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Skills for Employability in East Asia
Emanuela di GropelloSkills and Employability Workshop, June 8, 2009
OUTLINE
1. BACKGROUND – Study and methodology
2. CONTEXT – Trends in Demand for Skills
3. PROBLEM – Skills gaps
4. CAUSES – Demand for skills; Supply of skills; Labor market
5. SOLUTIONS - Demand for skills; Supply of skills; Labor market
BACKGROUND – Study and Methodology
Regional study on skills in East Asia – Comparative analysis of trends in demand and supply of skills; case studies
Intensive use of household, labor force and firm surveys, complemented with employer-employee skill surveys in Indonesia and the Philippines
CONTEXT – Trends in Demand for Skills
Demand for skills remains sustained in most countries:
– sustained in the Philippines, Indonesia and Thailand in spite of strong increase in supply of skills
– particularly strong in China and Vietnam– less clear-cut in Mongolia and Cambodia
Some emerging trends:– Services have become the main driver (sluggish demand in
manufacturing)– Within manufacturing: pace of technology innovation/adoption and
some measures of economic openness remain key drivers – showing evidence of SBTC -but role of exports is less clear-cut
Wage skill premiums and share of skilled workers in four EAP countries
Philippines: Skill Premium and Skilled Workforce - Basic controls only
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1988 1991 1994 1997 2001 2004 2006
Year
Ski
ll p
rem
ium
an
d p
rop
ort
ion
of
skil
led
wo
rkfo
rce
Skilled-1: At leastUpper Secondary
Skilled-2: Tertiary andabove
Skill premium-1
Skill premium-2
Indonesia: Skill Premium and Skilled Workforce - Basic controls only
00.10.20.30.40.50.60.70.80.9
1
1994 1999 2001 2003 2005 2007
Year
Ski
ll p
rem
ium
an
d p
rop
ort
ion
o
f sk
illed
wo
rkfo
rce Skilled-1: At least
Upper Secondary
Skilled-2: Tertiary andabove
Skill premium-1
Skill premium-2
Vietnam: Skill Premium and Skilled Workforce - Basic controls only
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
1992 1998 2004 2006
Year
Ski
ll p
rem
ium
an
d
pro
po
rtio
n o
f sk
illed
w
ork
ers
Skilled-1: At least UpperSecondary
Skilled-2: Tertiary andabove
Skill Premium-1
Skill Premium-2
Thailand: Skill Premium and Skilled Workforce- Basic controls only
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1990 1994 2000 2004
Year
Ski
ll P
rem
ium
an
d
Pro
po
rtio
n o
f S
kille
d
Wo
rker
s
Skilled-1: UpperSecondary and above
Skilled-2: Tertiary andabove
Skill Premium-1
Skill Premium-2
Change in wage skill premiums across sectors in four EAP countries
Chart 1: Indonesia - Change in un-standardized weighted industry and skill premia by sector: 1996-2007
-0.06-0.05-0.04-0.03-0.02-0.01
00.010.020.030.04
1 3 5 7 9 11 13 15 17 19
Industry
Cha
nge
Change in Ind Premium
Change in Skill premium
Chart 4: Vietnam - Change in un-standardized weighted industry and skill premium by sector: 1992-2006
-0.02
0
0.02
0.04
0.06
0.08
0.1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Industry
Ch
ang
e
Change in Industrypremium
Change in Skillpremium
Table 5: Cambodia - Change in un-standardized weighted industry and skill premium by sector: 1997-2007
-0.1
-0.05
0
0.05
0.1
0.15
1 2 3 4 5 6 7 8 9
Industry
Ch
ang
e
Change in Industrypremium
Change in Skillpremium
Chart 2: Philippines- Changes in un-standardized weighted industry and skill premium by sector: 1988-2006
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
1 3 5 7 9 11 13 15 17 19 21
Industry
Ch
ang
e
Change in Industrypremium
Change in Skillpremium
Share of Skilled Workers: Cross-country Correlation by Foreign Ownership
VNM
KHM
THA
IDN
MYS
PHL
CHN
0
10
20
30
40
50
60
0 10 20 30 40 50 60
Non-Foreign-Owned
For
eign
-Ow
ned
Share of Skilled Workers: Cross-country Correlation by
Technological Intensity
VNM
KHM
THA
IDN
MYS
PHL
CHN
KOR
0
10
20
30
40
50
60
0 10 20 30 40 50 60
Non-Technologically Innovative
Tec
hn
olo
gic
all
y I
nn
ov
ati
ve
Share of Skilled Workers: Cross-country Correlation by Export Status
KHMVNM
THA
IDN
MYS
PHL
CHN
KOR
0
10
20
30
40
50
60
0 10 20 30 40 50 60
Non-Exporting Firms
Exp
orti
ng F
irm
s
CONTEXT – Trends in Demand for Skills
Difficult in the current environment to predict future demand but emerging trends, increasing pressures to diversify and employers/employees’ perceptions suggest higher need for:
– Skills applicable to the service sector Behavioral skills, service-related careers
– Combination of job specific and generic skills Importance of analytical thinking, leadership skills and behavioral skills
– Practical knowledge of the job – Skills to help manufacturing firms adapt technological innovations
and compete internationally Importance of creative thinking, business skills
CONTEXT – Trends in Demand for Skills0.54
0.70
0.64
0.32 0.32
0.47
0.31 0.32
0.24
0.11
0.1
.2.3
.4.5
.6.7
.8.9
1
Manager/Professional Skilled Worker
Basic Skills (math and literacy) Thinking Skills
Behavioral Skills Computer Skills
English Skills
Source: Employer Skill Survey (2008)
Share of firms rating workers' skills 'very important'
4.11
28.31 24.66
42.92
01
0203
0405
0
Unimpo
rt
Fairly
impo
rt
Impo
rt
Very i
mpo
rt.
