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Better understanding of skills mismatch is essential to finding effective policy options
Evidence suggests that productivity would be much higher and unemployment much lower if the supply of and demand for skills were better matched. As a result, skills mismatch between workers (supply) and jobs (demand) commands the ongoing attention of policymakers in many countries. Policies intended to address the persistence of skills mismatch focus on the supply side of the issue by emphasizing worker education and training. However, the role of the demand side, that is, employers’ rigid skill requirements, garners comparatively little policy attention.
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Choosing the right performance measures can
inform and improve decision-making in policy and management
Measuring workers’ productivity is important
for public policy and private-sector decision-making. Due to the lack of a
general measure that captures workers’ productivity, firms often use one- or
multi-dimensional performance measures, which can be used, for example, to
analyze how different incentive systems affect workers’ behavior. The public
sector itself also uses measures to monitor and evaluate personnel, such as
teachers. Policymakers and managers need to understand the advantages and
disadvantages of the available metrics to select the right performance
measures for their purpose.
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Cost–benefit surveys of employers help design
more effective training policies
Apprenticeship training programs typically last
several years and require substantial investments by training firms, largely
due to the associated labor costs for participants and instructors.
Nevertheless, apprentices also add significant value in the workplace. One
tool to measure the costs and benefits of training for firms is employer
surveys, which were first introduced in the 1970s in Germany. Such
cost–benefit surveys (CBS) help to better understand a firm's demand for
apprentices and to identify market failures. Therefore, CBS are an important
tool for designing effective training policies.
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Job search training and occupational skills
training are both effective
Time plays an important role in both the design
and interpretation of evaluation studies of training programs. While the
start and duration of a training program are closely linked to the evolution
of job opportunities, the impact of training programs in the short and
longer term changes over time. Neglecting these “dynamics” could lead to an
unduly negative assessment of the effects of certain training schemes.
Therefore, a better understanding of the dynamic relationship between
different types of training and their respective labor market outcomes is
essential for a better design and interpretation of evaluation studies.
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Training programs that meet the learning needs
of older workers can improve their employability
The labor market position of older workers is
cause for concern in many industrialized countries. Rapid population aging
is challenging pension systems. The recent economic crisis has forced many
older adults out of the workforce, into either pre-retirement or
non-employment. Encouraging people to work longer and fostering the
employability of older workers have become priorities for policymakers.
Training specifically designed for older workers might help attain these
goals, since it may refresh human capital and reduce the pay–productivity
gap. Training older workers might also benefit employers and society as a
whole.
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Firm-sponsored training benefits both workers
and firms through higher wages, increased productivity and innovation
Workers participating in firm-sponsored training
receive higher wages as a result. But given that firms pay the majority of
costs for training, shouldn’t they also benefit? Empirical evidence shows
that this is in fact the case. Firm-sponsored training leads to higher
productivity levels and increased innovation, both of which benefit the
firm. Training can also be complementary to, and enhance, other types of
firm investment, particularly in physical capital, such as information and
communication technology (ICT), and in organizational capital, such as the
implementation of high-performance workplace practices.
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Why spending on occupational skills can yield
economic returns to employers
Economists have long believed that firms will not
pay to develop occupational skills that workers could use in other, often
competing, firms. Researchers now recognize that firms that invest in
apprenticeship training generally reap good returns. Evidence indicates that
financial returns to firms vary. Some recoup their investment within the
apprenticeship period, while others see their investment pay off only after
accounting for reduced turnover, recruitment, and initial training costs.
Generally, the first year of apprenticeships involves significant costs, but
subsequently, the apprentice's contributions exceed his/her wages and
supervisory costs. Most participating firms view apprenticeships as offering
certainty that all workers have the same high level of expertise and
ensuring an adequate supply of well-trained workers to cover sudden
increases in demand and to fill leadership positions.
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Cognitive skills are more relevant in explaining earnings,
socio-emotional skills in determining labor supply and schooling
Common proxies, such as years of education, have been shown to
be ineffective at capturing cross-country differences in skills acquisition, as well as the
role they play in the labor market. A large body of research shows that direct measures of
skills, in particular cognitive and socio-emotional ones, provide more adequate estimations of
individuals’ differences in potential productive capacity than the quantity of education they
receive. Evidence shows that cognitive skills in particular are quite relevant to explain
wages, while socio-emotional skills are more associated with labor force and education
participation decisions.
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A financially literate workforce helps the
economy, but acquiring the needed skills can be costly
The level of financial literacy in developed
countries is low and contributes to growing wealth inequality. Benefits from
increasing the level of financial literacy include more effective saving for
retirement and better debt management. However, there are significant costs
in terms of time and money of acquiring financial literacy, which imply that
the net value of acquiring financial literacy is heterogeneous in the
population. This potentially makes designing effective interventions
difficult.
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Increasing the availability of high-quality job
opportunities can reduce recidivism among released prisoners
The majority of individuals released from prison
face limited employment opportunities and do not successfully reintegrate
into society. The inability to find stable work is often cited as a key
determinant of failed re-entry (or “recidivism”). However, empirical
evidence that demonstrates a causal impact of job opportunities on
recidivism is sparse. In fact, several randomized evaluations of
employment-focused programs find increases in employment but little impact
on recidivism. Recent evidence points to wages and job quality as important
determinants of recidivism among former prisoners.
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