. Work with social partners to develop procedures for evaluating and recognising foreign qualifications and skills. Make these procedures the starting point for integration programmes, and raise awareness of their benefits. Provide more opportunities for immigrants with foreign qualifications to take bridging courses.

  • Help immigrants find work. Put immigrants in contact with employers to help them gain early work experience. Ensure that immigrants benefit from mainstream active labour market policies. Identify and remove barriers to employing immigrants in the public sector. Use mentorship to help immigrants understand how the host-country labour market functions.

  • Challenge harmful biases. Tackle stereotypes and false perceptions by disseminating fact-based evidence on migration issues. Engage employers through diversity policies and monitor the outcomes. Address discrimination through accessible legal measures and raise awareness about the issue.

  • Improve host-country language skills. Provide language and introduction programmes, but ensure that these do not delay immigrants from finding work. Where possible, focus on vocational language training and provide language training on the job.

  • Emphasise early childhood education. Encourage immigrants to enrol their children in early childhood education, starting at the age of three. Encourage immigrants with children to bring them to the host country as early as possible. Avoid concentrating the children of low-educated immigrants in schools.

Making intensive use of skills in the workplace: Improving work organisation and management practices to make full use of employees’ skills

Skills use at work can be defined as the level of skills that is observed in a worker’s current job. At its core, skills use relates to the way that employers use the skills of employees in the workplace and the alignment of competences of workers to the demand and needs of employers (OECD/ILO, 2017[59]). Skills use is affected both by the extent to which workers deploy their skills in the workplace – which in turn may depend on the incentives they are offered and on their own innate motivation – and by the skills required to carry out a specific job. Some individuals may have an excess supply of skills and not be using them fully on the job; others may have lower skills but fully deploy them at work, because of innate motivation or motivation provided by the way work is organised and managed in the workplace.

The extent to which skills are used at work matters for individuals, firms and countries. For workers, higher skills use at work is associated with higher wages and higher job satisfaction, over and above the effect of skill proficiency. Within firms, better skills use is associated with higher productivity and lower staff turnover. The use of reading and writing skills is also strongly related to labour productivity and inclusive economic growth at the country level. Strong alignment between the skills and qualifications of workers and those required on the job is also associated with higher labour productivity at the country level (Adalet McGowan and Andrews, 2015[60]).

The challenge: Skills proficiency does not guarantee skills use

A large pool of highly proficient workers does not automatically ensure the effective use of their skills at work. Figure 5.9 demonstrates that country rankings of skills proficiency and skills use at work differ.1 Only a few countries have a similar ranking on both scales. After accounting for workers’ occupation and firm characteristics, skills proficiency explains only a small part of the variation in skills use.

Figure 5.9. Skills proficiency and skills use across OECD PIAAC countries
Average proficiency scores and average skills use at work among the working 16-65 year-old population
Figure 5.9. Skills proficiency and skills use across OECD PIAAC countries

Note: For reading at work (skills use indicators) the scale goes between 1 "Never" and 5 "Every day". Proficiency scores range from 0 to 500.

Source: OECD (2018[2]), Survey of Adult Skills (PIAAC) (database), 2012/2015, http://www.oecd.org/skills/piaac/.

 StatLink https://doi.org/10.1787/888933928179

Workers who make more frequent use of key information-processing skills - literacy, numeracy, problem solving and information and communications technology (ICT) skills - tend to have higher wages. Figure 5.10 shows that, controlling for education and skills proficiency, workers who use these skills more frequently at work earn higher wages. This positive relationship holds across each type of skill but it is strongest for the use of ICT and reading skills.

More effective skills utilisation has also been linked to greater job satisfaction and employee well-being (OECD, 2016[61]). For this reason, the concept of skills utilisation has sometimes been closely associated with that of job quality (e.g. Green et al. (2013[62]), with spill-over effects into life satisfaction more generally as well as better health. Evidence from PIAAC shows that skills use relates to the likelihood of being extremely satisfied at work, once skill proficiency, educational attainment, gross hourly wages and other socio-demographic characteristics are controlled for (OECD, 2016[61]).

