50
Skills for improved productivity, employment growth and development
ɽ
First, the rate of growth of wage employment in the formal economy must exceed
that of the labour force in the economy as a whole, in order to ensure that labour
moves from the informal economy into formal, more productive and decent
employment. This requires dynamic high-growth sectors, “catching-up” through
enterprise development and the development of the requisite technical and core
skills needed to use new technologies and access new markets.
ɽ
Second, labour productivity in the informal economy must increase so that
underemployment and poverty there are progressively reduced.
19. Skills development is central to both of these objectives. In order to achieve the
first objective, the workforce must be “employable”, that is, capable of learning new
technologies and workplace practices, engaging in social dialogue and participating in
opportunities for continued learning. Basic and vocational education prepare young
people for the world of work and ongoing workplace learning. The policy environment,
quality of local training service providers, and growth strategies of enterprises, must all
coincide in favour of expanding on-the-job training. Employment services must share
information about occupations and skills needed in the labour market and ease the school
to work transition. Furthermore, having a more skilled workforce can stem the decline in
the employment content of growth in the formal economy.
20. To achieve the second objective, access to training must extend deeper into the
informal and rural economies, which is where most people living in poverty work,
especially women (see box 1.1). This applies most of all to those who are self-employed
or who work in micro- and small enterprises or in subsistence agriculture. Furthermore,
the quality of the available training must be improved through the extension of the
services provided by vocational training systems into under-served areas, improvements
in informal apprenticeships, and measures to help small enterprises upgrade their
technical and entrepreneurial skills.
Box 1.1
Gender and the informal economy
Across all countries, women are over-represented in jobs and tasks that require
fewer and lower value skills, are lower paid and offer restricted career prospects. In most
countries, women account for the majority of workers in the informal economy, which
implies greater job insecurity, as well as lack of access to training, social protection and
other resources, making them comparatively more vulnerable to poverty and
marginalization. There is a significant overlap between being a woman, working in the
informal economy and being poor.
Source: Carr and Chen, 2004.
21. In the long term, meeting national and global commitments to improve basic
education and increase literacy will open technical and vocational training opportunities
to a broader section of the population. In the meantime, however, there is a need to
develop innovative ways of upgrading skills and recognizing the latent skills of those
already in the workforce, even if they have not had adequate basic education. Strategies
to improve productivity in the informal economy must enable workers there to use new
skills as leverage to help them move into decent formal work (see section 2.3 in
Chapter 2). This strategy for skills development and the informal economy (or “informal
sector”, as it was called at that time) was articulated in the conclusions of the general
discussion on training for employment in 2000:
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Productivity, employment, skills and development: The strategic issues
Training can be one of the instruments that, together with other measures, address the
challenge of the informal sector [sic] … Informal sector work is unprotected work that is, for
the most part, characterized by low earnings and low productivity. The role of training is not to
prepare people for the informal sector and keep them in the informal sector; or to expand the
informal sector; but rather it should go in conjunction with other instruments, such as fiscal
policies, provision of credit, and extension of social protection and labour laws, to improve the
performance of enterprises and the employability of workers in order to transform what are
often marginal, survival activities into decent work fully integrated into mainstream economic
life. Prior learning and skills gained in the sector should be validated, as they will help the said
workers gain access to the formal labour market. The social partners should be fully involved in
developing these programmes. (ILO, 2000a, para. 7.)
22. According to data for the period 1991 to 2005 (figure 1.2), the group of countries
that increased both productivity and employment also experienced the greatest average
reduction in poverty, whether defined at the extreme level of US$1 a day or the slightly
less extreme figure of US$2 a day.
3
The average reduction in the proportion of workers
living on less than US$2 a day in countries where both productivity and employment
increased was 8 per cent over the 14-year period. Among the countries which
experienced an increase in productivity but not in employment, the decline in the
incidence of poverty was slightly lower, at just over 5.5 per cent. In stark contrast,
poverty did not decline on average in countries which did not experience a rise in
productivity, regardless of employment growth.
Figure 1.2. Average changes in poverty for countries grouped by relative performance in
productivity and employment growth, 1991–2005
–8
–6
–4
–2
0
2
4
Productivity increase,
employment increase
(51 countries)
Productivity increase,
employment decrease
(13 countries)
Productivity decrease,
employment increase
(23 countries)
Productivity decrease,
employment decrease
(3 countries)
Change in poverty at US$1 per day
day
Change in poverty at US$2 per day
ay
Percentage point change share of working poo
r
Source: Key Indicators of the Labour Market, fifth edition, 2007 (Geneva, ILO); Global Employment Trends Model, 2007; Working
Poor Model, 2007. High-income OECD countries excluded.
