Global Perspectives: The OECD Offers Countries a Strategic Approach to Building a National Skills Policy

Kathrin Hoeckel, Policy Analyst at the OECD

In May 2012, the Organisation for Economic Co-operation and Development (OECD) released its much-anticipated Skills Strategy, a major new initiative aimed at helping governments improve their economies through comprehensive skills policies.  Kathrin Hoeckel, a Policy Analyst at the OECD, worked closely on the strategy and its accompanying report, Better Skills, Better Jobs, Better Lives: A Strategic Approach to Skills Policies.  Betsy Brown Ruzzi, Director of the Center on International Education Benchmarking, recently spoke with Hoeckel about the scope of the project, its implications for education and workforce issues, and next steps for countries interested in implementing the report’s recommendations.

Betsy Brown Ruzzi: There is a strong consensus around the world that investing in human capital is a major key to economic success.  The new OECD Skills report was designed to help countries committed to this goal.  Can you give us a brief summary of what the report recommends to policymakers around the world working on investing in their people?

Kathrin Hoeckel: The aim of the Skills Strategy report was to boost development in economic and social terms.  We approached this topic from a number of angles including education, labor and economics.  We examined the issue through three pillars.  First, how economies can develop the right skills, that is, how to ensure the education system produces good quality skills that are needed and makes them available to everyone.  Second, how economies can encourage people outside of the labor market, for example, women or older workers, to participate.  And lastly, how economies use the skills of their labor force, in other words, how they ensure that the jobs that people are in match their skills so there are not a lot of over-skilled or under-skilled people filling jobs.

Brown Ruzzi: Perhaps we can look at the first pillar more closely.  The report suggests that countries gather and use intelligence on the demand for skills.  Can you describe how countries can go about this today?  Are there any countries with particularly good systems for doing this?

Hoeckel: First, countries need to determine the demands of their labor markets. There are a number of countries that have developed sophisticated systems to assess these skills and extrapolate future needs.  Australia has a system to gather data on labor market needs, particularly job vacancies, as well as the Monash University system that is able to help project what the workforce needs will be in the future.  A number of countries, like the UK, work with user surveys from employers; the surveys provide information on recruiting and employers’ plans for the future.  However, OECD is cautious about relying too heavily on future projections of economic needs, because there are limitations to the usefulness of projections given unforeseen changes in the economy.

In addition to collecting data on labor market needs now and in the future, countries need to align the demand for skills and the education system.  Countries that have strong vocational education systems with strong participation from employers are more likely to quickly adapt and respond to the needs of the labor market.  These countries, for example, Germany, Switzerland and Australia, actively involve employers in educating and training their workforce and that leads to a better match between what employers need and the skills their workers have.

Brown Ruzzi: Our own research shows that some countries rely mostly on projections from employers with respect to their future skill requirements.  In those countries, demand will lead supply.  But others make policy decisions about what sort of economy they want for their country and base their projections at least in part on these decisions.  In these countries, supply will produce demand.  Can you name examples of countries that use these different approaches?  What combination of these approaches would you use?  Why?

Hoeckel: Shaping the demand is a major part of the skills strategy, because just having a match between skills and jobs might not be enough to drive an economy forward.  In a local labor market, if there are only low skilled employees doing low wage jobs, it will be impossible to raise the standard of living and the economy will stagnate.  There are a lot of context variables to take into consideration in order to move production up the value chain, such as industrial policy, innovation policy and the promotion of entrepreneurship.  A country that has made major progress on this front is South Korea.  South Korea’s economy was at the level of Ghana’s a few decades ago, but aggressive industrial and human capital policies allowed it to jump to the front of the line in the OECD.  They set ambitious goals regarding what they wanted the country to look like and what industries to invest in, and they provided the human capital to develop these industries to reach higher economic standards.  This required a comprehensive approach, including industrial policies and education policies that run parallel with labor market needs.  However, one thing to always keep in mind is that education policy always lags behind many other areas since it takes time to educate future workers to meet the needs of the new economy.

Brown Ruzzi: The report also recommends that countries design efficient and effective education and training systems.  What strategies should countries use to do this?

Hoeckel: Strategies depend on the country.  But in general, the education and training system should always be of a high quality that delivers not just qualifications but people with strong, comprehensive basic skills.  Another general rule is that you have to include employers in the entire process of building up and running an education system.  If the world of work and learning are too detached, then you won’t get good results.  It is also important to have an inclusive education system.  During the last decades, most countries have focused their attention on raising tertiary graduation rates, but these can distract from fundamentals including insuring a minimum education for all.  We see through our research that the largest problem that many countries face is helping the people with the most limited skills; they struggle in the labor market throughout their life unless they have basic skill levels.  If you look at the whole cross section of people, over a lifetime, it is very costly to educate everyone to a minimum level, but if you compare that to what a country must invest in the welfare system and other costs that might be required to support individuals if they do not have a minimum education, it looks like education is the better investment.

Brown Ruzzi: Raising the quality of education and promoting equity in educational opportunities is another recommendation in the report.  Singapore is a good example of a country that found out years ago that the bottom quartile of its students could not function at a level high enough to succeed in their vocational education system, and they redesigned their system so that they both raised the academic standards for their vocational education system and, at the same time, greatly raised the proportion of the students in the bottom quartile who could meet their standards.  Do you know of other countries that have done this?