Figure 5.10. Wage returns to education, skills proficiency and skills use
Percentage change in wages associated with one standard deviation1 increase in each of skills proficiency, skills use at work and years of education2
Figure 5.10. Wage returns to education, skills proficiency and skills use

Note:

1. One standard deviation corresponds to the following: 2.9 years of education; 47 points on the literacy scale; 53 points on the numeracy scale; 44 points on the problem solving in technology-rich environments scale; 1 for reading use at work; 1.2 for writing and numeracy use at work; 1.1 for ICT use at work; and 1.3 for problem solving at work.

2. Estimates from OLS regressions with log wages as the dependent variable.

Source: OECD (2018[2]), Survey of Adult Skills (PIAAC) (database), 2012/2015, http://www.oecd.org/skills/piaac/.

 StatLink https://doi.org/10.1787/888933928198

At the level of the firm, better skills utilisation is associated with higher productivity (UKCES, 2014[63]) and lower staff turnover, and some have argued that it also stimulates investment, employee engagement, and innovation (Wright and Sissons, 2012[64]). OECD (2013[10]) shows that the use of reading skills at work correlates strongly with output per hour worked, and the results are robust to the inclusion of controls for skill proficiency.

Socio-demographic and firm characteristics are important determinants of skills use (Quintini, 2014[65]). Figure 5.11 shows that women are less likely to use information-processing skills at work than men, even after controlling for job characteristics and skills proficiency. Relative to prime-age (25-54 years old) and older workers (55-65 years old), young people (16-24 years old) make the least use of information-processing skills at work, including ICT.2

Figure 5.11. Use of information-processing skills at work by differences in characteristics
Difference in skills use indicators, OECD average
Figure 5.11. Use of information-processing skills at work by differences in characteristics

Note: For reading, writing, numeracy and ICT skills, skills use indicators are scales between 1 “never” and 5 “every day”. Problem-solving skills use refers to respondents’ answers to “How often are you usually confronted with more complex problems that take at least 30 minutes to find a good solution?” The set of possible answers also ranges between 1 “never” and 5 “every day”.

Source: OECD (2018[2]), Survey of Adult Skills (PIAAC) (database), 2012/2015, http://www.oecd.org/skills/piaac/.

 StatLink https://doi.org/10.1787/888933928217

Good practices

As mentioned above, skills use is affected partly by the extent to which workers deploy their skills in the workplace, which depends on the incentives they are offered, as well as on their own innate motivation (Granados and Quintini, forthcoming[66]). Beyond these, a number of factors both internal and external to the firm can contribute to better skills use, such as work organisation and job design, product market strategies, workplace relations, as well as broader institutional and labour market settings (OECD/ILO, 2017[59]). In terms of factors external to the firm, offshoring may influence the skills required on the job, depending on the nature of the tasks being offshored. Findings tentatively suggest that low-technology offshoring is positively related to the use of information-processing skills at work, while high-technology offshoring can penalise the use of high-level skills in the country (OECD, 2016[61]).

Improving work organisation and management practices

What happens inside the workplace – the way work is organised, and jobs are designed as well as the management practices adopted by the firm – is a key determinant of how skills are used. In particular, better skills use can be achieved by implementing what are known as “high-performance work practices”, which include both aspects of work organisation and job design, such as teamwork, autonomy, task discretion, mentoring, job rotation, applying new learning; and management practices, such as employee participation, incentive pay, training practices and flexibility in working hours (Johnston et al., 2002[67]). Based on evidence from PIAAC, these practices explain a substantial part of the variation of skills use across individuals. The share of the variation in skills use explained by HPWPs varies from 14% in problem solving to 27% in reading. This makes HPWPs the largest contributor to variance in skills use, and generally more than firm size, skills proficiency, industry, occupation3 or country effects.