3
The World Employment Report 2004–05 found that poverty reductions were greater in countries that had
increased both agricultural productivity and employment (ILO, 2005a). For more recent analysis on agricultural
employment, see Promotion of rural employment for poverty reduction, report for the general discussion,
International Labour Conference (ILC), 2008 (ILO, 2008a).
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Skills for improved productivity, employment growth and development
23. Until recently, employment was not included in the set of targets by which progress
towards meeting international goals to reduce poverty was measured. Decent work is
now, however, more widely acknowledged to be the principal means by which people
can escape poverty. Full and productive employment and decent work for all was
therefore included in 2007 as a specific target under MDG 1 to eradicate extreme
poverty and hunger.
4
This establishes a commitment to halving between 1990 and 2015
the proportion of the world’s population living on less than US$1 a day.
24. Productivity growth, measured as the rate of growth of GDP per person employed,
is one of the four agreed indicators countries are encouraged to use to measure their
progress towards meeting this target. The other three indicators are: the ratio of
employment to population; the share of “vulnerable employment” (defined as the
proportion of own-account and contributing family workers in total employment);
5
and
the proportion of the working poor (proportion of employed people living below US$1 a
day, measured in PPP).
1.3. Skills policies for a virtuous circle: Linking
productivity, employment and development
25. The process of skills development for productivity, employment growth and
development is complex and is influenced by policies and institutions. The Human
Resources Development Convention, 1975 (No. 142), and the Human Resources
Development Recommendation, 2004 (No. 195), emphasize the roles of governments,
employers and workers and the importance of social dialogue in designing and
implementing training policies and programmes that are appropriate for country
circumstances.
1.3.1. Objectives of skills development policy
26. Countries have very different initial economic and social conditions, and different
levels of skills and competences. Effective development processes are forged from a
social contract of shared objectives to propel the economy forward, expand decent work
and raise living standards. The design, sequencing and focus of their policies need to
respond to their different levels of development. However, experience shows that all
countries that have succeeded in linking skills with productivity, employment growth
and development, have targeted skills development policy towards three objectives,
described in the following paragraphs.
27. Objective 1. Meet skills demand in terms of relevance and quality. Skills policies
need to develop relevant skills, promote lifelong learning, deliver high levels of
competences and a sufficient quantity of skilled workers to match skills supply with
demand. Furthermore, equal opportunity in access to education and work is needed to
meet the demands for training across all sectors of society. Policies designed to meet
skills demand contribute to productivity, employability and decent work because:
ɽ
enterprises can use technologies efficiently and fully exploit productivity
potentials;
4
The new target, “Achieve full and productive employment and decent work for all, including women and young
people,” was proposed to the UN General Assembly by the Secretary-General at its 61st Session (2006). Under
the MDG monitoring framework, the Inter-Agency and Expert Group on MDG Indicators, in which the ILO
participated, selected the indicators for the target on decent work. See http://mdgs.un.org/unsd/mdg/Data.aspx.
5
Own-account workers are self-employed workers who do not employ even one other person (ILO, 2007a).
8
53
Productivity, employment, skills and development: The strategic issues
ɽ
young people acquire employable skills which facilitates their transition from
school to work and smooth integration into the labour market;
ɽ
workers build up and improve competences, and develop their career in a process
of lifelong learning; and
ɽ
disadvantaged population groups have access to education, training and the labour
market.
28. Objective 2. Mitigate adjustment costs. Training policies and programmes lessen
the costs for workers and enterprises that are adversely affected by technological or
market changes. Such externally induced changes can result in enterprises adjusting,
downsizing or even closing down. Workers risk losing their jobs and their skills may
become obsolete. Upgrading skills, retraining and reskilling of workers are essential
elements of active labour market policies and facilitate reinsertion of workers into labour
markets. Policies to retrain workers and entrepreneurs proactively and prepare them for
change help to insure against job loss, reduce the risk of unemployment and re-establish
workers’ employability.
29. Objective 3. Sustain a dynamic development process. At the level of the economy
and society, skills development policies need to build up capabilities and knowledge
systems which induce and maintain a sustainable process of economic and social
development. The first two objectives of skills matching and cost mitigation take a
labour market perspective and focus on skills development as a response to technological
and economic changes; they are essentially short- and medium-term objectives. By
contrast, the developmental objective focuses on the strategic role of education and
training policies in triggering and continuously fuelling technological change, domestic
and foreign investment, diversification, and competitiveness.
