This means that skills and technology have to be enhanced simultaneously to ensure the sustainability of productivity growth and development.
At the early stage of technological development, it is essential to achieve a minimum level of education in the population. Technological and industrial advancement requires the broad availability of high-quality secondary education and vocational training.
Finally, the ability to innovate as well as to adopt more complex and sophisticated technologies requires technical and vocational education and training at the tertiary level, and particularly skills in research and development.
Skills development is central to improving productivity. In turn, productivity is an important source of improved living standards and growth.
Other critical factors include macroeconomic policies to maximise opportunities for pro-poor employment growth, an enabling environment for sustainable enterprise development, social dialogue, and fundamental investments in basic education, health and physical infrastructure.
Effective skills development systems – which connect education to technical training, technical training to labour market entry and labour market entry to workplace and lifelong learning – can help countries sustain productivity growth and translate that growth into more and better jobs.
We examine the challenges faced by countries at different levels of development – not forgetting their policy options. This is with a view to drawing lessons relevant for least developed, developing and industrialised countries in linking skills development systems to the current needs of labour markets and to future needs as technologies, markets, the environment and development strategies change.
We analyse how various strategies can upgrade and enhance the relevance of education and skills training as well as improve access to skills for more women and men, thus helping countries move to and foster a virtuous circle of higher productivity, employment and income growth, and development.
This catalytic role of skills development provides a succinct explanation of productivity, followed by an overview of the conceptual and empirical linkages between productivity and employment growth. It 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 involving productivity and employment is also fed through the investment side of the economy, when some productivity gains are reinvested in product and process innovations, improvements in plant and equipment and measures to expand into new markets, this in turn spurring further output growth and productivity.
The productivity of individuals may be reflected in employment rates, wage rates, stability of employment, job satisfaction and employability across jobs or industries.
Output per worker aside, the productivity of enterprises may be measured in terms of market share and export performance. Benefits to societies from higher individual and enterprise productivity may be evident in increased competitiveness and employment or in the 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 in pivoting the 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.
One: meeting skills demand in terms of relevance and quality 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.
Two: mitigating adjustment costs – in that the reorganisation 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.
Three: sustaining a dynamic development process – in that 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.
Social dialogue and collective bargainingcan 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.
Most countries in Central and Eastern Europe and the Commonwealth of Independent States started the transformation 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.
They have used 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.
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.
In 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 formalisation in many countries in part involves focusing on improving access to quality skills development outside high-growth urban areas.
It also involves 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 formalisation of small enterprises.
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.
Smaller enterprises face particular challenges in gaining access to training services and developing the technical and managerial capabilities that they need for growth.
The monitoring of skill shortages and entrepreneurial opportunities, the provision of sector- or cluster-specific training and the inclusion of entrepreneurial and trade union organisations on the management boards of training institutions can help to ensure that training is relevant and accessible to smaller enterprises.
Coordinating skills development with the adoption of new technologies and diversification into new industrial sectors can be pose challenge. Investment in human capital alone can increase the number of skilled workers, but not necessarily the number of jobs for them.
But increased technology transfer without appropriately prepared workers and managers is unlikely to sustain local job growth.
Inter-ministerial coordination, social dialogue and feedback mechanisms between the suppliers of training, workers and the suppliers of employment are important means of maintaining effective coordination.
All countries that have benefited from globalisation have invested significantly in education and training. Recent aid for trade initiatives meant to improve trade preparedness need to extend more support to education and skills development.
Social dialogue has been shown to be an effective instrument in reconciling differences on how to maximise the benefits and minimise the costs of increased participation in global markets.
Skills are critical in the structural adjustment of economies. As economies move from relative dependence on agricultural production to manufacturing and service industries, workers and enterprises need to learn new technical, entrepreneurial and social skills.
Inability to do so owing to inadequate basic education or lack of opportunity slows the transfer of all factors of production from lower to higher value-added activities.
It is thus crucial to develop more innovative ways of upgrading skills and recognizing the latent skills of people already in the workforce, even if they do not as yet have adequate basic education.
Across all countries, women are over-represented in jobs and tasks requiring fewer and lower value skills, are less highly paid and have restricted career prospects.
In most countries, women account for the majority of workers in the informal economy. This implies greater job insecurity and lack of access to training, social protection and other resources, making women more vulnerable to poverty and marginalisation.
There is thus a significant overlap between being a woman working in the informal economy and being poor, and it is a scenario to be drastically reversed, not encouraged or even tolerated.