Trends in Worker Requirementsand the Need for Better Information to

Make More Informed Decisions in a Global Economy

Randall W. EbertsW.E. Upjohn Institute for Employment Research

“Adult Skills and Working Opportunities”OECD’s 2nd World Forum

“Measuring and Fosteringthe Progress of SocietiesIstanbul, 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)

1986 1996 2006

prose doc quant prose doc quant prose doc quant

total occupations 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

service occupations 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

Literacy and numeracy skills of workers in broad sectors haveremained fairly constant over the past 20 years in the US

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

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20 30 40 50 60 70 80 90

% High Skilled Workers

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Correlation= +0.45

Compositional Shift: Fastest growing sectors have the highest skilled workers

Computer and Related activities

Textiles

Electricity, gasWater supply

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

0

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% Skill Shortage Vacancies

% H

igh

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Sectors with higher skilled workers have lower vacanciesdue to skill shortages, UK

Correlation= -0.32

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

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20 30 40 50 60 70 80 90

% high skilled workers

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Correlation= +0.59

Sectors with more highly qualified workers pay more

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20 30 40 50 60 70 80 90

% high skill workers

% w

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Workers in high skill sectors receive more training

Correlation= +0.74

0

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% Skill Shortage Vacancies

% S

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Tra

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Businesses in sectors in the UK with the lowest vacancy rates due to skill shortages provide the most training

Correlation= -0.41

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, cross-function 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