Dealing with people
8.676
25.1133.79 32.42
01
0203
0405
0
Unimpo
rt
Fairly
impo
rt
Impo
rt
Very i
mpo
rt.
Creative thinking
8.676
31.51 34.2525.57
01
0203
0405
0
Unimpo
rt
Fairly
impo
rt
Impo
rt
Very i
mpo
rt.
Reading and basic math
21 17.81
30.14 31.05
01
0203
0405
0
Unimpo
rt
Fairly
impo
rt
Impo
rt
Very i
mpo
rt.
Using computers
Source: Employee Skill Survey (2008)
Importance of various skills on the job
0 5 10 15 0 5 10 15
Computer
Language
Writing
Math
Initiative
Time management
Literacy
Teamwork
Negotiation
Creativity
Independent work
Communication
Leadership
Problem solving
Computer
Language
Writing
Leadership
Math
Negotiation
Initiative
Creativity
Literacy
Problem solving
Time management
Communication
Teamwork
Independent work
Managers Prod/SalesKey Core Skills Key Core Skills
PercentGraphs by occupation
0 5 10 15 20 25 0 5 10 15 20 25
Voc-tech qual
Foreign degree
Technical qual
Sec diploma
Exp diff field
Grades
General exp
Theory
Exp same field
Local degree
Practical
Foreign degree
Voc-tech qual
Technical qual
Exp diff field
Grades
Sec diploma
General exp
Local degree
Theory
Exp same field
Practical
Managers Prod/SalesKey Job-Specific Skills Key Job-Specific Skills
PercentGraphs by occupation
Indonesia
Philippines
PROBLEM – Skill Gaps for Employability
Skills are seen as a bottleneck by a significant share of firms in several countries
– In particular in technologically intensive firms, exporting firms
Vacancies for skilled workers are hard to fill in several countries – In particular in exporting firms, and service sector for higher level
positions in some countries (see Indonesia, Philippines)
…but youth unemployment and/or employment in under-qualified/low-productivity jobs is also an issue in some countries
– See Indonesia, the Philippines, Mongolia and Vietnam
Share of Firms Reporting Skills of Workers as an Obstacle, in East Asia, by Country
0%
10%
20%
30%
40%
50%
60%
70%
SouthKorea
Cambodia
Laos
Philippines
Mala
ysia
Vietnam
Indonesia
Mongolia
Thailand
China
Major or VerySevereObstacle
Moderate,Major, VerySevereObstacle
Share of Firms Reporting Skills of Workers as an Obstacle, by Region
0%
5%
10%
15%
20%
25%
30%
35%
Middle Eastand North
Africa
East Asia &Pacific
Sub-saharanAfrica
Latin America& Caribbean
Europe &Central Asia
Europe HighIncome
South Asia
Share of Firms Reporting Skills of Workforce as an Obstacle, by Exporting Intensity
Mongolia
ChinaThailand
Vietnam
MalaysiaLaos
Indonesia
Philippines
CambodiaSouth Korea
0%
10%
20%
30%
40%
50%
60%
70%
0% 10% 20% 30% 40% 50% 60% 70%
Non-Exporting Firms
Exp
ortin
g Fi
rms
Time to fill skilled vacancies in EAP
Time to Fill Vacancies for Professionals (weeks)
0
1
2
3
4
5
6
7
Cambodia China Indonesia Malaysia Mongolia Philippines Thailand Vietnam Korea,Republic
Source: ICS and Skills Surveys
Difficulties to find the right skills in the Philippines and Indonesia
Difficulty Finding Right Skills - Sector
0.0 10.0 20.0 30.0 40.0 50.0 60.0
Directors/Managers
Professionals
Administrative
Sales workers
Skilled Production
Unskilled workers
% Saying Very and Rather Difficult
Manufacturing Services
22.21
58.38
11.227.078
1.109
14.85
46.82
14.7120.32
3.301
12.57 10.96
59.04
17.42
2.365
24.83
12.68
42.76
17.37
2.854
23.31
5.923
52.71
15.2
3.852 2.367
32.95
60.83
02
04
06
08
00
20
40
60
80
Very d
ifficu
lt
Rathe
r diffu
cult
Neithe
r eas
y nor
diff
icult
Rathe
r eas
y
Very e
asy
Very d
ifficu
lt
Rathe
r diffu
cult
Neithe
r eas
y nor
diff
icult
Rathe
r eas
y
Very e
asy
Very d
ifficu
lt
Rathe
r diffu
cult
Neithe
r eas
y nor
diff
icult
Rathe
r eas
y
Very e
asy
Director Professional Administrative
Sales Production Unskilled
Source: Employer Skill Survey (2008)
Degree of difficulty of matching needs with available skills
Philippines
Indonesia
CAUSES – What are the causes?
