CHAPTER 2
Better Skills, Better Jobs, Better Lives
Andreas Schleicher
Skills transform lives, generate prosperity, and promote social inclusion everywhere. And if there is one lesson the global economy has taught us over the last few years, it is that we cannot simply bail ourselves out of a crisis, that we cannot solely stimulate ourselves out of a crisis, and that we cannot just print money to get out of a crisis. A much stronger bet for countries to grow themselves over the long term is to equip more people with better skills to collaborate, to compete, and to connect in ways that drive our economies forward.
If there is one central message emerging from the Organization for Economic Cooperation and Development’s new Survey of Adult Skills, it is that what people know and what they do with what they know has a major impact on their life chances (Exhibit 2-1). For example, across countries, the median hourly wage of workers scoring at level 4 or 5 in literacy—who can make complex inferences and evaluate subtle truth claims or arguments in written texts, is more than 60% higher than for workers scoring at level 1 or below, that is, workers who can, at best, read relatively short texts to locate a single piece of information that is identical to the information given in the question or directive or who can understand basic vocabulary. Those with low literacy skills are also more than twice as likely to be unemployed. The survey also shows that this impact goes far beyond earnings and employment. In all 23 countries surveyed, individuals with poorer foundation skills are far more likely than those with advanced literacy skills to report poor health, to believe that they have little impact on political processes, and not to participate in associative or volunteer activities. The United States is a case in point: Almost a third of low-skilled adults in the United States report having poor or fair health, and the odds of having low levels of health are four times higher for low-skilled adults than for those with the highest skills. That ratio is higher than that for nearly any other surveyed country, and double the across-country average. At the aggregate level, too, the distribution of skills relates closely to how the benefits of economic growth are shared among individuals and social groups.
Exhibit 2-1. Likelihood of positive social and economic outcomes among highly literate adults (2012).
Increased likelihood (odds ratio) of adults scoring at Level 4/5 in literacy on the OECD Survey of Adult Skills reporting high earnings, high levels of trust and political efficacy, good health, participating in volunteer activities and being employed, compared with adults scoring at or below Level 1 in literacy (adjusted)
Notes: Odds ratios are adjusted for age, gender, educational attainment and immigrant and language background. High wages are defined as workers’ hourly earnings that are above the country’s median.
Source: Based on data from the Survey of Adult Skills (PIAAC) 2012.
So in one way, skills have become the global currency of 21st-century economies. But this “currency” can depreciate as the requirements of labor markets evolve and individuals lose the skills they do not use. For skills to retain their value, they must be continually developed throughout life.
Furthermore, the toxic coexistence of unemployed graduates and of employers who say that they cannot find the people with the skills they need underlines that more education does not automatically translate into better economic and social outcomes. To succeed with converting education into better jobs and lives, we need to better understand what those skills are that drive outcomes, ensure that the right skill mix is being learned, and help economies to make good use of those skills.
The essential starting point is anticipating and responding to the evolution of skill demands. Government and business need to work together to gather evidence about skill demands, present and future, which can then be used to develop up-to-date instructional systems and to improve education and training systems. During the past few decades there have been major shifts in the economic underpinnings of industrialized countries and, more recently, of many emerging and developing countries, too. In countries such as the United States, the steepest decline in skill demands is no longer in the area of manual skills, but rather in routine cognitive skills. When we can access the world’s knowledge on the Internet, when routine skills are being digitized or outsourced, and when jobs are changing rapidly, accumulating knowledge matters less, and success becomes increasingly about ways of thinking (creativity, critical thinking, problem solving, and judgment), about ways of working (collaboration and teamwork), and about the sociocultural tools that enable us to interact with the world.
The OECD’s Programme for International Student Assessment (PISA) is an attempt to measure schooling outcomes in these terms. It looks at the capacity of 15-year-old students not just to reproduce what they have learned, but to extrapolate from what they know and apply their knowledge in novel situations. The results show that a comparatively large proportion of 15-year-olds in the United States do not acquire even a minimum level of skills in key domains such as mathematics, reading, and science.