That said, HPWPs are most commonly employed in large firms; small- and medium-sized enterprises (SMEs) may find it difficult to put these types of management practices in place due to a lack of a human resources function (Osterman, 2008[68]). Also, low managerial skills can be a bottleneck to workplace innovation, and policies that seek to promote the development of HPWPs may need to be complemented with programmes to develop managerial skills. Consequently, it is important to exercise caution when promoting HPWPs as a viable strategy to improve the use of skills in the workplace (OECD/ILO, 2017[59]).

Many countries have taken policy initiatives to promote better skills utilisation through financing support or awareness campaigns, sometimes making a clear reference to HPWPs, but in most instances generally referring to changes in work organisation. (Box 5.11) presents some examples of good practice.

Box 5.11. Country practices: Improving work organisation and management practices

The Finnish Workplace Development Programme ran as a national government programme from 1996 to 2010. Motivated by a belief that sluggish productivity growth was linked to poor skills use, the programme aimed to disseminate new and innovative work, organisational and management practices, models and tools, and to develop a “learning organisation” culture. More than 1 800 development projects in Finnish workplaces were supported by the programme. Qualitative evaluations suggest that these programmes were effective in promoting workplace innovation and productivity.

Under Singapore’s Enterprise Training Scheme, which was introduced in 2013, employers can apply for public subsidies to support projects aimed at improving skills utilisation. These can include strengthening human resource systems to better link skills acquisition to career trajectories; hiring consultants to review compensation structures to assess capacity to retain skilled workers; or hiring consultants to assess a firm’s training needs and use their knowledge of the qualification system, training design and curriculum to adapt available training to the specific needs of the workplace.

New Zealand has singled out the poor utilisation of skills in the workplace as a key policy issue and recognises the introduction of HPWPs as crucial to increase workplace productivity. Policy has been focused on increasing awareness and demonstrating how HPWPs can be applied in the workplace to achieve gains for both employers and employees. Only limited financial resources have been devoted, primarily from the Department of Labour.

Source: OECD/ILO (2017[59]), Better Use of Skills in the Workplace: Why It Matters for Productivity and Local Jobs, https://doi.org/10.1787/9789264281394-en; OECD (2016[61]), OECD Employment Outlook 2016, https://doi.org/10.1787/empl_outlook-2016-en.

For change to occur in workplaces, employers must be convinced of and invested in the benefits of prioritising and developing human resources (OECD/ILO, 2017[59]). While public interventions can help to incentivise actions by employers, the most successful and sustainable changes that occur at the enterprise level are often industry-led, particularly by employer groups or chambers of commerce. Furthermore, better skills use requires a number of intertwined local- and business-level considerations that are often outside the traditional portfolio of public policies. It can be helpful therefore to work with an anchor institution or broker (e.g. vocational education and training institution, sector council, human resources consulting firm) that has specialised technical expertise to offer to employers on work organisation, job design, and human resource development practices (OECD/ILO, 2017[59]). In Singapore, as mentioned in Box 5.11, employers can receive subsidies to work with consulting firms to improve the alignment of available training with the specific needs of their workplace.

Good organisational and managerial capabilities can enhance the process of matching workers with job-specific tasks, thus contributing to a better use of skills. Skilled managers are also more likely to appreciate the importance of skills and innovation for the success of a business (Le Mouel and Squicciarini, 2015[69]).

Policies that facilitate diffusion and adoption of good managerial practices are therefore useful, as are those that develop the organisational capabilities of firms. Skills needed by managers range from basic cognitive competencies to skills that are specific to managerial positions, such as networking, management and communication, business and finance planning, or the ability to pitch a business plan to investors. Importance should be attached to targeting training on knowledge and skills gaps and at the local level. To this end, training programmes for managers and heads of companies can benefit from collaboration between business organisations, unions, universities and training entities.

Individuals aspiring to be entrepreneurs also need management-related skills to establish new companies and succeed. To the extent that entrepreneurship skills can be taught, the education system can provide foundations in creativity, the ability to identify opportunities, and resilience in the face of challenges.

