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Skills for improved productivity, employment growth and development
Sequence of recent tripartite discussions
and research on skills development in
relation to productivity and
employment for decent work
1999 World Employment Report
1998–99: Employability in the
global economy: How training
matters
2000 ILC general discussion: Human
resources training and
development: Vocational guidance
and vocational training
2001 World Employment Report 2001:
Life at work in the information
economy
2002 ILC general discussion on decent
work and the informal economy
2003 Governing Body Committee on
Employment and Social Policy
(ESP), Global Employment Agenda
2004 Human Resources Development
Recommendation, 2004
(No. 195)
2005 ILC general discussion: Youth:
Pathways to decent work
2005 World Employment Report 2004–
2005: Employment, productivity
and poverty reduction
2006 Governing Body ESP Committee:
Implementing the Global
Employment Agenda: Employment
strategies in support of decent
work: “Vision” document
2006 Governing Body ESP Committee:
Employability by improving
knowledge and skills
2007 Governing Body ESP Committee:
Portability of skills
2007 ILC general discussion on
sustainable enterprises
The report also builds on the research
findings of several ILO publications that
analyse the linkages between skills,
productivity and economic and employment
growth. A series of World Employment
Reports, beginning in 1999, have taken up
the issue of skills development directly or as
a component of broader employment policy
issues. The World Employment Report
2004–05: Employment, productivity and
poverty reduction concluded that, for the
vast majority of the working poor, simply
more work, unless it is more productive
work, would not lead them out of poverty. It
examined the conditions under which
employment and productivity could grow in
tandem and create a virtuous circle of decent
and productive employment opportunities.
The knowledge accumulated in these
discussions and publications, based on
analysis by the Office and guidance from
constituents, underpins the preparation of
this report (see sidebar for a chronological
summary). The present report, in turn,
contributes to the knowledge base relating to
the skills components of the Global
Employment Agenda (GEA), which was
adopted by the Governing Body in March
2003 and provides an analytical framework
for promoting the employment components
of the Decent Work Agenda. Productivity
and employment issues feature prominently
in Core Element 6 of the GEA on
employability through improved knowledge
and skills and Core Element 2 on promoting
technological change for higher productivity
and job creation and improved standards of living.
The topic of this report is particularly relevant to the skills development needs
identified in Decent Work Country Programmes (DWCPs). As the principal vehicle for
promoting decent work at the country level, DWCPs comprise a set of agreed priorities
for tripartite partnership with the Office. Many of the current DWCPs identify skills
development, productivity and employment as national priorities for improving
competitiveness, enhancing the employability of young women and men and increasing
decent work opportunities for disadvantaged groups.
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Executive summary
Objectives of the report
As the background paper for the general discussion on skills for improved
productivity, employment growth and development at the 98th Session of the
International Labour Conference, this report has the following objectives:
ɽ
Provide practical examples of the “virtuous circle”, drawing lessons from national
experience of investing in skills development, accelerating the growth of
investment and productivity and translating those gains into higher income and
sustainable job creation.
ɽ
Demonstrate how lifelong learning minimizes the displacement costs of
technological change by preparing workers for alternative employment.
ɽ
Increase recognition of the importance of synchronizing national skills
development policies with policies on technology, trade and the environment.
ɽ
Support national and international commitment to expanding the coverage of good
quality basic education as a human right and an indispensable foundation for
vocational training, lifelong learning and employability.
ɽ
Heighten awareness of the role of skills acquisition in promoting formalization in
the informal economy.
ɽ
Emphasize the role of employers’ and workers’ organizations in advancing skills
development in order to improve productivity and ensure the equitable distribution
of the benefits of productivity growth.
ɽ
Apply the key instruments for skills development identified in the Human
Resources Development Recommendation, 2004 (No. 195), to the goal of
sustaining the growth of more productive employment.
ɽ
Facilitate tripartite discussion to provide guidance for ILO research, policy support,
partnerships and technical cooperation in relation to skills for technological change,
increased productivity and decent work.
Summary of the report
Education, training and lifelong learning foster a virtuous circle of higher
productivity, more employment of better quality, income growth and development.
Chapter 1 introduces this catalytic role of skills development. It provides a succinct
explanation of productivity, followed by an overview of the conceptual and empirical
linkages between productivity and employment growth, and finally explains how a
coherent skills development policy serves both short-term adjustment and long-term
development goals.