Early deficiencies in initial education and training will not go away by themselves. Indeed, the OECD Survey of Adult Skills shows that the performance of the initial schooling system is closely linked to adult skills. Between 2000 and 2009, 15-year-old students in the United States tended to score below the across-country average in the PISA assessment of both literacy and numeracy. Consistent with this findingyoung adults (now in their late teens or twenties) scored below average in the Survey of Adult Skills. Weak basic skills (literacy and numeracy) are now more common in the United States than in many other countries. One in six U.S. adults (about 36 million) have weak literacy skills; in Japan, the comparable figure is one in 20 (Exhibit 2-2). Nearly one third of U.S. adults have weak numeracy skills as compared with an across-country average of 19%. Looking at stronger performers, while one in nine U.S. adults score at the highest level in literacy, similar to the across-country average, only one in 12 score at the highest numeracy level, well below the average. Even in problem-solving skills in technology-rich environments, which are central to the success of the U.S. economy, adults in the United States do not outperform the across-country average.
Exhibit 2-2. Literacy proficiency among adults.
Percentage of adults scoring at each proficiency level in literacy.
Countries are ranked in descending order of the mean score in literacy.
Notes: Adults in the missing category were not able to provide enough background information to impute proficiency scores because of language difficulties, or learning or mental disabilities (referred to as literacy-related non-response).
Source: Survey of Adult Skills (PIAAC) (2012), Tables A2.1 and A2.2a.
What is troubling, too, is that there have been few signs of improvement in basic skills in the United States. Today in the United States, adults demonstrate similar or weaker literacy skills on the Survey of Adult Skills than did adults in the mid-1990s, and the average basic skills of young adults are not hugely different from those of older persons. This contrasts with some other countries such as Finland, South Korea, and Japan, where younger adults score well above their older compatriots—and well above young adults in the United States.
What is also noteworthy is how much information literacy and numeracy skills vary for individuals with similar qualifications, both within the United States and when comparing the United States with other countries. Although the Survey of Adult Skills assesses only some components of the knowledge and skills certified by educational qualifications, proficiency in literacy, numeracy, and problem solving represent outcomes that are expected to be developed through formal education. Irrespective of any other outcomes, the differences in the extent to which graduates of similar qualifications differ in their proficiency in information processing skills between countries are striking. In the United States, as in a number of other countries, the Survey of Adult Skills shows that actual skill levels differ markedly from what data on formal qualifications suggest. For example, the United States ranks much higher internationally in the proportion of 25- to 34-year-olds with college degrees than in the literacy or numeracy skills of the same age group. Even more striking is that a large share of Japanese 25- to 34-year-olds who have completed only high school do as well as a large share of U.S. college graduates (Exhibit 2-3).
There are many reasons why the skills people currently have may differ from the formal qualifications they once attained. People may have moved on and acquired new skills since they completed their formal education or lost some skills developed in their formal education that they did not use. Indeed, the longer the time since a person completed his or her education, the weaker the direct relationship between his or her formal education and proficiency, and the greater the role of other factors that may affect proficiency, such as the work or social environment. In other words, a 55-year-old’s experience in formal education is likely to have less of a direct influence on his or her proficiency than that of a 26-year-old. Furthermore, the quality of education may also have changed considerable over the decades, even within the same country, so that individuals with ostensibly the same qualifications or level of attainment may have had very different educational experiences. And again, educational qualifications typically encompass a much wider range of competencies than literacy or numeracy skills.
Exhibit 2-3. Distribution of literacy proficiency scores and education
Mean literacy proficiency and distribution of literacy scores, by educational attaintment
Source: Based on data from the Survey of Adult Skills (PIAAC) 2012.
Finally, social background matters more in the United States than in other countries. Socioeconomic background, parental education level, and literacy skills are more strongly linked in the United States than in any other country with comparable data. Race and ethnicity are also important: 35% of black adults and 43% of Hispanic adults have low literacy skills, compared with only 10% of white adults. For Hispanics, recency of migration makes a difference; U.S.-born Hispanics score on average higher than black adults, whereas foreign-born Hispanics score lower. Racial differences in skills remain even among adults with similar levels of education. More positively, however, the link between socioeconomic background and skills is weaker among young adults in the United States.
All of these considerations are important, because individuals who have low levels of skills due to a lack of access to good-quality education, a lack of success in education, or a lack of opportunity to improve their skills later on are much more likely to have poor employment and social outcomes, and more so in the United States than in other countries.