Policy recommendations for making intensive use of skills in the workplace

In light of the findings and practices above, the following policy recommendations can help countries make intensive use of skills in the workplace (Box 5.12).

Box 5.12. Policy recommendations: Making intensive use of skills in the workplace
  • Support firms in developing better management practices and work organisation. Governments can support firms in arranging management practices and the way work is organised to influence the use of skills at work. In particular, they can raise awareness about better skills use, disseminate good practice, develop diagnostic tools to help firms identify room for improvement, promote knowledge transfer, and offer management skill development programmes. Interventions should be targeted at SMEs, who face cost constraints in implementing HPWPs.

  • Follow an integrated approach to improving skills use. Skills use can benefit from integrated approaches that consider training, employment and economic development priorities. Training providers should work closely with employers to ensure that the skills developed are relevant to the workplace. In employment services, this may involve adjusting performance management systems to evaluate both the quality and quantity of job matches. Economic development agencies should consider the quality of jobs when attracting inward investments, and not overlook incremental innovations that can be achieved in the workplace in favour of large R&D projects.

Reducing skills imbalances: Improving the alignment between the supply and demand of skills

A skills imbalance is a misalignment between the demand and supply of skills in an economy, and can comprise skills mismatches and skills shortages and surpluses. Skills mismatches describe situations when a workers’ skills or qualifications exceed or fall short of those required for the job under current market conditions (OECD, 2017[70]; Shah and Burke, 2005[71]). Mismatch can be measured along different dimensions, including skills, qualifications and fields of study. Skills shortages refer to a disequilibrium condition in which the demand for a specific type of skill exceeds its supply in the labour market at the prevailing market wage rate (Junankar, 2009[72]).

The challenge: Misalignment between demand for and supply of skills can be costly

Skills mismatch has negative impacts for individuals, including a higher risk of unemployment, lower wages, lower job satisfaction and poorer career prospects. Over-qualified workers are found to earn about 20% less than workers with similar qualifications who are well matched to their positions (Quintini, 2011[9]). While field-of-study mismatch also entails costs for individuals due to the underuse of specific human capital, individuals generally only incur wage penalties when they work in a job unrelated to their studies if they must downgrade to a job that requires a lower level of qualification (Montt, 2015[73]).

For firms, the impact of skills mismatch is more ambiguous. Older evidence points to a negative impact of over-qualification on firm productivity [e.g. Tsang (1987[74])]. But more recent evidence suggests that over-qualification can have a positive effect on firm productivity in certain working environments: for firms in high-tech or knowledge-intensive industries, those with a higher share of high-skilled jobs and those evolving in more uncertain economic environments (Mahy et al., 2015[75]). The effect of under-qualification on firm productivity is generally found to be negative.

At the economy level, OECD evidence suggests that higher skills mismatch is associated with lower labour productivity through a misallocation of workers to jobs (Adalet McGowan and Andrews, 2015[60]). Field-of-study mismatch can also entail productivity costs for an economy, as mismatched workers may be less productive than well-matched workers since they are missing field-specific skills or may take longer to develop such skills.

Skills shortages increase hiring costs and lower productivity, as vacancies remain unfilled for a longer period of time and firms substitute for less productive workers (Haskel and Martin, 1993[76]; Bennett and McGuinness, 2009[77]). Skills shortages also constrain the ability of firms to innovate and adopt new technologies, which can negatively influence their productivity.

According to the OECD Skills for Jobs database, 17% of workers are over-qualified for their jobs, and 32% have a field-of-study mismatch (meaning they are working in a different field than the one for which they studied) (Figure 5.12). Only around 10% of workers is over-skilled for their jobs, according to PIAAC.

Figure 5.12. Qualification, field-of-study, and literacy mismatch
Percentage of mismatched workers, by type of mismatch
Figure 5.12. Qualification, field-of-study, and literacy mismatch

Source: Panels A and B: OECD (2018[78]), OECD Skills for Jobs (database), https://www.oecdskillsforjobsdatabase.org/; Panel C: OECD (2016[79]), The Survey of Adult Skills: Reader’s Companion, http://dx.doi.org/10.1787/9789264258075-en; OECD (2013[10]), OECD Skills Outlook 2013: First Results from the Survey of Adult Skills, http://dx.doi.org/10.1787/9789264204256-en.