Productivity growth reduces production costs and increases returns on investments,
some of which provide greater income for business owners and investors, while some are
turned into higher wages. The virtuous circle between productivity and employment is
also fed through the investment side of the economy, when some productivity gains are
reinvested by a firm in product and process innovations, improvements in plant and
equipment and measures to expand into new markets, which in turn spur further output
growth and productivity.
The productivity of individuals may be reflected in employment rates, wage rates,
stability of employment, job satisfaction or employability across jobs or industries. The
productivity of enterprises, in addition to output per worker, may be measured in terms
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Skills for improved productivity, employment growth and development
of market share and export performance. The benefits to societies from higher individual
and enterprise productivity may be evident in increased competitiveness and
employment or in a shift of employment from low to higher productivity sectors.
In the long term, productivity is the main determinant of income growth. A low-
wage, low-skill, low-productivity development strategy is unsustainable in the long term
and incompatible with poverty reduction. Investment in education and skills helps to
“pivot” an economy towards higher value added activities and dynamic growth sectors.
Experience shows that all countries that have succeeded in linking skills with
productivity have targeted their skills development policy towards three objectives:
(i) Meeting skills demand in terms of relevance and quality: so as to ensure the
matching of skills supply and demand, skills policies need to develop skills that are
relevant, promote lifelong learning and ensure the delivery of high levels of
competences and a sufficient quantity of skilled workers. Furthermore, equality of
opportunity in access to education and work is needed to meet the demand for
training across all sectors of society.
(ii) Mitigating adjustment costs: the reorganization of work in line with new demands
and technologies results in some skills becoming redundant. The ready availability
and affordability of training in new skills and occupations help to insure against
prolonged unemployment or underemployment and to maintain the employability
of workers and the sustainability of enterprises.
(iii) Sustaining a dynamic development process: skills development policies need to
build up capabilities and knowledge systems within the economy and society
which induce and maintain a sustainable process of economic and social
development. The first two objectives of improving skills matching and mitigating
adjustment costs are based on a labour market perspective; they focus on skills
development as a response to technological and economic changes and are
essentially short- and medium-term objectives. In contrast, the developmental
objective is focused on the strategic role of education and training policies in
triggering and continuously fuelling technological change, domestic and foreign
investment, diversification and competitiveness.
Chapter 1 also introduces three recurrent themes of the report. First, skills
development must be an integral part of broader employment and development
strategies if it is to deliver on its substantial potential to contribute to overall
productivity and employment growth. The challenge for government policy is to develop
and foster institutional arrangements through which ministries, employers, workers and
training institutions can respond effectively to changing skill and training needs and play
a strategic and forward-looking role in facilitating and sustaining technological,
economic and social advancement. To meet this challenge, effective coordinating or
mediating institutions are required at three levels:
ɽ
cooperation between the various providers of skills training, such as schools,
training institutions and enterprises, to establish coherent and consistent learning
paths;
ɽ
coordination between skills development institutions and enterprises to match skills
supply and demand; and
ɽ
the coordination of skills development policies with industrial, investment, trade,
technology and macroeconomic policies so that skills development policies are
integrated effectively into the national development strategy and policy coherence
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Executive summary
is achieved. Institutions need to encourage cooperation between different
ministries, ensure the effective exchange of information and forecast skill needs.
Second, social dialogue and collective bargaining can create a broad commitment
to education and training and a learning culture, strengthen support for the reform of
training systems and provide channels for the ongoing communication of information
between employers, workers and governments. In addition to promoting skills
development, social dialogue and collective bargaining can also be instrumental in the
equitable and efficient distribution of the benefits of improved productivity.
Third, gender equality is an underlying principle of decent work. Training policies
and programmes that aim to improve productivity and employability therefore need to
ensure equality of opportunity, be free from discrimination and take into account family
and household obligations. In view of the essential nature of gender issues, examples of
skills development policies and programmes which either target women or mainstream
gender issues are highlighted throughout the report. A life-cycle approach has to be
adopted to overcoming the challenges that confront women in gaining access to
education and training and in utilizing this training to secure better employment. This
includes: improving the access of girls to basic education; overcoming logistical,
economic and cultural barriers to apprenticeships and to secondary and vocational
training for young women – especially in non-traditional occupations; taking into
account women’s home and care responsibilities when scheduling workplace-based
learning and entrepreneurship training; and meeting the training needs of women re-
entering the labour market and of older women who have not had equal access to
opportunities for lifelong learning .
