Trends in Worker Requirements
and the Need for Better Information to Make
More Informed Decisions in a Global
Economy
Randall W. Eberts
W.E. Upjohn Institute for Employment Research
“Adult Skills and Working Opportunities”
OECD’s 2nd World Forum
“Measuring and Fosteringthe Progress of Societies
Istanbul, 27-30 June 2007
Introduction
•
Motivation: Increased globalization and rapid technological change
transforms how people view their world and the challenges and
opportunities they face
 Workers: Concerned about job security, skill requirements, wage growth
 Businesses: Improve competitive advantage
 Governments: Design effective policy to help businesses and workers
•
Issue: World is changing faster than the tools to understand it
 Well understood that human capital development and the matching of
worker skills with business needs is critical for a nation’s success
 Need to know much more about the demand and supply of skills within
and across countries and over time
 Need to know about demand for skills, the stock of human capital, the
nature of skills shortages, the causes and consequences of technological
change, globalization and demographic factors on skills
•
Fact: Need to measure things properly--worker skills--before people
take them seriously and incorporate them into their decision making
Major Points
•
•
•
•
•
Skills and economic performance
 Worker skills are highly correlated with economic outcomes
• National and business productivity, worker wages and employment
 Not only skills, but also how skills are applied in the workplace
Trends in skill requirements
 Compositional shift: fastest growing sectors require the highest skills
 Within occupation: Not clear how skill requirements have changed
Skill Shortages
 Supply of skilled workers not keeping pace with changes in demand
• Conclusion supported by compositional shift, high skill wage premia,
and survey responses of businesses in various industries
Filling the Skill Gap
 Integration of world economy requires a nation to look beyond its own
borders to understand priorities in meeting skill requirements
 Measure both worker competencies and business skill requirements
Policy Recommendations
 How do countries’ define their comparative advantage—place specific?
Skills and Economic Performance
•
•
Studies at various levels of aggregation show that skills are positively
related to market outcomes
 A one country level standard deviation higher test performance would yield
a two percentage point higher annual real GDP per capita growth rate
 Increases in educational attainment were responsible for an estimated 11 to
20 percent of the growth in worker productivity in the US
 An additional year of education increases annual wages by 6 to 10 percent
• Earnings gains even more pronounced from curricula that provides an
academic year of more technical and applied coursework (10-15%)
• Earnings of high literacy workers are 3 times greater than those of low
literacy workers (15%)
• 10 point increase in the literacy score increases Canadian wage 3.3%
Test scores account for only a portion of earnings variations
 Basic literacy and numeracy skills are pre-requisites for many jobs and thus
necessary but not sufficient conditions for being successful in a job
 Other factors are important
SCANS
•
•
•
US: Secretary’s Commission on Achieving Necessary Skills (SCANS)
found that effective workers need the ability to:
 Allocate time and resources
 Acquire and evaluate information
 Participate effectively as a team member
 Teach others
 Negotiate differences
 Listen and communicate with customers and supervisors
 Understand the functioning of organizational systems
 Select technology and apply it to relevant tasks
Heckman and others find that, except for college graduates, non-cognitive
skills exert as least as high and probably higher impact on job market
outcomes than do cognitive skills
Many other studies point out the importance of non-cognitive skills in
meeting requirements to effectively fill a job
Trends in Skill Requirements
•
•
•
Widely held view that skill requirements are higher today than ever before
Two sources of higher skill requirements
 Higher skill requirements within same occupations
 Compositional shift toward industries requiring higher skills
Few studies follow the skill requirements of specific occupations over
time, that is, follow what skills are required to be successful in a job
 Studies have looked at the qualifications (or competencies) of workers
within specific occupations over time (see table for US)
Literacy and numeracy skills of workers in broad sectors have
remained fairly constant over the past 20 years in the US
1986
prose
total occupations
doc
1996
quant
prose
doc
2006
quant
prose
doc
quant
294
289.5
293.8
294.5
290
294.1
295.3
290.7
294.8
executive administrative and managerial occupations
324.4
316.8
326.6
324.4
316.6
326.7
324.4
316.6
326.7
professional specialty occupations
331.7
324.5
328.2
331.1
323.9
327.2
331.6
324.6
327.8
technicians and related support occupations
310.7
306.2
304.8
311.2
306.5
304.7
311.2
306.3
304.4
marketing and sales occupations
294.3
289.9
295
293.1
288.7
293.7
293.2
288.7
293.7
administrative support, including clerical
293.3
288.1
290.6
294.4
289.5
291.6
294.7
289.9
291.8
270
266.1
266.2
269.7
265.7
265.8
269.5
265.3
265.6
agriculture, forestry, fishing and related
274.4
269.9
275.2
274.6
270.4
275.7
275.1
271
276.3
precision production, craft, and repair occupations
285.9
284.5
290.5
286
284.5
290.4
285.5
284.3
290.2
operators, fabricators, and laborers
264.5
263.4
270.5
264.5
263.5
270.6
264.3
263.4
270.4
service occupations
Trends in Skill Requirements
•
•
•
•
•
(cont’d)