Possible causes for these skill gaps can include:
– Demand-side factors (demand for skills)– Supply-side factors (supply of skills)– Broader labor market issues
Employers across the region offer some insights, pointing to:
– Insufficient quality and relevance of skills and skill supply – Job turnover, low starting wages, emigration of skilled workers in
some cases– Much less emphasis on other reasons (but quantity issues
mentioned in Vietnam)
0.27
0.30
0.35
0.30
0.26
0.23
0.30 0.30 0.30
0.20
0.1
.2.3
.4
Manufactures Non education services
Source: Employer Skill Survey (2008)
Share of firms identifying variable as important or extremely important
Causes of skills shortage
Too few students trained locally Low quality of local training
Job turnover Low starting wages
Emigration of skilled
Reasons for Skill Shortages - Sector
0 5 10 15 20 25 30 35 40
Quantity Education Training
Quality Education Training
Staff job turnover
Starting pay too low
Emigration skilled workers
Other reasons
% Very or Extremely Important
Manufacturing Services
Percentage of Firms Pointing Out to Each Factor as One of Main 3 Causes for Vacancies
0
10
20
30
40
50
60
70
80
90
ApplicantsDemand VeryHigh Wage
Univ. NotProduceSufficientNumber
Graduates
Applicants NotHave Required
Basic Skills
Applicants NotHave RequiredTechnical Skills
No Applicantsfor Unskilled
WorkersPosition
High Turnoverof New Recruits
Thailand Malaysia
Indonesia
Philippines
Thailand/Malaysia
CAUSES – Demand for Skills
Demand for skills is sustained in the region and should therefore not be a big obstacle
…but it may not be strong enough to absorb out-of-school and unskilled workers who get skilled
Demand for skills has been changing (focus on service sector; increasing need for work-related generic skills; etc) generating skills mis-matches as the supply of skills has still not adapted
CAUSES – Supply of Skills
Quality and relevance are the main constraints: Gaps in leadership skills, problem solving, foreign language,
and practical knowledge of the job Lack of relevance and responsiveness to labor market needs of
formal education (curriculum and pedagogical relevance) Low quality of skills training programs and growing but still
limited opportunities of skills upgrading in several countries
Quantity is not a central constraint at this point –with the exception of Vietnam and China But the still limited opportunities of skill development for the
unskilled may hinder the provision of sufficient skills as demand grows
Re-training needs in Indonesia and gaps in core skills in the Philippines
47.02
30.63
10.86
01
02
03
04
05
0
Source: Employer Skill Survey (2008)
(average, by age group)
Share of staff in need of training
Under 30 Between 30 & 45 Over 45
0 5 10 15 0 5 10 15
Language
Literacy
Writing
Computer
Math
Communication
Independent work
Teamwork
Creativity
Problem solving
Leadership
Negotiation
Initiative
Time management
Literacy
Math
Teamwork
Writing
Computer
Language
Creativity
Independent work
Communication
Negotiation
Time management
Leadership
Initiative
Problem solving
Managers Prod/SalesGaps in Core Skills Gaps in Core Skills
PercentGraphs by occupation
Indonesia
Philippines
Skill rating in Vietnam, Thailand and Malaysia
Generic Skills
Very Good Good Partially satisfactory Unsatisfactory
Percentage of Managers Ranking Local Skilled Production
Workers as Having Poor Skills
0
10
20
30
40
50
60
70
80
90
100
Thailand Malaysia
Vietnam
Problem solving skills in Indonesia, Thailand and Korea
Problem Solving Scale Average Scores Percentage of Students in Top Scale
Variance in Problem Solving scale explained by parents occupational status
Variance in problem solving capabilities explained by parents' HISCED
Indonesia 361.0 0.0 10.2 2.8
Thailand 425.0 3.0 9 7.2
Korea 550.0 32.0 4.5 6.6
– PISA Scores, problem solving scale
Source: PISA 2003 Results, various tables
Relevance of secondary education to labor markets needs in the Philippines
Strengths / Weakness Secondary Schools Secondary Vocational Schools Non-formal Secondary Schools
Strengths Weakness Strengths Weakness Strengths Weakness
Cycle Length 12.6 5.5 10.2 9.6 8.1 11.6