Although many of these findings are worrying, another finding, more positively, suggests some pathways of opportunity: 63% of low-skilled adults in the United States are employed, more than in other countries. This means that strong workforce development measures could reach many of the low skilled. Stronger basic skills also tend to be rewarded with better chances of employment and higher wages, even when taking educational attainment into account. The wage reward for basic skills is higher in the United States than in almost any other surveyed country, so the incentives to strengthen basic skills are strongly present.
One area where the United States could learn from countries such as Denmark, Germany, and Switzerland is in education, and specifically shifting more of the premium in education from qualifications-focused education up-front to skills-oriented learning throughout life. OECD’s Learning for Jobs analysis shows that skill development is far more effective if the world of learning and the world of work are linked. Compared with purely government-designed curricula taught exclusively in schools, learning in the workplace enables people to develop “hard” skills on modern equipment, and “soft” skills, such as teamwork, communication, and negotiation, through real-world experience. The experience of these countries also suggests that hands-on workplace training is an effective way to motivate disengaged youths to re-engage with education and smooth the transition to work. They succeed in preventing youths from dropping out of school by offering more relevant education and second-chance opportunities, and by offering work experience to young people before they leave school. Employers have an important role in training their own staff, even if some small and medium-sized enterprises get public assistance to provide such training. Trade unions in these countries also help to shape education and training, protect the interests of existing workers, ensure that those in work use their skills adequately, and see that investments in training are reflected in better-quality jobs and higher salaries.
Preparing young people for entry into the labor market with up-front education and training is only one facet of skills development; working-age adults also need to develop their skills so that they can progress in their careers, meet the changing demands of the labor market, and maintain the skills they have already acquired. A wide spectrum of full- or part-time adult-learning activities needs to be available, such as work-related employee training, formal education for adults, second-chance courses to obtain a minimum qualification or basic literacy and numeracy skills, language training for immigrants, labor-market training programs for job seekers, and learning activities for self-improvement or leisure.
According to the Survey of Adult Skills, participation rates in adult education and training are higher in the United States than in most other countries at all skill levels, which is encouraging. However, there is more that can be done to dismantle barriers to participation in continued education and training. First, making the returns on adult education and training more transparent can help to increase the motivation of users to invest in adult education and training. Governments can provide better information about the economic benefits (including wages, employment, and productivity) and other benefits (including self-esteem and increased social interaction) of adult learning.
Second, less educated individuals tend to be less aware of education and training opportunities or may find the available information confusing. A combination of easily searchable, up-to-date online information and personal guidance and counseling services to help individuals define their own training needs and identify the appropriate programs is needed, as is information about possible funding sources.
Third, clear certification of learning outcomes and recognition of non-formal learning (outside of formal education programs) are also incentives for training. Transparent standards, embedded in a framework of national qualifications, should be developed alongside reliable assessment procedures. Recognition of prior learning (especially on the job or from other informal learning settings) can also reduce the time needed to obtain a certain qualification and thus the cost of forgone earnings.
Fourth, it is important to ensure that programs are relevant to users and are sufficiently flexible, both in content and in how they are delivered to adapt to adults’ needs. A number of countries have recently introduced one-stop-shop arrangements, with different services offered in the same institution. This approach is particularly cost-effective as it consolidates infrastructure and teaching personnel and makes continuing education and training more convenient. Distance learning and the open educational resources approach have significantly improved users’ ability to adapt their learning to their lives.
Cross-border skills policies are important too. Countries may not have an adequate supply of skills because they have booming emerging sectors and not enough people trained in those fields, because their societies are aging and there are too few young people to replace retiring workers, or because they want to move major parts of the economy to higher value-added production, which requires a well-trained workforce. Similarly, while skills policies are typically designed nationally, an increasing number of employers operate internationally. Some countries have begun to invest in the skills of people abroad. This has the double advantage of providing well-trained workers to branches of firms located abroad and reducing the incentives to emigrate, especially among highly skilled individuals.
International student mobility has increased dramatically over the past years but it is a much more diverse market than a decade ago, and no country in the industrialized world has seen a more rapid decline in the market share of international graduates than the United States. The advantage of international students for host-country employers is that they have a qualification that can be easily evaluated. Many of them also work part-time during their studies, allowing them to develop ties with the host-country society and labor market, which in turn facilitates their transition from learning to work. To make better use of this source of skills, several OECD countries have eased their immigration policies to encourage international students to remain after their studies for employment. The overall stay rate varies, averaging 25% in 2008–2009 among international students who did not renew their student permits in OECD countries.