30. Figure 1.3 presents an integrated framework for sustaining a dynamic skills
development process, which is explained more fully in Chapter 5. It is based on building
national ability to respond to external challenges, integrating skills development policies
into national development strategies, and the development of the following three
processes:
(1) Upgrading technologies and diversifying economic activities into non-traditional
sectors. When technological upgrading is combined with investment in non-
traditional sectors (diversification) productivity growth comes together with
employment growth in a context of accelerating technological change. While
technological change increases productivity in enterprises and value chains,
diversification into non-traditional activities creates demand for labour and new
employment opportunities.
(2) Building up the competences of individuals and the capabilities of society.
Widespread general education and occupational competences are the foundation of
social capabilities to innovate, transfer and absorb new technologies, foster
creativity and innovations, diversify the production structure into higher value
added activities, attract more knowledge-intensive domestic and foreign investment
and take advantage of global opportunities.
(3) Collecting, updating and disseminating information on current and future skills
requirements and translating this information into the timely supply of
occupational and entrepreneurial skills and competences. Throughout this process
of change, information needs to be obtained and passed on to decision-makers.
Information to better match skills demand and supply improves the efficiency of
labour markets. Accessible and reliable information on the skills that will be
9
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Skills for improved productivity, employment growth and development
needed and valued, and on the skills workers and young people are actually
acquiring, reduces uncertainties, which in turn maintains incentives and motivation
for investment in both new technologies and skills. Early identification of the skills
that will be in demand in particular growth sectors is essential for informed policy
decisions and investment choices by employers and workers. National development
strategies and skills policies need to be informed by sex-disaggregated data in order
to monitor and overcome gender bias in training and employment.
31. These three processes need to be developed simultaneously in order to establish a
virtuous circle and a sustainable process of increasing productivity, employment growth
and economic and social development. The experience of countries in aligning skills to
both productivity and employment growth is examined in Chapter 5.
32. As depicted in the central square of figure 1.3, skills development policies are not
pursued in isolation; along with technology, labour market, macroeconomic, trade and
other policies, they are an integral part of national development strategies. These
strategies reflect the aspirations of societies and, on the basis of labour standards and
institutions, make up the countries’ preparation for and response to global opportunities
and challenges (indicated in the top box of the figure). External drivers of change, such
as trade and investment, regional integration, technological advances and climate change,
offer both opportunities for growth and challenges to existing economic activities.
Workforce skills, entrepreneurship and innovation, and the ability to learn and adapt, are
among the critical social capabilities that influence competitiveness, productivity growth
and employment in the face of these challenges and opportunities. The three side bars in
the figure represent the critical processes (listed above) of a skills development policy
that can meet skills demands, mitigate adjustment costs and sustain dynamic
development processes.
1.3.2. Information and coordination challenges: A role for
government policies, institutions and social dialogue
33. Markets, if unsupported by government policies and institutions, are unable to
translate skills development effectively into productivity, employment and development.
This is due to problems affecting information, incentives and coordination. Countries
have developed different institutional frameworks in the context of their own historical,
political, economic and cultural development to overcome these problems. The challenge
for government policy is to develop and foster institutional arrangements that establish
and maintain the capacity of governments, employers, workers, schools, training
institutions and universities to respond effectively to changing skill and training needs as
well as playing a strategic and forward-looking role in facilitating and sustaining
technological, economic and social advancement. The role of institutions in improving
information, coordination and social dialogue is introduced here, and further analysis
and examples are provided in Chapter 5.
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Productivity, employment, skills and development: The strategic issues
Figure 1.3. Skills development strategy for productivity, employment and sustainable development
National development strategy
(2) Build up individual competences and
social capabilities
(3) Collect and
disseminate
information on
current and
future skills
requirements
and skills
supply
(1) Upgrade
technology
and
diversify
production
structure
(enterprises,
workplaces,
value chains)
Global opportunities and challenges
Technology policy
Macroeconomic policy
Trade and investment policy
Labour market policy
Skills development policies
Responsive (current skills demand)
Mitigative (shocks)
Strategic (development)
Forward-looking (future skills demand)
Coordinated (effectiveness)
Attention to target groups (social
inclusion)
- Foreign markets and investment
- Regional integration and agreements
- Global knowledge and new technologies
- Climate change and eco-efficiency
34. Information and incentive problems arise as a result of uncertainty regarding the
skills required in enterprises and the future returns which can be expected from
investment in training. In addition, enterprises recruiting workers cannot easily know the
skills an individual worker has acquired or know for sure whether a newly trained
worker will stay in the enterprise long enough to recover training costs. Such problems
reduce incentives for employers and workers to invest in training. Interventions need to
change the incentive structures to encourage an efficient level of investment in education
and training and effective use of skills in enterprises. Institutions such as apprenticeships,
high-performance workplaces (HPWs), accountable public training institutions and
assessment and certification systems overcome uncertainties and incentive problems.