Chapter 2 reviews the policy challenges and experience of groups of countries at
different levels of development in connecting skills development to productivity and
employment growth. Consideration of each group of countries begins with a succinct
overview of the available data on productivity, employment and education as the nearest
available measurement of skills levels.
A key policy challenge confronting the Organisation for Economic Co-operation
and Development (OECD) countries is to ensure the continuing relevance of skills
acquired by both job entrants and mid-career workers. Success in this respect minimizes
the risk of skills gaps, which can constrain enterprise growth and jeopardize the
employability of workers. Structural transformations and heightened competition are
making it increasingly difficult for workers with low skills to find productive
employment. The policy responses to these challenges include improving access to and
the relevance and quality of job-entry training, expanding lifelong learning opportunities
and using active labour market policies to combat inequality and reintegrate older men
and women into the labour market. The continuing adjustment of skills development
programmes is an essential component of the restated OECD Jobs Strategy.
Most countries in Central and Eastern Europe (CEE) and the Commonwealth of
Independent States (CIS) started the transformation process with a strong tradition of
technical and vocational training. However, education and training participation rates
have dropped, partly because much of the training offered by the vocational training
system had become irrelevant in the transition from a command to a market economy.
Efforts by these countries to reinvigorate skills development systems have included
restructuring education and training systems to the demands of the new market economy,
using labour market institutions to mitigate the negative effects of economic
restructuring and targeting training and lifelong learning to raise the adaptability and
mobility of the workforce.
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Skills for improved productivity, employment growth and development
One important characteristic of developing countries is the combination of high
growth and productivity in some sectors and regions with low productivity and persistent
poverty in the large informal economy. With a view to addressing skills shortages in
high-growth sectors, it is necessary to improve coordination between prospective
employers and education and training providers, increase the quantity of public training
provision and encourage workplace learning. The role of training in promoting
formalization in many countries involves focusing on: improving access to quality skills
development outside high-growth urban areas; combining remedial education and
employment services with technical training; implementing systems for the recognition
of prior learning so as to open up jobs in the formal economy to those who have acquired
skills informally; and targeting entrepreneurship training so that it encourages and
enables the formalization of small enterprises.
The least developed countries, mainly in sub-Saharan Africa, parts of Asia and
small island countries, face a vicious circle of low education and skills, low productivity
and poverty. Only one fifth of boys and girls of secondary school age in sub-Saharan
Africa attend school. The priority of improving the quality and availability of training
means that it is necessary to focus on reforming education and training systems so that
they provide the skills and competencies that will be needed to boost the growth of
decent work in the formal economy. Policy responses need to place emphasis on
increasing the access of the poor to training, upgrading apprenticeship training and
improving the relevance of training in public institutions by strengthening coordination
and partnerships with the private sector and combining institution-based education and
training with enterprise-based learning.
Chapter 3 identifies skills development as one of the critically important drivers of
productivity growth and competitiveness at the enterprise level. Agreements between
employers and workers are important means of promoting workplace learning and of
ensuring that increased productivity benefits both employers and workers. Policies that
encourage enterprises to increase on-the-job training and workers to participate in
lifelong learning, with a view to improving performance and increasing the quantity and
quality of employment, differ according to the various types of enterprise.
Inter-firm alliances of enterprises along global value chains related to
multinational enterprises offer opportunities for economies of scale in skills
development, for example by reducing the costs of training for individual enterprises
through the sharing of certain costs between allied enterprises. Arrangements whereby a
lead firm in a value chain sets the standards for skills development, develops the
curriculum and training materials and, in some cases, provides the facilities and
personnel to deliver the training, can provide a high quality of workplace training linked
to the requirements of the production system. Experience also shows that training in the
areas of compliance with labour standards and national labour law, conflict resolution
and representation is important in value chains and corresponds well with worker
training in technical fields.
Workforce skills are also a fundamental condition for the emergence of clusters –
groups of enterprises that gain performance advantages through their proximity.
Specialized competencies are developed both within and between firms, offering a
competitive advantage for the firms within the cluster. A proactive role by governments
in establishing linkages with multinational companies for the development of clusters
and in supporting cooperation between firms in clusters can help to stimulate the
adoption of technologies and skills upgrading programmes.
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