JOBS NOTES Issue No. 5 MEASURING SKILLS DEMANDED BY EMPLOYERS : SKILLS TOWARD EMPLOYMENT AND PRODUCTIVITY (STEP) KEY MESSAGES ¬ Employers face difficulties when recruiting new ¬ Innovative firms experience significantly more workers due to a “lack of required skills in problems in recruiting staff and are more critical candidates.” Employers are somewhat more of the current skills levels of workers than positive about the qualifications of white-collar traditional firms. Innovative employers also report workers when compared to blue-collar workers. a higher skill intensity for both worker types and higher provision of training. ¬ Large shares of employers find that the general education and Technical and Vocational Education ¬ In most countries surveyed, only a few firms report and Training (TVET) systems do not provide regular interactions with education and training individuals with the required “practical” skills, and institutions. These interactions are primarily consider these institutes as a constraint on the focused on serving employers’ short-term needs— operation and growth of their business. for example, with recruiting. ¬ Employers in all countries surveyed attach the ¬ Employers largely rely on in-firm training rather most value to the job-specific technical skills of than external training to upgrade the skills of their their workers. current employees. ¬ White-collar workers use more skills day-to-day than blue-collar workers. The incidence and level of complexity of computer use are also higher for white-collar workers. BACKGROUND Economic growth depends on skills being put challenges to be an impediment to the operation to productive use. In recent years, research on and development of their business. A cause for labor outcomes and education shows that there further concern is that this constraint seems to be is a substantial mismatch between the supply and disproportionately affecting the more dynamic and demand for skills around the world (Cappelli, 2014: innovative employers, signifying a potentially negative McIntosh and Vignoles, 2001). This mismatch impact on job creation and technological progress affects more than just wages or individual job (World Bank, 2012). satisfaction. Skills mismatches have an impact on productivity and growth at both the firm level and Identifying the most relevant competencies and the macro-economic level (Quintini, 2014). Reports employable skills will help inform labor force show that firms around the world consider skills and education policy. Current data that measure 1 demand for skills are largely based on the “stated Table 1 Countries surveyed in STEP ES Wave 1 and 2 preferences” of the employers surveyed. However, this approach does not provide enough evidence to show what skill set workers actually value or utilize in their Survey Sample Economic Country role (Cunningham, Villaseñor, and World Bank, 2014). Year Size Sectors It exposes the need to capture data that could suggest the “revealed preference” employers have for a 300 certain skill—for example, when deciding to retain an Azerbaijan 2013 firms employee beyond the probation period. It also exposes the need to identify the skills that existing employees 600 use most regularly. This information could be used Sri Lanka 2012 firms Wave 1 to guide policies targeted at skills development for the current workforce, re-employment strategies, preparation of workers entering the job market, and 300 Non-public Vietnam 2012 so on (Peterson et al., 2001). firms Secondary and Tertiary The Skills Toward Employment and Productivity Yunnan sector (STEP) Program Employer Survey (ES) aims to 300 Province, 2012 enterprises firms contribute knowledge and inform policies to China improve the alignment between skills supply and demand. Tools developed for the STEP Program 400 Armenia 2013 include an Employer Survey (ES), designed to identify firms Wave 2 demand for skills and constraints using data from employers; and a Household Survey, developed 400 to measure the generic skills of the working-age Georgia 2013 firms population. This Jobs Note features an overview of the main findings from the STEP Employer Survey, Wave 1 and 2, in six countries (see Table 1). employers also report that their firms face a greater The STEP Employer Survey is designed to enable challenge hiring adequately skilled white-collar a better understanding of how employers view workers than blue-collar workers. The exception is the skills and characteristics of their workers, Yunnan Province, China, where employers