 StatLink https://doi.org/10.1787/888933928236

The causes of mismatches are numerous. The fact that over-qualification is much higher than over-skilling may suggest that in many cases people with a higher level of education than is required for the job actually possess skills that are commensurate with the job. This could be due, for instance, to the varying quality of education institutions, both between and within countries, and to the varying quality of students with the same type of education. Field-of-study mismatch may suggest that people are not acquiring the skills that are in demand in the labour market. It may also reflect that many skills are transferable between fields and occupations.

Mismatches do not necessarily indicate a serious problem and can merely be signs of flexible labour markets with high mobility rates. In many cases they are also a reflection of the fact that people make choices about what to study and where to work based on factors other than labour market outcomes, such as personal interest and family responsibilities. However, mismatches can also indicate that skills systems are not sufficiently flexible and responsive to emerging skills needs.

Skills mismatches are closely linked to the concepts of skills shortages and surpluses. For instance, if a given skill is in shortage (demand for the skill exceeds its supply in the labour market at the prevailing market wage rate), then employers may be more likely to hire workers who are under-skilled or under-qualified. The OECD Skills for Jobs database sheds light on the type of skills that are in shortage and in surplus across countries. On average across the OECD, shortages are most acute in the knowledge of education and training, health services and mathematics and science (Figure 5.13). Shortages are also evident in transversal skills like literacy and numeracy (basic skills), systems skills, complex problem solving and verbal abilities. On the other hand, surpluses are found in knowledge of manufacturing and production, and in routine and physical abilities, like endurance, physical strength and strength and flexibility. The intensity of skills shortages and surpluses have worsened in the last decade, calling into question the adaptability of individuals and economies in responding to changing skills needs (OECD, 2018[80]).

Figure 5.13. Skills shortages and skills surpluses in OECD Member countries (2015)
Figure 5.13. Skills shortages and skills surpluses in OECD Member countries (2015)

Note: A value of one corresponds to the maximum skills shortage observed across OECD member countries and skills dimensions. A positive value indicates a skills shortage and a negative value indicates a surplus. Skills are ordered by the intensity of shortages.

Source: OECD (2018[78]), OECD Skills for Jobs (database), https://www.oecdskillsforjobsdatabase.org/.

 StatLink https://doi.org/10.1787/888933928255

Good practices

Many of the practices that can help better align the supply of, and demand for, skills have already been addressed in other chapters of this report: creating opportunities for learning over the life course (Chapter 4); developing skills assessment and anticipation exercises to collect and use high-quality information about skills needs in policy making (Chapter 4); improving access to information and guidance about the labour market (Chapters 4 and 6); making skills visible through recognition of prior learning (Chapter 4); ensuring a responsive education system through linkages with employers and financing mechanisms (Chapter 4); ensuring that individuals are offered incentives to invest in skills that are relevant to the labour market (Chapter 4); and facilitating school-to-work transitions for young people through work-based learning (Chapter 4).

In addition, policies that facilitate labour mobility and flexible labour markets, as well as efforts to map occupational requirements to skills requirements, can help improve the matching of skills supply with skills demand.

Facilitating labour mobility and flexible labour markets

Efforts to facilitate labour mobility within a country and to make the labour market more flexible can promote the reallocation of skills and labour to the regions, sectors and occupations where they are most needed. Possible barriers to internal labour mobility include language, housing, transportation costs, poor recognition of skills or credentials and variation in licensing requirements. Efforts to reduce these barriers can lead to better matching between skills supply and skills demand.

