Skills for Employability in East Asia Emanuela di Gropello Skills 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

Change in wage skill premiums across sectors in four EAP countries

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 Skills 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

Time to fill skilled vacancies in EAP Time to Fill Vacancies for Professionals (weeks) Source: ICS and Skills Surveys

Difficulties to find the right skills in the Philippines and Indonesia 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)

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 Indonesia Philippines

Skill rating in Vietnam, Thailand and Malaysia Vietnam

Problem solving skills in Indonesia, Thailand and Korea Problem Solving ScaleAverage ScoresPercentage 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 Thailand Korea – PISA Scores, problem solving scale Source: PISA 2003 Results, various tables

Relevance of secondary education to labor markets needs in the Philippines Strengths / WeaknessSecondary SchoolsSecondary Vocational SchoolsNon-formal Secondary Schools StrengthsWeaknessStrengthsWeaknessStrengthsWeakness Cycle Length Teaching Quality Teacher Qualification Facilities Quality Curriculum Balance Curriculum General Curriculum Specific LM Relevance Industry Linkage Cost Other features Source: Philippines Skills Survey

Firm training in EAP AllSkilledUnskilledNon-Production Cambodia22%……… China85%……… Indonesia24% … Malaysia42% Mongolia47%19.13…… Philippines22% … Thailand76%……… Vietnam34% Korea57% 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

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