reported a and the challenges employers face in recruiting slightly higher challenge recruiting blue-collar workers workers with the desired skills. The survey collects with required skill sets Results from Armenia and information on the skills that employers look for when Vietnam are illustrated in Figure 1. they recruit staff, the skills that staff most often apply, Substantial shares of employers across all the countries the skills-related constraints that employers face, surveyed report hiring difficulties in general—with and the way employers attempt to mitigate skills the highest share being 95 percent of sampled firms constraints, such as through training and exchanges in Yunnan Province, China, for both white- and with education and training providers. blue-collar workers (Figure 2). A notable exception The survey also captures firm characteristics, the is Georgia, where fewer firms, sampled from the environment in which employers operate, and the tourism, construction, IT, and telecommunication structure of their workforce. industries, found hiring to be a challenge. There is a negative attitude toward the general education and TVET systems among employers, LEARNING HOW EMPLOYERS VIEW JOB primarily because they believe these institutions MISMATCH IN THE ECONOMY are unable to produce candidates with the requisite Employers report that a lack of sufficiently skilled “practical skills.” There is also concern regarding a job candidates poses the greatest constraint lack of up-to-date knowledge and the general level of on recruitment. Across most countries surveyed, skills conveyed. It is worth noting, however, that few 2 employers feel that these systems produce graduates Figure 1 Applicants lacking required skills as the greatest recruitment challenge, lacking “good attitudes;” the focus of their criticism Armenia and Vietnam is on job-specific technical skills (Figure 3). 100 Employers reporting hiring constraints, as well as PERCENTAGE OF EMPLOYERS (%) those more critical of their workers’ qualifications, 80 are more likely to consider the general education and 60 TVET systems as “problematic.” This was true across all countries surveyed. 40 A substantial share of employers across countries 20 surveyed feel that the general education system and 0 the TVET system, in particular, pose a constraint to WHITE-COLLAR BLUE-COLLAR WHITE-COLLAR BLUE-COLLAR the operation and growth of their firms. The lowest ARMENIA VIETNAM share of employers holding this view is in Vietnam, APPLICANT LACKED SKILLS but even there, as many as 48 percent and 58 percent WAGE EXPECTATIONS NUMBER OF APPLICANTS of surveyed employers regard general education and WORKING CONDITIONS TVET, respectively, as posing constraints. Compared to other labor constraints, however, the general education and TVET systems vary in significance. Figure 2 Substantial recruiting problems reported across all countries surveyed Finding workers with previous experience is a significant labor constraint on business operation 100 PERCENTAGE OF EMPLOYERS (%) and growth. This difficulty in finding experienced 80 workers is the top constraint in all countries surveyed except Armenia, where payroll taxes are considered 60 a greater deterrent. This may also suggest further 40 dissatisfaction with the level of skills the workforce currently possesses, as well as indicate a potential 20 unwillingness to provide employees with training 0 upon hiring. GEORGIA AZERBAIJAN ARMENIA SRI LANKA VIETNAM YUNNAN Among other constraints to doing business, such WHITE-COLLAR BLUE-COLLAR as tax rates and political uncertainty, the perceived impacts of labor constraints vary substantially among the countries surveyed. Figure 3 Employer perceptions of where general education and TVET systems fall short, Armenia IDENTIFYING SKILLS VALUED BY EMPLOYERS: THE RIGHT SKILLS FOR THE JOB PRACTICAL SKILLS Employers prioritize UPDATED KNOWLEDGE job-specific technical skills when they make LEVEL OF SKILLS retention decisions for both white- and KIND OF SKILLS blue-collar workers. The secondary criteria GOOD ATTITUDE for retaining new hires vary among worker types 0 20 40 60 80 (Figure 4). Across all countries surveyed, leadership PERCENTAGE OF EMPLOYERS (%) skills and numeracy skills are ranked as most important TVET to retaining white-collar workers. For blue-collar GENERAL EDUCATION 3 workers, communication skills and the ability to work Table 2 Skills measured by the STEP Employer Survey independently are most valued. When asked to compare job-relevant skills against