Also, while skills policies are typically designed nationally, an increasing number of employers operate internationally and must derive their skills from both local sources and the global talent pool. Some countries, therefore, have started to consider skills policies beyond their national borders and have begun to invest in the skills of people in other countries. This has the double advantage of providing well-trained workers to branches of firms located abroad and reducing the incentives to emigrate, especially among highly skilled individuals. Another way to encourage skills development globally is to design policies that encourage cross-border post-secondary or tertiary education. This can help a country to expand its stock of skills more rapidly than if it had to rely on domestic resources alone.
And yet, building skills is still the easier part; far tougher is providing opportunities for young people to use their skills. Employers may need to offer greater flexibility in the workplace. Labor unions may need to reconsider their stance on rebalancing employment protection for permanent and temporary workers. Enterprises need reasonably long trial periods to enable employers to give those youths who lack work experience a chance to prove themselves and to facilitate a transition to regular employment. The bottom line is that unused human capital represents a waste of skills and of initial investment in those skills. As the demand for skills changes, unused skills can become obsolete, and skills that are unused during inactivity are bound to atrophy over time. Conversely, the more individuals use their skills and engage in complex and demanding tasks, both at work and elsewhere, the more likely it is that those skills will not decline due to aging.
But even developing skills and making them available to the labor market will not have the desired impact on the economy and society if those skills are not used effectively. The OECD Skills Survey shows that, in some countries, skills mismatch is a serious challenge that is mirrored in people’s earnings prospects and in their productivity. Knowing which skills are needed in the labor market and which educational pathways will get young people to where they want to be is essential. Skills mismatch on the job can be a temporary phenomenon; for example, the demand for skills takes time to adjust to the fact that there is a larger pool of highly skilled workers available. Thus, not all types of skills mismatch are bad for the economy. Skills surpluses, which can result from an underuse of skills in specific occupations, can serve as a skills reserve that may be used in other, more advanced jobs and for building knowledge economies over the long term. However, the mismatch between workers’ skills and their tasks at work can adversely affect economic and social outcomes. The underutilization of skills, in specific jobs in the short- to medium-term, can be a problem because it may lead to skills loss. Workers whose skills are underused in their current jobs earn less than workers who are well matched to their jobs and tend to be less satisfied at work. This situation tends to generate more employee turnover, which is likely to affect a firm’s productivity. Under-skilling is also likely to affect productivity and, as with skills shortages, slow the rate at which more efficient technologies and approaches to work are adopted.
Successful entry into the labor market at the beginning of a professional career has a profound influence on later working life. The scarring effects of a poor start can make it difficult to catch up later. Strong basic education, in conjunction with vocational education and training programs that are relevant to the needs of the labor market, tend to smooth the transition from school to work; so do hiring and firing rules that do not penalize young people compared with other groups, and financial incentives that make it viable for employers to hire young people who require on-the-job training. Such policies can help prevent skills mismatch and unemployment later on.
High-quality career guidance services, complemented with up-to-date information about labor-market prospects, can help young people make sound career choices. Some countries also have effective active labor-market measures, such as counseling, job-search assistance, and temporary hiring subsidies for low-skilled youths, and they link income support for young people to their active search for work and their engagement in measures to improve their employability.
None of this will work unless skills become everyone’s business: governments, which can design financial incentives and favorable tax policies; education systems, which can foster entrepreneurship as well as offer vocational training; employers, who can invest in learning; labor unions, which can ensure that investments in training are reflected in better-quality jobs and higher salaries; and individuals, who can take better advantage of learning opportunities. Countries also need to take a hard look at the financing of education and job training. Governments need to design financial incentives and tax policies that encourage individuals and employers to invest in continuing education and training. In countries where tertiary education is financed entirely through public funds, some individuals may shoulder more financial burden for their own tertiary education. Conversely, in countries where high levels of tuition fees pose barriers for access to tertiary education, income-contingent loans and means-tested grants can help to improve access and progression.
It is worth getting this right. If the industrialized world would raise its learning outcomes by 25 PISA points, to the level of improvement that we have seen in a country like Brazil or Poland over the last decade, its economies could be richer by over 40 trillion euros over the lifetime of today’s students. Many countries still have a recession to fight, but the opportunity cost of low educational performance is the equivalent of a permanent economic recession.