35. Coordination problems need to be addressed at three levels:
(i) Cooperation between the various providers of skills training, such as schools,
training institutions and enterprises, is needed in order to establish coherent and
consistent learning paths. Learning is a cumulative process and competences are
created by acquiring a combination of different skills, for example, technical and
core skills (see figure 1.4) and explicit and tacit knowledge (defined in box 1.2).
This requires learning in different contexts, including classrooms, workplaces and
networks, such as families, communities, clusters or value chains. Policies and
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Skills for improved productivity, employment growth and development
institutions need to coordinate these different learning activities for effective
development of competences and lifelong learning.
Figure 1.4. Core skills and technical skills: Defining occupational and professional competences
Technical and vocational:
the possession of
appropriate technical,
vocational and/or business
knowledge and the ability to
apply this in practice,
including the planning of
tasks.
Cognitive/problem
solving:
abilities to analyse and
solve technical and/or
business-related problems
effectively using high-level
thinking skills, and to apply
methodologies.
Social:
ability to interrelate with
others, work in teams,
motivate and demonstrate
leadership, manage client
relations.
Occupational/
professional/
entrepreneurial
competence
Communication:
ability to read and write,
handle information such as
to understand graphs,
collect information,
communicate with others,
computer use, language
skills.
Learning:
ability to acquire new
knowledge, learn from
experience, openness to
new solutions and
innovations.
Vocational/technical skills
Core skills
Source: ILO, 2007i.
Personal behavioural/
ethical:
appropriate personal and
professional attitudes and
values, ability to make sound
judgments and take decisions.
Box 1.2
Implicit (tacit) and explicit knowledge
Modern theories of knowledge and learning differentiate between two forms of
knowledge with distinct properties. Knowledge about facts, events, principles and rules
(knowing “something” or “declarative” knowledge) can be articulated and codified. These
explicit forms of knowledge can easily be communicated between individual persons in a
process of teaching and learning. In contrast, “procedural” knowledge (knowing “how to
do something”) refers to a person’s capacity to apply rules and principles in a competent
way while performing a task or job (for example, knowing in theory how to ride a bicycle
does not mean the ability to ride one in practice). Procedural knowledge in combination
with declarative knowledge determines a person’s skills. Procedural knowledge is tacit in
the sense that an individual cannot describe and articulate the “knowing how to do” or
the procedure he or she follows. Tacit knowledge is implicit in skills and individuals apply
it unconsciously, but it can be observed by others during the execution of the task.
Implicit knowledge cannot be taught, but only acquired and “discovered” in a process of
observation, practice and experience. This refers to the importance of socially provided
learning at the workplace, in working side-by-side with a skilled person as well as in
social networks such as families, enterprises or communities.
Source: ILO, 2007i.
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Productivity, employment, skills and development: The strategic issues
13
(ii) Coordination between skills development and enterprises is required to match
skills supply and demand. Labour market intermediaries identify skills needs and
communicate this information to schools, training institutions and apprenticeship
systems to create the required skills. Labour market information systems or labour
market observatories, for example, identify skills needed in the economy. Public
and private employment services communicate information to workers, support job
placement, brokering and recruitment, and guide workers’ training decisions and
careers. Institutions that provide credible assessment and certification of workers’
skills help enterprises more easily recognize workers’ skills and match them with
their demand.
(iii) Coordination of skills development policies with industrial, investment, trade,
technology and macroeconomic policies is needed to effectively integrate skills
development policies into the national development strategy and to achieve policy
coherence. Building skills, competences and capabilities in society is a long-term
process and cannot be leapfrogged. A forward-looking skills development strategy
is therefore needed to ensure the timely supply of skills required in future labour
markets. Institutions need to encourage cooperation between different ministries,
ensure effective exchange of information and forecast skill needs.
36. Social dialogue and collective bargaining at the enterprise, sector or national
levels are highly effective institutions in creating incentives for investment in skills and
knowledge. They can help coordinate the skills development process and integrate skills
development into the national development strategy. Building the capability in societies
for learning and innovation – and for using skills and competencies – requires high
levels of commitment, motivation and trust. Social dialogue and collective bargaining
can build trust among institutions with common goals, create a broad commitment to
education and training and a culture of learning, and build consensus in the design and
implementation of skills development strategies. In particular, social dialogue can be a
powerful means of reconciling diverging interests and in creating support for reforms of
training systems. Furthermore, social dialogue supports policy coordination as it
provides channels for ongoing communication of information among employers,
workers and governments.
37. In addition to promoting skills development, social dialogue and collective
bargaining also promote equitable and efficient distribution of the benefits of improved
productivity. Productivity gains need to be shared between enterprises, workers and
society in a fair way in order to achieve and maintain a sustainable development
dynamic.
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