Widely held view that skill requirements are higher today than ever before
Two sources of higher skill requirements
 Higher skill requirements within same occupations
 Compositional shift toward industries requiring higher skills
Few studies follow the skill requirements of specific occupations over
time, that is, follow what skills are required to be successful in a job
 Studies have looked at the qualifications (or competencies) of workers
within specific occupations over time (see table for US)
But don’t know whether these workers are over or under qualified
 Surveys in the UK reveal that a third of university graduates say they are
over qualified for the jobs they hold
 Study in US found that college graduates are in occupations formerly held
by only high school graduates, and high school graduates are in jobs
formerly held by people without a high school diploma
 Many occupations change names when job requirements drastically change
But the US and other economies have successfully absorbed college
graduates, and wage premia of college graduates have risen
Compositional Shift: Fastest growing sectors have
the highest skilled workers
Employment Growth Rate
10
Computer and
Related activities
8
6
4
2
0
-2
Electricity, gas
Water supply
-4
-6
Textiles
-8
Correlation= +0.45
-10
20
30
40
50
60
% High Skilled Workers
70
80
90
Skill Shortages
•
•
•
•
By most accounts, the supply of skilled workers is not keeping pace with
changes in demand for skilled workers
This conclusion is supported by compositional shift, wage premia of
highly skilled workers, and business surveys
Business surveys: Manufacturing in UK and US is hardest hit
 US: 80% of manufacturers who responded expected skilled production
workers to be in short supply over the next three years
 US: One in three of job applicants tested by employers lacked the basic
skills necessary to perform the jobs they sought to fill in 2000
 UK: 45% of manufacturers report skills shortage vacancies, and skills gap
account for between 4 and 8% of employment in that sector
Interestingly, shortages are not in the highest skilled sectors, indicating
that market forces provide incentives for workers to move into sectors
that need skills the most
Sectors with higher skilled workers have lower vacancies
due to skill shortages, UK
90
% High skill Workers
80
70
60
50
40
30
20
Correlation= -0.32
10
0
0
10
20
30
% Skill Shortage Vacancies
40
50
Filling the Skill Gaps
•
Market forces at work to fill gap (see table)
 Workers paid more in high-skill sectors
 Business in high-skill sectors provide more training
 Consequently, high-skill sectors have the lowest vacancy rates
Sectors with more highly qualified workers pay more
700
Earnings per week
600
500
400
300
200
100
Correlation= +0.59
0
20
30
40
50
60
% high skilled workers
70
80
90
Workers in high skill sectors receive more training
50
% workers receiving training
45
40
35
30
25
20
15
10
5
Correlation= +0.74
0
20
30
40
50
60
% high skill workers
70
80
90
Businesses in sectors in the UK with the lowest vacancy rates
due to skill shortages provide the most training
50
% Skill Workers Trained
45
40
35
30
25
20
15
10
5
Correlation= -0.41
0
0
10
20
30
% Skill Shortage Vacancies
40
50
Filling the Skill Gaps
•
•
•
•
(cont’d)
Market forces at work to fill gap (see table)
 Workers paid more in high-skill sectors
 Business in high-skill sectors provide more training
 Consequently, high-skill sectors have the lowest vacancy rates
In order to align the proper policies, countries need to understand and
measure both the skill quality of workers entering the labor market and
the stock of skills of workers already in the workforce
 Need to have proper measures at national and international levels so that
businesses and educational and workforce development systems can adopt
similar measures to help change the culture in their organizations
Measuring Worker Competencies
 Over time-longitudinal capabilities
 Among cohorts of workers
 Distinguish between ethnic groups, gender and immigrants
Measuring Skill Requirements
 UK: NVQ
US: O*Net
Policies to Fill the Skill Gaps
•
•
•
Obvious strategies are to
 Increase access and completion of schooling for those underrepresented
population groups
 Continue training opportunities for those in the workforce
However, in integrated global economy, the issue is not simply how to fill
gaps but how one country can differentiate itself from another
 With mass flow of immigrants, offshoring, rapid increase in supply of highly
skilled labor in developing countries, countries find it difficult to identify
comparative advantage
Advantage on the demand side: Find ways that businesses combine
knowledge in productive ways that cannot be replicated elsewhere
 An increase in supply of skilled workers is necessary but not sufficient for
higher productivity and a nation’s comparative advantage
 Skills must be allied with other people management practices
Policies to Fill the Skill Gaps
•
•
•
•
(cont’d)
Place-specific practices
 High performance work places
• Profit sharing, continuous improvement systems (US Baldrige Criteria),
flexible working, job rotation, performance pay, mentoring, crossfunction teams, annual review of employees, training needs
 Amenities
 Investment in new technology
 Create environment that encourages and nurtures entrepreneurship
 Regional skill alliances
Proper matching of worker skills with business needs
 Inefficiency robs sectors that require more highly skilled workers of labor
resources they need and wastes a country’s scarce resources by training
workers with skills they and the economy can’t use
Businesses make better use of available workforce skills
Need better measures to inform all levels of decision making--PIAAC