Category Skills personality traits and personal characteristics, employers Job-Related Skills ∂ Reading and writing rank job-relevant skills such as communication and problem-solving on the job relatively higher. This ∂ Numeracy result was the same across all countries surveyed. An ∂ Reading and writing in interesting difference is that although preferences English / other foreign follow the same ranking pattern for the two types of language workers, personal characteristics play a more pivotal ∂ Job-specific technical role than personality traits for blue-collar workers. The skills (including ICT skills) range of skills captured by the STEP Employer Survey ∂ Communication has been provided in Table 2. ∂ Leadership Unsurprisingly, white-collar workers use a larger ∂ Teamwork number of skills and apply them more regularly ∂ Creative and critical in their jobs. This holds true across almost all thinking countries surveyed, with the exception of Yunnan ∂ Problem solving Province, where blue-collar workers are reported to require the use of an equally high number of skills ∂ Working independently in their roles (Figure 5). A ranking of skills most used ∂ Time management on the job reveals the top skills to be teamwork, numeracy, and, to a lesser extent, reading. This holds Personality Traits ∂ Conscientiousness true for both types of workers. (does a thorough job, is hard-working, does The survey goes further to determine if these patterns things efficiently) exist in firms of different sizes. It finds that for white- ∂ Emotional stability collar workers, skills usage for each identified skill (is relaxed and handles typically increases as firm size increases, but for stress well, doesn’t worry blue-collar workers, the patterns of skill intensity and or get nervous easily) firm sizes vary across countries surveyed. For example, ∂ Agreeableness in Vietnam, blue-collar workers’ use of mathematics is (forgives other people higher in smaller firms (47 percent) than in larger firms easily, is considerate and (25 percent) (Figure 6a and 6b). This pattern varies kind, is polite) with each identified skill and by country surveyed. ∂ Extraversion Both the incidence and the level of complexity (is talkative, assertive of computer use are also higher for white-collar outgoing, and sociable) workers across all countries surveyed. The ∂ Openness to experience complexity of computer use also increases with firm (is original and comes up size in all countries surveyed, with the exception of with new ideas, has an Armenia and Yunnan Province, where it is relatively active imagination) higher in medium-sized firms. Both of these patterns are captured for the share of workers who are required Personal ∂ Age to use a computer as part of their daily role Figures 7a Characteristics ∂ Appearance and 7b illustrate results from Sri Lanka. ∂ Ethnicity ∂ Gender ∂ Family relations or personal ties 4 Figure 4 Figure 5 The importance of job-specific skills for the retention of white- and blue- Skills usage on the job by white- and blue-collar workers, Armenia collar workers, Vietnam TECHNICAL SKILLS TEAMWORK LEADERSHIP PROBLEM SOLVING MATHEMATICS CRITICAL THINKING READING COMMUNICATION WORKING INDEPENDENTLY PROBLEM SOLVING NUMERACY PRESENTATIONS TEAMWORK FOREIGN LANGUAGE WRITING LITERACY FOREIGN LANGUAGE TIME MANAGEMENT 0 1 2 3 4 0 20 40 60 80 100 RELATIVE RANKING (INDEX) SHARE OF WORKERS (%) WHITE-COLLAR WHITE-COLLAR BLUE-COLLAR BLUE-COLLAR Figures 6a and 6b Figures 7a and 7b Skills usage by firm size for each worker type, Sri Lanka and Vietnam Incidence of computer use and level of complexity for each worker type in large, medium, and small firms, Sri Lanka 100 100 SHARE OF WORKERS (%) 80 SHARE OF WORKERS (%) 80 60 60 40 20 40 0 PROBLEM SOL. PROBLEM SOL. FOREIGN LANG. FOREIGN LANG. READING MATH PRESENTATIONS TEAMWORK READING MATH TEAMWORK WRITING WRITING PRESENTATIONS 20 0 LARGE MEDIUM SMALL SRI LANKA VIETNAM WHITE-COLLAR WORKERS LARGE WHITE-COLLAR MEDIUM BLUE-COLLAR SMALL 100 50 PERCENTAGE OF EMPLOYERS (%) SHARE OF WORKERS (%) 80 40 60 30 40 20 20 0 PROBLEM SOL. PROBLEM SOL. FOREIGN LANG. FOREIGN LANG. READING MATH TEAMWORK WRITING PRESENTATIONS READING MATH PRESENTATIONS TEAMWORK WRITING 10 0 LARGE MEDIUM SMALL LARGE MEDIUM SMALL WHITE-COLLAR BLUE-COLLAR SRI LANKA VIETNAM STRAIGHTFORWARD WHITE-COLLAR WORKERS LARGE MODERATE MEDIUM COMPLEX SMALL SPECIALIZED 5 Figure 8 CAPTURING REQUIREMENTS FOR Skill intensity for workers in innovative and traditional firms, Georgia INNOVATIVE FIRMS READING Skill intensity is higher WRITING WHITE-COLLAR for both worker types in MATH innovative firms across PROBLEM SOLVING all countries surveyed. FOREIGN LANGUAGE The share of workers PRESENTATIONS TEAMWORK applying skills regularly is reported to be higher in READING innovative firms. However, a few specific skills are WRITING BLUE-COLLAR exceptions, such as writing skills among white-collar MATH PROBLEM SOLVING workers and teamwork and use of foreign languages FOREIGN LANGUAGE among blue-collar workers. These skills are reportedly PRESENTATIONS used more often in traditional firms. Figure 8 illustrates TEAMWORK the results from Georgia. 