For example, two regions in Belgium (Wallonia and Flanders) recently signed an agreement to promote labour mobility by reducing language barriers. The Flemish Public Employment Service (PES) will develop business-oriented Dutch language courses and modules that can be followed by French-speaking Walloons at the workplace. They will also work to raise awareness among Flemish employers about the benefits of recruiting from Wallonia (OECD, 2019[11]).

Inflexible labour markets that make it costly for firms to hire or fire workers also impede the optimal allocation of skills in the economy. To the extent possible, reducing these barriers can promote a better match between skills demand and skills supply. As highlighted in the OECD Jobs Strategy (OECD, 2018[5]), policies need to strike the right balance between flexibility and employment stability.

Mapping occupational requirements to skills requirements

Most countries approximate the measurement of skills requirements in some way as direct measures are difficult to obtain. Common approximations of skills needs include qualification level, field of study or occupation. However, education credentials do not necessarily map to skills on the job, and there is variability among individuals with the same credentials in terms of their skills (Quintini, 2011[9]). Similarly, the skills and task requirements of an occupation change over time in response to technological and organisational change, customer demand, and the supply of labour (OECD, 2013[10]).

Developing more sophisticated approximations for skills requirements is a challenge facing all OECD Member countries. While the approach is not widespread, several countries link occupational requirements to skills requirements using comprehensive occupational standards or descriptions of what skills are required in each occupation (Box 5.13). Competency-based occupational frameworks facilitate better recognition of skills which helps align the demand and supply of skills in the labour market. By describing occupations based on skills requirements, competency-based frameworks can be a useful tool for individuals seeking a career change that makes use of their existing skills. This type of tool can be particularly useful in the context of facilitating career transitions for older workers, who may not have formal qualifications and prefer to search for new jobs in terms of skills requirements. To maintain currency in the face of changing skills demands, competency-based occupational frameworks need to be updated regularly.

Box 5.13. Country practices: Mapping occupational requirements to skills requirements

The United States government sponsors O*NET (Occupational Information Network), a database containing detailed information about the knowledge, skills and ability requirements of more than 800 occupations. O*NET provides information on both the importance of the skill for a particular occupation, as well as the level of skill needed. The database is sponsored by the US Department of Labour/Employment and Training Administration (USDOL/ETA). Originally populated by data collected from occupational analysts, the database is now continually updated by surveys of job incumbents, and input from occupational experts and occupational analysts.

Following O*NET’s model, Italy also conducts a survey (as part of Professioni, Occupazione e Fabbisogni) to identify the skill, knowledge, values and attitudes required by 800 occupations. An online career guidance tool allows users to browse the employment outlook of each occupation and learn about the types of skills and knowledge that are and will be required by the labour market.

The European Skills, Competences, Qualifications and Occupations (ESCO) database links occupations to the knowledge, skills and competences that are essential or optional when working in a specific occupation. Unlike O*NET, ESCO does not provide information on the importance of a skill to a particular occupation, or the level of skill needed.

Source: OECD (2016[81]), Getting Skills Right: Assessing and Anticipating Changing Skill Needs, https://doi.org/10.1787/9789264252073-en; OECD (2017[70]), Getting Skills Right: Skills for Jobs Indicators, https://doi.org/10.1787/9789264277878-en.

Policy recommendations for reducing skills imbalances

In light of the findings and practices above, the following policy recommendations can help countries reduce skills imbalances (Box 5.14).

Box 5.14. Policy recommendations: Reducing skills imbalances
  • As discussed in previous chapters, create opportunities for learning over the life course (Chapter 4); develop skills assessment and anticipation exercises to collect and use high-quality information about skills needs in policy making (Chapter 4); improve access to information and guidance about the labour market (Chapters 4 and 6); make skills visible through recognition of prior learning (Chapter 4); ensure a responsive education system through linkages with employers and financing mechanisms (Chapter 4); ensure that individuals are offered incentives to invest in skills that are relevant to the labour market (Chapter 4); and facilitate school-to-work transitions for young people through work-based learning (Chapter 4).

