Report

Skills development is key to more inclusive trade

Over recent decades, the global economy has experienced a profound transformation, mostly as a result of the joint forces of trade integration and technological progress, accompanied by important political changes. Increased trade integration has helped to drive economic growth in both high- and low-income economies, lifting millions out of poverty in emerging and developing countries. Since the global financial crisis of 2007–08, however, trade, productivity and income growth have decelerated. At the same time, trade is increasingly perceived as leaving too many individuals and communities behind.

Reaping the benefits from global trade and effective integration into global markets goes hand in hand with the adoption of new technologies, improved forms of work organization and productivity increases. Given the role of skills in trade, it is vital to put a strong emphasis on skills development. Human capital is one of the principal enablers of trade growth and economic diversification, and is also an important “buffer” facilitating the adjustment to more open trade. Appropriate skills development policies are key to helping firms expand their export activities; they are also key to helping workers who lose their jobs make a smooth and rapid transition to new jobs with equal or higher wages. These two effects reinforce each other. For trade to grow, it needs to be more inclusive; and more exports offer more employment opportunities.

Skills development policies constitute one among many policy instruments available to governments to make trade inclusive by enabling firms and workers to participate in trade, by lowering adjustment costs and by distributing more evenly the benefits of trade and technological progress. Other active labour market policies (ALMPs), such as job-search assistance or activation strategies, passive labour market policies such as unemployment insurance, and social policies, as well as complementary policies such as housing or credit market policies, can also be used to lower adjustment costs, while various instruments are available to redistribute the gains from trade or technology to those whose skills are less in demand because of those changes.

An appropriate skills supply increases gains from trade and improves their distribution
An adequate response of the supply of skills to changes in the demand can substantially improve overall labour market outcomes. For instance, skills upgrading in reaction to, or in anticipation of, increasing demand can dampen the impact of trade on wage differences and instead increase the employment shares of skilled workers. Skills mismatches, on the other hand, can amplify the impact of trade on the skill premium, lead to higher unemployment for certain skill groups and constrain expansion of successful firms through shortages of certain skills. Recent studies provide indirect evidence that the differences between the skills of workers who lose jobs and the skills required by expanding firms, and therefore skills mismatches, may be substantial.
Both education policies and incentives in the labour market shape the way people invest in their education. Addressing this area is a long-term process. Continuing education and training, both at universities and in the form of technical and vocational education and training (TVET), and on-the-job training, can help workers cope with the big changes in demand for skills which are in varying degrees triggered by globalization.

There is room for countries at all stages of development to adjust their responses. The need and scope for less developed countries to adjust is greater, but even for developed countries the challenges of adjusting to trade-connected shocks to employment may heighten the priority they place on skills development with a view to inclusive trade.

Important principles that may be helpful for responding effectively to skills needs related to trade include the following:

ƒ Policy coherence: Connecting trade and skills policies requires coherence in policy between these and related policy areas.
ƒ Social dialogue: This is central to making skills systems responsive to the needs of industry, including those industries producing tradable goods and services.
ƒ Broad access to education, skills development and lifelong learning: Low-skilled workers, workers who lack transferable skills, workers whose learning skills are weak, and workers whose skills are at risk of obsolescence benefit less from trade and are vulnerable to technological change or to a trade-connected employment shock.
ƒ Targeted training for displaced workers and/or workers at risk of displacement: Reskilling may be required to allow workers to move to a different occupation or a significantly different job, whether because their original job became unnecessary or because change offers a good opportunity.
ƒ Investing in training for employed workers: Training for workers at all skill levels is a necessary part of implementing effective strategies, in order to underpin the capabilities needed in markets for tradable products and services. Addressing impediments to adequate investment in skills by and for micro-, small and medium-sized enterprises (MSMEs) is especially important in strengthening value chains, including domestic supply chains, and in ensuring inclusive access to training for the workers they employ.
ƒ Core work skills: Strong core work skills, such as team working and problem- solving, are a vital underpinning for employability, and for business performance,complementing the technical skills required for specific types of jobs. Strong core work skills across the labour force contribute to the inclusiveness of growth, and provide a good starting point for offsetting the tendency of trade to widen wage inequality.
ƒ Skills needs analysis and anticipation: Tradable industries are especially subject to changing skills needs. Forward-looking skills needs analysis and skills anticipation are needed to inform policy coherence and social dialogue, and to inform decision-making by all relevant partners.
ƒ Labour market information (LMI) and employment services: Effective LMI and employment services systems are required to provide and communicate the information that all actors need to inform their thinking and decision-making. Employment services also have a broader role in training displaced workers and in matching them to available jobs.
ƒ Quality and relevance in skills development: In order to meet industry skills needs, education and training for skills development has to meet appropriate quality standards, and its content must be relevant to the needs of the industry that it aims to meet.

Skills development is not the only available type of response. Migration, internally within a country or between countries, can also play a role. Where there are skills shortages, measures to increase participation in the labour force, for example through promoting higher female participation can also contribute to the solution. Sometimes, better recognition of existing skills is also part of the solution. Systems for recognition of prior learning (RPL) can make the availability of existing skills more visible to employers, benefiting both employers short of skills and workers in need of work, and easing workers’ access to continuing education.

Chosen excerpts by Job Market Monitor. Read the whole story at Investing in skills for inclusive trade Skills for Employment

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