0 20 40 60 80 100 PERCENTAGE OF EMPLOYERS (%) INNOVATIVE The same is the case with the level and complexity TRADITIONAL of computer use as illustrated in Figure 9 (showing results from Yunnan Province). Workers tend to Figure 9 The complexity of computer usage by worker type in innovative and use computers more regularly in innovative firms, traditional firms, Yunnan Province and more of the use is typically for specialized and complex tasks, compared with traditional firms, where 100 PERCENTAGE OF EMPLOYERS (%) usage is reported to be more straightforward or only 80 moderately complex. 60 “Critical thinking” is a unique skill that innovative 40 firms value more highly than traditional firms 20 when retaining new recruits for both worker types. 0 For white-collar workers, innovative firms attach INNOVATIVE TRADITIONAL INNOVATIVE TRADITIONAL importance to technical skills, teamwork, and critical WHITE-COLLAR BLUE-COLLAR thinking. Similarly, for blue-collar workers, the skills SPECIALIZED these firms generally value more are critical thinking COMPLEX MODERATE and leadership. STRAIGHTFORWARD Significantly, innovative firms are more exposed Figure 10 Comparison of innovative and traditional firms reporting recruitment than traditional ones to recruiting constraints, problems across all countries surveyed across all countries surveyed, when seeking 100 white-collar workers. This observation also holds for PERCENTAGE OF EMPLOYERS (%) recruiting blue-collar workers in all countries surveyed 80 (Figure 10) except Azerbaijan, where traditional 60 employers found recruiting for these positions a greater constraint. In the case of Azerbaijan, 40 this observation is determined for all enterprises 20 except those in these sectors: land, water, and air transportation; wood processing; pulp and paper; 0 YUNNAN VIETNAM SRI LANKA AZERBAIJAN ARMENIA GEORGIA YUNNAN VIETNAM SRI LANKA AZERBAIJAN ARMENIA GEORGIA tobacco manufacturing; and recycling. WHITE-COLLAR BLUE-COLLAR INNOVATIVE TRADITIONAL 6 Figure 11 LEARNING IF AND HOW EMPLOYERS ARE Share of innovative and traditional employers regularly contacting general SUPPLEMENTING THEIR TRAINING NEEDS education and TVET institutes, Georgia and Azerbaijan Across most countries 18 PERCENTAGE OF EMPLOYERS (%) surveyed, less than 25 15 percent of employers 12 have regular interactions with education and 9 training providers. The 6 only exception is Yunnan 3 Province, where close to 60 percent of employers have linkages with such institutes. Effective interactions 0 WHITE-COLLAR BLUE-COLLAR WHITE-COLLAR BLUE-COLLAR with education and training providers are considered GEORGIA AZERBAIJAN essential for improving the alignment of the demand INNOVATIVE for and supply of skills. However, in most countries TRADITIONAL surveyed, the share of employers engaging with Figure 12 these institutes ranges from 4 to 22 percent, and Reasons behind firms contacting general education and TVET institutes, the engagement is most often related to white-collar Yunnan Province and Armenia workers. (Figure 11, showing results from Georgia and 100 Azerbaijan). PERCENTAGE OF EMPLOYERS (%) 80 Moreover, these interactions are primarily focused on serving employers’ short-term needs, such as recruiting, 60 work placements, and employee training. Far fewer 40 firms engage in curriculum development or student testing—that is, in efforts to structurally improve the 20 quality and relevance of the supply of skills. Figure 12 0 illustrates results from Yunnan Province and Armenia. WHITE-COLLAR BLUE-COLLAR WHITE-COLLAR BLUE-COLLAR YUNNAN PROVINCE ARMENIA Compared to traditional employers, innovative RECRUITMENT employers have more regular interactions with training WORK PLACEMENT TRAINING OF STAFF institutes. In Georgia, innovative employers are four CURRICULUM DEVELOPMENT times as likely as traditional ones to have this contact. STUDENT TESTING Innovative firms provide significantly more Figure 13 internal and external training to their employees Incidence of internal and external training in innovative and traditional firms, Azerbaijan and Yunnan Province than traditional firms. This difference between 100 PERCENTAGE OF EMPLOYERS (%) innovative and traditional firms is most pronounced concerning external training opportunities. An 80 interesting exception is Yunnan Province, where 60 internal training for both types of workers is 40 approximately equally common in traditional and innovative firms (Figure 13). 