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Tuesday, January 6, 2015

How the skills gap can limit an economy

During my visits to the Kyrgyz Republic I am always surprised to talk with people who fondly reminisce about the economy during Soviet times.  Taxi drivers nostalgically describe traffic coming to a stop as factories changed shifts.  I guess I should be less surprised, given that, prior to 1991, the Kyrgyz Republic produced almost exclusively for the Soviet Union.
With the fall of the Soviet Union, much of Russia’s demand disappeared and many firms in the country closed during the 1990s. Although the industrial sector has begun a revival over the last few years – with garment shops and private enterprises expanding – the service sector now dominates in the country – accounting for approximately 54% of GDP and 64% of jobs.
Today, the Kyrgyz Republic remains a poor country with a per capita GDP in 2012 of about $1,200. More than 10% of the population has migrated abroad (mostly to Russia), and among those with jobs in the Kyrgyz Republic, almost two thirds holds an informal sector job. Output per worker is very low.
Furthermore, the last two times the country participated in the Programme for International Student Assessment (PISA), more than 80% of students tested at or below the threshold for functional literacy and similar proportions were unable to understand and process mathematics. Once the PISA test results were disseminated, the government became concerned about skills more broadly and how those skills might affect employment outcomes.
But, little was known about skills in the country!
So, in order to address this situation, we carried out a detailed, nationally representative labor market and skills survey in 2013 – interviewing 1,500 households and 7,706 individuals. This survey (a joint effort between the World Bank and GIZ) assessed cognitive and non-cognitive skills of the working age population. Cognitive skills captured the ability to use logical, intuitive and critical thinking as well as skills such as problem solving, verbal ability, and numeracy. Non-cognitive skills represented personality traits that are relevant in the labor market – including extraversion, conscientiousness, openness to experience, agreeability, and emotional stability.
So, do skills really matter? The answer is unequivocally yes. They matter in three distinct ways.
First, cognitive and non-cognitive skills correlate positively with the quality of employment: employed youth have systematically higher memory skills and non-cognitive skills than inactive or discouraged youth.  And, yes, even when other worker characteristics are constant, the effect of skills on employment outcomes holds.
Second, cognitive and non-cognitive skills correlate positively with the quality of employment. That is, individuals with higher skills are more likely to work under conditions that include an employment contract, in jobs that require less physically demanding work – the difference in physical activity is particularly apparent for women (50% of the women with low cognitive ability perform physical activities, compared with 30% among women with higher cognitive ability) – and are more likely to engage in tasks requiring higher numeracy skills, meaning that the skills are used on the job.
Third, workers with higher non-cognitive skills are also more likely to supervise other workers. Individuals with high workplace attitude (a compilation of traits including having ideas others have not previously thought of; working very hard; and enjoying working on things that take a long time to complete) are more likely to supervise the work of others. This is particularly apparent in rural areas and for men. Being more open and sociable also increases the likelihood of having contact with people beyond one’s colleagues, such as clients, customers, or students, allowing workers to increase their professional network.
The above findings led to three recommendations, which are elaborated in a recent World Bank report The Skills Road: Skills for Employability in the Kyrgyz Republic. The report argues that the government could shift some of its focus from providing access to educational institutions and instead focus on providing the skills students need to succeed as adults. The government can also do more to get children off to the right start by investing in early childhood development programs, where rates of return to investment are generally very high and important soft skills are learned.
Finally, more can be done to match the supply of skills with employer demand by improving the use of information in matching skills to jobs in the labor market.
While elements of these recommendations appear in the government’s National Sustainable Development Strategy, a long-term strategy is needed to endow its current and future workers with the kinds of skills they will need for quality 21st century jobs.
Maybe then we can worry about the traffic resulting from factory workers changing shifts.
This post was first published in collaboration with The Wold Bank’s Voices Blog. Publication does not imply endorsement of views by the World Economic Forum.
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Author: Mohamed Ihsan Ajwad is a Senior Economist in the World Bank’s Social Protection and Labor Global Practice.
Image: Workers on the assembly line replace the back covers of 32-inch television sets at Element Electronics in Winnsboro, South Carolina May 29, 2014. REUTERS/Chris Keane.