Challenges and Priorities for Skills Gap Analysis in the Western Balkans

1. Challenges and Priorities for Skills Gap Analysis in the Western Balkans Will Bartlett LSEE – Research on South East Europe London School of Economics

2. Outline • Nature of skills mismatch and skills gaps • Stylised facts in developed market economies • Transition economics and structural change • Policy conclusions RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

3. Nature of skills mismatch • Skills gaps and skill shortages refer to the overall balance of demand and supply of labour with different level of skills, leading to unemployed workers and dissatisfied employers • This can be measured by employer skill-needs surveys • Employer surveys show high levels of skill shortages in some transition economies • Skills mismatch among employees may reflect over-education (within sectors) or mis-employment (across sectors) • Sometimes referred to as vertical vs. horizontal mismatch • Measured by employee surveys, labour force surveys RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

4. Skills mismatch in developed economies • Explanations for mismatch • Bounded rationality • Imperfect information • Imperfect mobility (regional mismatch) • Mismatch as a temporary phenomenon • On-the-job training • Career mobility • Both imply that mismatch should decline with age • Main problem in developed countries seems to be skills mismatch as a result of overeducation at individual level RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

5. Overeducation and wages • Studies of over-education in developed economies find strong evidence of wage penalty associated with overeducation • On average the wage penalty for over-education is around 15% (McGuiness, 2006) • Varying from 8% in Portugal (Kiker et al. 1997) to 35% in UK (Dolton & Silles 2008) • Bumping-down • Workers with higher education take jobs which require lower skills, while lower skilled workers have higher rates of unemployment (or work in informal economy) • In contrast, in transition economies main problem is often skill gaps and shortages at sector level RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

6. Labour markets in transition economies • Intense labour market change in transition countries due to: • Collapse of former state-owned industries • Restructuring and growth of new service sectors • Globalisation and new technologies • Additionally in the Western Balkans: • Conflict and collapse of ex-Yugoslav market • All this led to problems in the labour market: • high long-term unemployment • youth unemployment • low employment rates • informal economy • deskilling of the workforce • emergence of skills gaps and shortages holding back growth RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

7. Emerging skills gaps • Main constraints to business in later stages of transition: • Infrastructure • Skills gaps and shortages • Skill needs identified in employer surveys: • Communication skills, team work skills, attitudes to work, entrepreneurship skills, ICT skills • Increased demand for such generic skills due to: • Overall rapid structural changes in supply and demand for skills • Decline of manufacturing and growth of services sector • Skills gaps are often found in the higher range of qualifications while excess supply of (inappropriate) skills found in intermediate range of qualifications RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

8. “Inadequate education is a serious obstacle to the firm” (%) RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

9. Unemployment and education (%) RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

10. Skills mismatch in transition • Because of structural change, skill mismatch is a more permanent phenomenon in transition countries than in developed economies • Mismatch increases with age of workers • Initial mismatch could be overcome by on-the-job training or career mobility, but: • Employers reluctant to spend on training their workers ‘on the job’ • Transaction costs of reskilling raised by lack of public infrastructure for life-long learning • Career mobility both between and within sectors is limited RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

11. Serbia: employee training within firms (% of firms that carry out training) RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

12. Education systems and skills gaps • Given a legacy of high level of human capital, why have skills gaps emerged? • curricula developed under former system are unsuited to post-Fordist market economy • Skills are too specialised in obsolete occupations • Education methods often out-dated (rote learning) • Lack of education in transferable skills (soft skills) • Relatively low expenditure on education • Political economy of reform in education system • Reform resistance by teaching unions • Corruption in state system reduces education quality • Growth of private tertiary education with little quality control RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

13. Public expenditure on education (% GDP) • IMF budget deficit requirements • Public expenditure on education • The crisis and austerity measures RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

14. Participation in Lifelong Learning (% of adult population aged 25-64) RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

15. Approaches to skills gap analysis • Analysis of administrative data • Used to analyse skills shortages at macro or sectoral level • Usefulness depends on quality of data collected by PES • Employer surveys • Used for analysing skills shortages at macro or sectoral level • Macro or sectoral forecasting models • Example: EU-wide analysis by CEDEFOP • Based on assumptions of equilibrium in markets • Based on projections of past behaviour into the future • Not good at dealing with rapid structural change • Employee surveys • Used for analysing skills mismatch at individual level RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

16. Skills surveys - Serbia • Statistics Office (RZS): employer survey of skills needs • Sample size: 2,500 employers • Performed only once • Other surveys (also one-off): • ILO survey on skills mismatch • USAID sector skills gap analyses in four sectors • IPA project employer survey (ongoing) • NES uses information from branch offices to develop local training programmes RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

17. Skills surveys - Macedonia • Skills Demand Survey annually since 2006 (CARDS) • Sample size: 1,500 employers (covering 4.5% of firms and 48.5% of employees) • Provides medium-term information to the Employment Agency RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

18. Skill surveys Croatia • Croatian Employment Office • Annual employer survey used to develop training programmes • USAID sector employer survey of ICT industry (2007) • Identified gap of 270 ICT specialists with university diploma each year (i.e. 42% of current number of graduates) RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

19. Policy response (i): “supply-led” approach • Estimates of current skills gaps, or forecasts of future skills gaps, should inform changes in education and training curricula • Implementation through top-down adjustment of supply of skills to demand requirements • But depends upon ability of decision makers to use this information • Numerous problems with this approach: • Lack of incentives for education system to adjust • Lack of coordination between ministries • Lack of administrative capacity to carry out skills gap analysis RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

20. Policy response (ii): “demand-led” approach • Skills gaps emerge faster than planners can change the education system implies supply-led approach may be ineffective • The alternative is a decentralised approach which empowers employers and workers to make their own decisions • Competitive ‘quasi-market’ replaces central planning • ‘Formula funding’ of schools and universities in which state funds providers on basis of their success in attracting students • Employers: training subsidies • Employees: training vouchers • Depends on also stimulating competition among providers • Reforms to permit entry of new private providers • These can be ‘social enterprises’ in order to maintain quality RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

21. Conclusion (i): uses and challenges of skills gap analyses • Uses • Providing better information for individual employers, job-seekers and careers guidance professionals • Developing new educational curricula in secondary and vocational schools • Developing participative local plans, engaging local employers and trades unions in design of new educational programmes • Challenges • Weak administrative capacities to carry out analyses • Slow certification and accreditation of new courses • Resistance to educational reforms • Unwillingness of employers to carry out on-the-job training RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

22. Conclusion (ii): policy priorities • Create coordinating institutions • Joined-up policy making between ministries of economy, labour and education • Sector skills councils bringing together social partners to make use of skills gap analyses • Build administrative capacity within PES to carry out skills gap analyses and skill forecasts • Demand-led ‘quasi-market’ approach within the public sector • To empower workers and employers skill choices • Promote competition among training providers by encouraging entry of social enterprises • Publicly financed using training vouchers for employers and unemployed workers RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011

23. Thank you for your attention! comments welcome at: w.j.bartlett@lse.ac.uk RCC Conference Sarajevo "New Skills for New Jobs" 27-28 October 2011