The demand for skills in the labour market is strongly influenced by technological, economic, social and industrial changes. To give just a few examples, over the past decades we have witnessed major improvements and advances in automation, robotics and artificial intelligence (AI). At the same time, we have also seen the beginning of the transition to a low-carbon economy and the rise of the gig economy. The OECD (2017) refers to these transformative forces, which have the potential to lead to long-term changes in the organisation of society and the economy, as megatrends. The concept of a megatrend can be useful in analysing and anticipating the consequences of these changes, helping policymakers to address the challenges and seize the opportunities they present.

It is important to emphasise that while these changes have the potential to create value across sectors and new job opportunities, they will also displace some workers. According to a set of simulations carried out by Manyika and Sneader (2018), around 15% of the global workforce is at risk of job displacement between 2016 and 2030.

These changes lead to a continuous shift in the skills required by the labour market and open the door to the concept of changing skills needs, which refers to the continuous evolution of the skills demanded by the labour market. It’s easy to think that the first challenge is related to the concept of skills mismatch, defined by ILO (2020) as a mismatch between the skills demanded by employers and the skills possessed by individuals. The two main institutions involved are education and the labour market, and in a situation of skills mismatch it’s possible that people have not been trained with the skills demanded by the labour market, or that the economy is not able to create jobs that match individuals' skills. The ILO (2020) identifies four types of skills mismatch, of which the first three are more related to changing skill needs:

• Skills gap: workers lack the skills required to do the job effectively.

• Skills obsolescence: workers lose their skills due to a lack of use or megatrends.

• Skills shortages: employers are unable to find workers with the right skills.

• Over/under-skilling: workers have skills that are above or below those required for a particular job.

How to face the new challenges?

How can policymakers address the problems of skills mismatch and the changing skills needs? To confront effectively changing skills needs, it is necessary to identify the emerging megatrends. Doing so will help to understand the skills that will become more important in the labour market and to implement proactive measures aimed at acquiring, developing, and upgrading these skills. Actions that can be taken include upskilling (improving existing skills), reskilling (acquiring new skills for a different job) and engaging in lifelong learning to stay up to date and adaptable in the face of evolving workforce requirements.

The first problem is to identify the skills that will be crucial in the near future. What are the tools and instruments that policymakers can use? Skills assessment and anticipation is a common strategy in labour market analysis, for example, the Bureau of Labor Statistics in the United States began to include occupational projections in its handbooks in the 1960s (OECD 2016), while the European Union established the European Centre for the Development of Vocational Training (CEDEFOP) in 1975 to support the development of vocational education and training in Europe and in helping countries develop skills assessment and anticipation exercises. The reliability of these exercises depends on the quantity and quality of information available as well as on the improvement of the analytical tools. This ranges from conventional skills surveys and skills forecasts to automated methods based on AI and big data (CEDEFOP 2021).

Once the policymakers have a body of reliable empirical evidence in their hands, what kind of policies should they design to meet the challenges of skills change? Following the suggestion of Manyika and Sneader (2018), there are at least three main areas on which policymakers can act:

• advancing educational systems;

• promoting investment in human capital;

• developing welfare instruments.

The first area of intervention involves changes in national education systems that can be implemented at the secondary level. It would be important to involve employers in the design of vocational education and training (VET) curricula, as they are in a better position to ensure that it is in line with labour market needs and there are (or will be) enough vacancies (OECD 2017). Moreover, as most of the changes are related to automation, robotics and AI, one possible solution could be to improve STEM skills in compulsory education.

The second area of intervention is clearly linked to the first, but it is treated separately due to being related to lifelong learning. As stated in the Executive Summary of the OECD Skills Outlook (OECD 2021, 16):

“Lifelong learning is key for individuals to adapt and succeed in labour markets and societies shaped by longer life expectancy, rapid technological advances, globalisation and demographic change, as well as sudden shocks such as the COVID-19 pandemic.”

As emphasised by the OECD (2021), when designing policies based on the lifelong learning approach, policymakers should bear in mind that it requires a “lifewide” and lifelong perspective, following individuals from the cradle to the grave. In a rapidly changing world, lifelong learning is the best way to address the problem that skills acquired in formal education can become obsolete more quickly than in the past. This can be particularly problematic for adult learning, as very few adults participate in formal or non-formal learning activities: 60% of highly educated adults and only 20% of those with low education.

How to create a responsive Adult Learning System

What are the policy tools that can be used to create an adult learning system that is truly responsive to changing skills needs? According to the OECD (2019), the main levers than can be used fall into three categories:

• guidance for individuals;

• incentivises for providers; 

• support for employers.

The first category is about the provision of guidance and information on training and labour market needs, particularly for those workers who are more vulnerable to job displacement. These programmes should be combined with financial incentives and time off work to support participation. At the same time, adult learning providers need to keep their courses up to date to meet the needs of the labour market. Providers could be more generously funded if the training provided is geared towards in-demand skills and occupations. As the workplace is an important place for adult learning, employers should also be supported to provide training opportunities for their employees (e.g., funding to hire external consultants to identify training needs and find a suitable provider). This is particularly important for small and medium-sized enterprises, which tend to have difficulties in anticipating their skills needs and providing appropriate training. 

Finally, policymakers should also consider the option of using welfare instruments to mitigate the potential negative consequences (i.e., job displacement) of technological and economic change. In the event of a sharp rise in unemployment, a conditional transfer or basic income scheme can be considered to provide a safety net for affected workers. In this way, these workers will have the necessary support to adapt to the changing demand for skills.

References

CEDEFOP (2021). Understanding technological change and skill needs: skills surveys and skills forecasting. Cedefop practical guide 1. Luxembourg: Publications Office.

Manyika and Sneader (2018). AI, automation, and the future of work: Ten things to solve for. McKinsey Executive Briefing, accessed 21/08/2023 from here.

OECD (2016). Getting Skills Right: Assessing and Anticipating Changing Skill Needs. OECD Publishing, Paris.

OECD (2017). Getting Skills Right: Good Practice in Adapting to Changing Skill Needs: A Perspective on France, Italy, Spain, South Africa and the United Kingdom. OECD Publishing, Paris.

OECD (2019). Getting Skills Right: Creating responsive adult learning systems. OECD Publishing, Paris.

OECD (2021). OECD Skills Outlook 2021: Learning for Life. OECD Publishing, Paris.

ILO (2020). What is skills mismatch and why should we care? Online article, accessed 21/08/2023 from here.

About the author

Loris Vergolini is Assistant Professor at the University of Bologna and Affiliated Researcher at FBK-IRVAPP. His research interests include counterfactual impact evaluation, with a focus on policies aimed at reducing inequalities in educational opportunities, the study of the skills demanded by the labour market and social stratification.