  • Promote labour mobility and flexible labour markets. Reduce barriers to labour mobility through language training, compensation of associated transportation and housing costs, harmonisation of licensing requirements and recognition of prior learning. To the extent possible, reduce costs associated with hiring and firing employees to promote an optimal allocation of skills in the economy.

  • Support recognition of skills through competency-based occupational frameworks. Pursue efforts to build a skills-based occupational classification to facilitate career transitions on the basis of skills requirements.

Stimulating demand for high-level skills: Supporting firms’ innovative activities, and removing obstacles to growth

A good match between available skills supply and labour market demand is not always positive: workforces can be made up of adults with low skills who are well matched with their jobs (often referred to as a low skills equilibrium). Low skills equilibria hinder growth and economic development, and make economies vulnerable to economic and technological shocks, such as those related to global value chains or the digital transformation.

Innovation, technological development and organisational change depend on having people with the “right” set of cognitive and non-cognitive skills to implement such changes. At the same time, ongoing technological change influences the type of tasks that workers perform on the job, and the skills that they need to perform their tasks.

Co-ordinating skills and education policies with industrial and innovation policies is therefore critical to fostering innovation and growth. By aligning supply-side and demand-side interventions, policy makers can improve the matching of skills demand with skills supply, and in so doing bring about stronger innovation and economic performance.

The challenge: Moving to higher value-added and innovation-intensive activities needs more support

When skills policies are well aligned with industrial and innovation policies, employers can access the skills they need to move their firms to higher value-added and innovation-intensive activities. Innovation — that is, creating, developing and diffusing new products and processes — requires strong science, technology, engineering and mathematics (STEM) skills as well as soft skills and entrepreneurial skills (OECD, 2011[82]). An integrated approach to industrial, innovation and skills policies ensures that such skills are available when employers need them. This type of approach also contains the number of people in unemployment and reduces the length of unemployment spells.

On the other hand, when skills policies are not aligned with industrial and innovation policies, countries and regions may get trapped into “low skills equilibria”. Low skills equilibria are characterised by workforces made up of adults with low skills who have little incentive to upgrade their skills since they know it would be difficult to find jobs rewarding their efforts; and by employers who cannot move to higher value-added activities given the low skill levels of the workforce.

To position economies to move to higher value-added and innovation-intensive activities, education, lifelong learning and labour-market-related policies need to be accompanied by policies supporting firms’ innovative activities and entrepreneurship, as well as policies levelling the playing field for firms and removing obstacles to growth.

Good practices

Supporting firms’ innovative activities

Investing in R&D helps to develop knowledge and skills, spurs innovation and enhances a firm’s ability to absorb and exploit its available knowledge base (Cohen and Levinthal, 2000[83]), thus stimulating demand for skills that complement high-tech production. Figure 5.14 shows that government support for business R&D expenditure has been instrumental in increasing R&D intensity in OECD economies (OECD, 2018[84]). Over the 2006-15 period, countries with the largest increase in government support exhibited higher growth in R&D intensity, with changes in government support accounting for approximately 17% of the observed variation in business R&D intensity. China’s and Korea’s growth in R&D intensity, however, was higher than predicted by their change in measured government support. Italy’s Industria 4.0 further provides an example of government reforms that combine investment in R&D with education and training policies to simultaneously boost demand and supply for skills that complement high-tech production (Box 5.15).

Figure 5.14. Changes in government support to business R&D and total business expenditures on R&D, 2006-15
Annualised absolute changes of figures as a percentage of GDP
Figure 5.14. Changes in government support to business R&D and total business expenditures on R&D, 2006-15

Note: BERD stands for “Business Expenditure in R&D”.

Source: OECD (2017[87]), OECD Science, Technology and Industry Scoreboard 2017: The Digital Transformation, https://dx.doi.org/10.1787/9789264268821-en based on OECD (2018[84]), R&D Tax Incentive Database, http://oe.cd/rdtax.