20 0 WHITE-COLLAR BLUE-COLLAR WHITE-COLLAR BLUE-COLLAR WHITE-COLLAR BLUE-COLLAR WHITE-COLLAR BLUE-COLLAR POLICY APPROACHES TOWARD CLOSING SKILLS GAPS AND REDUCING SKILLS MISMATCH INTERNAL EXTERNAL INTERNAL EXTERNAL Skills have a direct impact on job productivity. The AZERBAIJAN YUNNAN PROVINCE right skills are essential for an efficient labor market INNOVATIVE geared to improving outcomes for both employers TRADITIONAL 7 and workers. The overall skills development and schooling provides the foundation for future skills utilization system must be flexible and responsive to development. Individuals need access to relevant and the demands of employers. Cohesive policies must practical training opportunities in order to improve therefore be developed to reduce the skills gaps, skills their competency. This also creates pathways for shortages, and degree of mismatch in the current unemployed individuals to become upskilled or labor market. reskilled to enter alternate careers. Employers can play an active role in improving skills levels in the economy Comprehensive labor market information is and within their own firms. Governments can also necessary to understand job creation trends play an active role in financial and technical assistance, and counter the recruitment constraints that providing resources for strategic planning and training employers face. Based on the results from the STEP needs assessments, and developing training policies Employer Survey, while skills gaps exist, they seem to for the general education and TVET systems. affect job creation (hiring of new applicants) significantly more than productivity (skills gaps within the current Looking to the future, efforts are needed to workers)—implying a high degree of mismatch. enable and facilitate innovation. High skill levels result in increased productivity, leading to an Labor market information (LMI) is required to guide improved scope for innovation—which in turn leads student career choices and ensure individuals’ to job creation. Accelerating technological change optimal educational investment. There is a need to and a shifting economy structure changes production involve employers and recruiters in the process of and skills needs. By identifying and connecting with informing employment trends, discussing their need innovative employers who are involved in adopting and expectations, and becoming partners in skills new technologies, new processes, new products, development. Governments can play a critical role and new services, reported skills needs can inform in both generating and distributing labor market policies. Public-private partnerships can help create information (LMI) through a network of institutions and strengthen skills supply channels. and centers created to use this knowledge in a meaningful way. This approach can also ensure that the skills profiles of workers are responsive to demand. Employer interaction and alignment with general education and TVET systems need to increase, with a focus on curriculum development and student testing for essential skills. Initial This Jobs Note was prepared by Maria Laura Sanchez Puerta (msanchezpuerta@worldbank.org), Senior Economist (Global Practice Social Protection and Labor, World Bank Group), and Anam Rizvi, Consultant (Jobs Group, World Bank Group). Issues highlighted here can be further investigated by researchers and policy makers interested in using survey tools to discuss skills availability and needs in the labor and education policy contexts. The Jobs Note draws on the STEP Employer Survey Snapshot (2016)—Sanchez Puerta, Maria Laura; Valerio, Alexandria; Hoftijzer, Margo; Rizvi, Anam; Avato, Johanna. 2016. Employer Survey Snapshot 2016: Highlights from Six Low and Middle-Income Countries. World Bank, Washington, DC, World Bank. For further details on the STEP Skills Measurement Program: http://microdata.worldbank.org/index.php/catalog/step/about For the STEP ES country reports: http://microdata.worldbank.org/index.php/citations/?collection=step 8