Hoeckel: A number of countries have made major improvements here.  One concrete example is a non-OECD member, Brazil.  It is a country that has made large increases in enrollment at the lower levels of education but this also holds true for secondary and post-secondary education.  The trend today is looking at enrollment numbers and the targets you have for getting diplomas.  That is what they initially did in Brazil, but then they realized that while young people were graduating with qualifications, they did not necessarily have the right skills.  To combat this problem, Brazil greatly increased the number of highly qualified teachers, invested in the general infrastructure of their compulsory schools, and put in place financial incentives for poorer students to attend school.  But quality increases cost more.  Finland raised the standards of its least achieving students by adding an instructor to help these students as soon as they find out they are struggling.  It is a huge investment that pays off, as compared to making struggling students repeat a grade, which research shows does not work.

Brown Ruzzi: Another policy lever the report discusses is putting skills to effective use by increasing the demand for high-level skills.  This seems to be quite a task given the economic downturn in many parts of the world; however, it seems to be the real secret to economic success in the 21st century.  What did your report say about unlocking the secret of creating high value-added jobs?

Hoeckel: This is the key ingredient, but also the most difficult area to tackle.  For example, I just visited Spain, and they are struggling economically.  They have a fairly well educated workforce but not enough work.  But there are things countries can do to promote product innovation, innovations in work organization and workforce innovation.  In this arena employers and trade unions must be deeply involved.  For example, in the UK they have a number of incentive funds for innovation, encouraging employers to better use the skills of their staff.  In Northern Italy, private and public actors have invested jointly in a skills hub where local employers work closely with a polytechnic where their people are trained, where they do product research whose results are given back to employers to improve production, and where they provide free training to the unemployed.  This is a very local effort but in that local economy, it has led to moving production up the value chain.  A lot of bottom-up initiative is required, but government can help by providing incentives and an environment where innovation can flourish.

Figure 1.2: Source: Better Skills, Better Jobs, Better Lives: A Strategic Approach to Skills Policies, Page 23

Brown Ruzzi: Even in the economic downturn, companies across the globe report that they have a shortage of either technical workers or a shortage of workers with high-level math, science, technology or engineering skills, or both.  (See Figure 1.2 above)  What does the Skills report say about this issue to countries that want to help their employers match people with jobs?

Hoeckel: This is an interesting phenomenon—How can you have skills shortages at the same time as high unemployment?  One thing to keep in mind here is that employers always complain about not being able to find the right people with the right skills.  Often there are not really shortages, but the working conditions and pay may be so low that people just don’t want the jobs offered.  Others decide to stay at home if the pay is low and working conditions are bad, particularly if they have good government benefits.  There is always a group of employers with true shortages because of cyclical changes where the education system is not fast enough to provide people with the skills they need.  In Australia, for example, when mining boomed, they needed to recruit outside the country to fill the job vacancies.

If you want to solve this problem through the education system, there are some countries that have retrained older workers in the areas where they need people, for example in the care industry.  But obviously education is always a slow process.  Employers are faster than government in seeing these changes.  That is why we suggest that employers become part of the whole process in designing education systems, because they can be faster in terms of forecasting their skills needs.

Brown Ruzzi: As part of the report, you wrote about early findings from a new OECD survey that will measure the skills of adults in the labor force in member countries.  The survey is called PIACC and results from the first global application will be available in October 2013.  Can you tell us a little more about the early findings of the new PIACC survey that OECD has developed to directly measure skills of adults?

Hoeckel: The survey is about the working age population (ages 16-64) and is being carried out in most of the OECD member countries and in some non-OECD member countries.  It includes responses from 5,000 individuals and looks at foundational skills such as reading, writing, problem solving and math.  It looks at the level and distribution of these skills.  We already see at this early stage in the results that in some countries the share of people not even reaching the minimum level of skills needing to operate in today’s economy and society is quite high.  I am sure to some this will be a shock.

If you look at distribution by level of qualification, the current proxy for human capital, you can see that it is a poor measure.  For example, the level and distribution of skills of people with a tertiary degree in one country is very similar to those with an upper secondary qualification in anotherquality varies across countries.  As the report points out, people acquire skills through work and other experiences and can also lose those skills if they don’t use them.  And, the older you get, the more skills you lose.  But this curve doesn’t have the same slope in all countries.  This means we can do something about it.  The extent to which people use skills in the workplace has something to do with the steepness of this curve, and we can figure out what countries and companies are doing to maintain these skills.  Another thing that is going to be interesting as we get the results from PIACC is the extent to which skills match or don’t match the requirements of your job.  We have observed that the higher your skills and the better the match, the more you will earn and the more training you will receive.

Brown Ruzzi: How do you see countries using the results from the PIACC survey in their skills policy?

Hoeckel: We hope that some of the results will be so striking that countries will wake up.  The issue of low skilled workers is pretty clear:  if countries see that one- third of their adult population is not reaching the minimum skill level, they might do something about it such as investing in adult education, promoting life long learning, and working on preventing high school dropouts.  We need to understand that training someone at the beginning of their working life is not enough; constantly maintaining and extending training should be the goal.  Our message is not just to governments, but to employers and individuals alike.

Brown Ruzzi: The report argues that countries around the world need to create a national skills policy. How is OECD helping their members do this?

Hoeckel: The whole point of the skills strategy is not just to look at skills and education, but to have a strategic approach and look at everything as a system.  There are so many elements that mutually influence each other: whether you are well matched with your job has an impact on your further skills acquisition. These issues are usually handled in different parts of government.  We want to encourage countries to adopt a strategic view.  In the future, starting with the framework we have laid out in the report, we will work with individual countries, offering a menu of options.  As a first step, we will offer a basic assessment using the framework to look at a given countries strengths and weaknesses.  Next, the OECD can help bring all of the key stakeholders together to discuss these issues and come up with joint solutions.  Third, the OECD can help countries take their strategy to an action level.  Our contribution as outsiders is that we can take a step back, take a look at things and put the right people in contact.  Once we have the PIACC data, we will be able to provide even more in the way of contributions to these countries skills strategies.