 StatLink https://doi.org/10.1787/888933928274

In addition to government support, fostering collaboration between academic institutions and firms can also support a firm’s innovation activities. Developing science-industry links helps to introduce firms to new technologies, facilitates knowledge transfer and spillovers, and enables firms to find the experts they need to move to higher value-added types of activities (Ankrah and Al-Tabbaa, 2015[85]; Scandura, 2016[86]). Such interventions are most easily implemented at the local level, where stakeholders from public, private and academic sectors may engage directly. For instance, faced with a radical technological shift in the mobile phone industry, the region of Tampere (Finland) successfully transitioned out of the crisis thanks to an open innovation approach that reinforced the innovation system and strengthened ties between the different stakeholders of the region, including science and industry.

Policy measures to encourage collaboration among firms and between firms and universities and research institutions need to pay special attention to engaging small- and medium-sized enterprises, as SMEs are less prone to collaborate, on average (OECD, 2017[87]).

Box 5.15. Country practices: Combining investment in R&D with education and training policies

In 2016, the Italian government introduced an ambitious set of industrial policy measures, Industria 4.0, which support the transition of the economy towards higher technology intensity, and higher value-added production more generally. The proposed interventions entail the participation of both public and private agents to broaden investment in three key aspects of the digital transformation: digital infrastructure (by extending broadband and fibre connectivity), innovation (by stimulating investment in R&D and other intangible assets, largely through EUR 13 billion in tax credits), and human capital (by expanding skills for high-tech production). To boost skills for the digital transformation, the government will: expand the education of students and managers in Industry 4.0-related areas; increase the number of students enrolled in VET programmes that complement high-tech production; and create national competence centres that offer training, promote research collaboration and technology transfer. The OECD Skills Strategy noted that the successful implementation of Industry 4.0 in Italy will depend on close integration with other private and public investment programmes that support skills (e.g. active labour market policies).

Source: OECD (2018[88]), OECD Skills Strategy Diagnostic Report: Italy, https://doi.org/10.1787/9789264298644-en.

Removing obstacles to growth

Removing barriers to entry and enabling scaling up for firms also encourages demand for higher-level skills, as well as higher productivity. Start-ups introduce new technologies for production, and also encourage better allocative efficiency, by challenging the survival of incumbent firms that are not as productive or innovative. For best results, government efforts should target the most promising start-ups. For instance, tax deductions can be limited to early innovative start-ups that are generally expected to contribute to knowledge creation and bring the most radical innovations to the market (Henderson and Clark, 1990[89]). The Italian Start-up Act, for example, provides stage investments in start-ups, as well as public guarantees on bank loans for promising firms. As banks may be reluctant to fund riskier investment opportunities, the development of alternative forms of finance such as venture capital and private equity can also be instrumental to entrepreneurship, the establishment of start-ups, and to investment in intangible assets more broadly.

Policy recommendations for stimulating demand for high-level skills

In light of the findings and practices above, the following policy recommendations can help countries stimulate demand for high-level skills (Box 5.16).

Box 5.16. Policy recommendations: Stimulating demand for high-level skills
  • Align skills and education policies with demand-side policies. Strengthen the demand and supply of skills through appropriate industrial policy measures, such as support to investment in R&D and in other knowledge-based assets, while at the same time encouraging greater collaboration between public entities, research institutions and the private sector.

  • Remove barriers to entry and support scaling up for promising start-ups. Offering tax deductions or other support to innovative start-ups can help these firms to grow, and in doing so encourages the introduction of new technologies, higher productivity and stimulates demand for high-level skills.

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Notes

← 1. Figure 5.9 shows that country rankings of skills proficiency and skills use at work differ for literacy skills. Note that similar patterns are observed for numeracy skills; see (OECD, 2016[61]).

← 2. Contrary to conventional wisdom that young people are more intensive users of ICTs, average ICT use among youth is lower than that among prime-aged workers in all participating countries. However, young people use ICTs consistently more at home than in the office, whereas the opposite is true among prime-aged and older workers.

← 3. The use of ICT skills is an exception. For the use of ICT skills at work, occupation explains a larger share of variance in skills use than HPWPs.

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