Teaching Quality 11.1 8.1 10.7 8.8 9.5 10.3
Teacher Qualification 11.3 7.7 10.6 8.9 10.6 9.4
Facilities Quality 9.2 11.3 8.6 12.5 8.4 11.4
Curriculum Balance 11.3 7.7 9.9 10.2 10.0 9.9
Curriculum General 12.1 6.3 9.8 10.3 10.5 9.5
Curriculum Specific 9.3 11.2 11.6 7.2 11.4 8.6
LM Relevance 7.6 14.0 10.5 9.1 10.2 9.8
Industry Linkage 6.8 15.5 9.2 11.4 8.6 11.2
Cost 8.5 12.5 9.1 11.5 12.4 7.7
Other features 0.2 0.3 0.1 0.6 0.3 0.4
Source: Philippines Skills Survey
Firm training in EAP
All Skilled Unskilled Non-Production
Cambodia 22% … … …
China 85% … … …
Indonesia 24% 64.22 29.88 …
Malaysia 42%
Mongolia 47% 19.13 … …
Philippines 22% 26.59 13.04 …
Thailand 76% … … …
Vietnam 34% 45.19 28.37 27.88
Korea 57% 63.16 55.79 53.61
Percentage of firms offering formal training for permanent employees
Source: ICS
CAUSES – Labor Market
While labor markets regulations in EAP tend to be relatively flexible, some evidence of rigidities and segmentation:
– formal/informal (Indonesia, Philippines)– public/private sector (Vietnam, China)– across economic sectors (Philippines)
…but more analysis needed on wage/benefit determination and nature of segmentation
Limited recruitment practices - leading to small pools of qualified applicants - is also an issue in some countries:- see Vietnam and Indonesia
.17 .16
.082
.36
.47
.035
.087 .084
0.1
.2.3
.4.5
Source: Employee Skill Survey (2008)
Main method for finding a job
Newspaper ad Vacancy notice Internet Employer recommend.
Private network Employ service Via school / job fair Promot. within firm
0.3
0.2
0.10.0
0.5
0.8
0.0 0.10.1 0.1
0.2
0.1
.2.3
.4.5
.6.7
.8.9
1
Source: Employer Skill Survey (2008)
(Share of affirmative responses)
Normal method for filling vacancies
Newspaper ad Vacancy posted outside firm
Internet Job fair
Recommend. by current employees Private networks
Public employment service Private employment service
Through recruiters Contact w. schools
Internal promotions
Employers and employees’ recruitment strategies in Indonesia
SOLUTIONS – Demand for Skills
Future trends in demand difficult to predict but higher supply of skills in some sectors may help drive demand up in the medium-long run
Most important: get better data on employment opportunities and skills in demand
– More use of tracer surveys– Develop career orientation services– Incorporate employer-employee employment and skill
modules in firm surveys– Extend firm surveys to service sector
SOLUTIONS – Supply of Skills
One size does not fit all –underlying policy and market failures are different requiring different actions…but there are some key principles:
Flexibility Diversity Demand-orientation Efficiency
Improve responsiveness of formal education system by: decreasing institutional rigidities (autonomy) facilitating further private sector entry (where it is still limited) developing school/university-industry linkages learning across education tracks
SOLUTIONS – Supply of Skills
Support multiples paths to skill development: Overall:– Increase traditionally low financial support – Provide policy framework to address
fragmentation– Complete national qualification frameworks (see
skill standardization, testing and certification in China, Philippines and Thailand)
SOLUTIONS – Supply of Skills
Non-formal education/second-chance: Set up Equivalency Programs (Philippines, Indonesia, Cambodia)
Skills training: Involve private sector Use skills training vouchers’ programs Consider Skill Development/Training Funds for firms (Thailand,
Malaysia, Singapore)
LLL out of the workplace: Set up more effective funding strategies (education savings accounts
for adult learners, learning tax credits, etc) More emphasis on life skills in curriculum (Japan, Malaysia)
SOLUTIONS – Labor Market
Be more innovative on strategies to find the right skills: diversified practices use more intensively existing employees by re-training or task re-
allocation/work sharing train and hire undergraduates – see DTS in the Philippines
Improve understanding on labor markets in EAP
Consider more intensive use of Active Labor Market programs – including job mediation services, job training, wage subsidies