Continuing Education and Training: Key to Labour Market Participation, Productivity and Inclusion
Text1: Jörg Peschner, Simone Rosini, Directorate-General for Employment, Social Affairs and Inclusion, European Commission
While educational performance in the EU has improved since 2010, there are still skill mismatches and shortages. The lack of skill is often the result of social disadvantages that still exclude many from acquiring the human capital necessary. In a fast-evolving digitalised environment, this may bear new social risks. Ensuring access to education, continuing education, training and retraining for all remains a top priority even more in light of the corona crisis.
The European social model aims to improve the skills base in order to boost employment and competitiveness and improve living conditions. While efforts to strengthen human capital have been made throughout the history of the European Union, the need to further develop and modernise continuing education and training (CET) remains crucial for tackling skills shortages and mismatches and ensuring just transitions.2 Skills development plays a key role in the implementation of the European Pillar of Social Rights.
The merits of skills and qualifications
Investment in education and skills yields significant returns for the economy, for workers and for society overall:
- From an economic perspective through higher productivity and higher GDP. For instance, simulation results for Germany show that improving workers’ employability through firm subsidies that incentivise the provision of training at the workplace yields high returns from a macroeconomic perspective, including increases in employment, GDP, capital investments and wage rates. The increased training enhances workers’ skills and their productivity, leading to higher labour demand, employment and hours worked. Wages go up significantly, rewarding workers for their higher productivity (Figure 1).
- From an individual perspective through higher returns to skills and education (Figure 2). In 2018, the average hourly wage for highly qualified workers in the EU was twice as high as for their low-qualified colleagues. Likewise, when it comes to the level of skills required on the job,3 workers on elementary jobs (level 1) earn a third of what managers and professionals (level 4). The respective premiums are particularly pronounced in Germany.
- From a societal perspective through higher participation and engagement. For example, in an increasingly digitalised environment, people need a minimum level of digital skills not only at work, but also to participate in social life more generally. Individuals without the necessary digital skills may face significant barriers to full participation in everyday life.
„For example, in an increasingly digitalised environment, people need a minimum level of digital skills not only at work, but also to participate in social life more generally. “
Structural problems related to skills and qualifications
While formal qualifications keep improving in Europe, a number of major problems arise from the economic point of view:
- Qualification mismatches weigh heavily on growth. Several education-related indicators have improved during the last decade. The proportion of early school leavers stands at 10 per cent in the EU, down from almost 14 per cent in 2010. Over the same period, the proportion of 30 to 34 year-olds holding tertiary degrees has increased from 33 per cent to 40 per cent. Women in particular have improved their educational attainment significantly.The main problem with formal qualifications in the labour market is not their level. It is the fact that workers’ qualifications often do not match the tasks they have to perform. According to the Organisation for Economic Co-operation and Development (OECD), about one-third of EU workers between 15 and 64 are either over- or under-qualified in the sense that their formal qualification is higher or lower than that most commonly observed in their occupation (Figure 3).4
For younger workers (15–34) Eurostat confirms that 28 per cent experienced a skill-mismatch in 2018 (19 per cent in Germany).5 Over-qualification, in particular, has been a drag on economic growth as it represents an underuse of valuable resources that could be more productively used in the labour force.6 In the EU as a whole, over-qualification has increased slightly over the last 10 years. It is a particular problem for women, as well as for a number of vulnerable groups in the labour market: young workers, migrants from third countries, and intra-EU migrants from eastern Member States living and working in western Member States. They tend to be very well qualified but fail to achieve an adequate return on their qualifications in EU host countries.
- In addition to these vertical mismatches, the OECD reckons that around one-third of workers in the EU face the problem that the field of study (of their highest education obtained) is not appropriate for their occupation.7 This seems to be a particular problem especially for tertiary education. There is evidence that vocational elements as part of the study reduces that risk substantially. There is a substantial skill shortage – going well beyond formal education levels. Firms struggle to find workers with the right competencies. Almost all EU Member States face serious shortages in basic skills such as reading and writing, elementary maths, sciences and cognitive skills (Figure 4).
By the same token, more than one in five young Europeans are underachievers, according to the 2018 PISA assessments, and evidence strongly suggests that low-performing students often become low-performing adults. Inadequate skills performance, in turn, has a strong negative impact on the labour market. There is a dynamic employability threshold that many Europeans do not manage to pass. The dynamics of the threshold stem from the expected rapid changes and fast evolving skill needs of increasingly digitalised economies.
- Social disadvantage is a major reason for skill shortages. The impact of parental background on education and skills outcomes is a major concern from the perspective of equal opportunities. A large proportion of potential skills and talent in the workforce is de facto excluded as a consequence of disadvantaged socio-economic background. If a person’s father or mother is tertiary-educated, this more than doubles her chance to attain tertiary education levels herself. This finding holds under “all other things being equal” conditions (Figure 5).
This takes into account the role of all other factors that may influence a person’s educational success, including migration status. But social exclusion in the education system is by no means only a problem of migrants. The social disadvantage tends to persist in the labour market even if, against all odds, disadvantaged people manage to succeed in the education system in the first place.8
- While CET helps to mitigate these challenges, governments can do more to support training opportunities for workers. The effectiveness of CET is well documented (Figure 1 above). However, only half of the EU’s participants in training courses seem to receive financial support for that purpose. These contributions come from firms themselves rather than governments. In many Member States, financial support from the state is relatively low.
- Future wage premiums for higher skills may be at risk. Increasing job polarisation has been observed in all Member States since the start of the decade (Figure 7).
The number of jobs in low and highly paid occupations have increased steadily, while mid-paid jobs are on a declining path. This finding is compatible with “routinebiased technological change”. Mid-paid workers include office clerks, trade workers or machine operators – activities where routine tasks often predominate and where fast technological progress can therefore accelerate displacement of workers by machines. However, despite higher demand for highly skilled workers, the significant wage premium for skills and qualifications reported above (Figure 2) may decrease in the future, both nominally and relative to other skill groups. Demand for highly well-trained, well educated workers has increased even for tasks that do not necessarily require high skills or qualifications.
When it comes to the development of skills and the acquisition of relevant qualifications, both national and EU-level action should concentrate on ensuring opportunities for everyone. The positive impact of CET on both workers and the economy is well documented. It is thus in the interest of everyone that all people, independently of their current work status, occupation or social status have access to continuous education and training.
„The social disadvantage tends to persist in the labour market even if, against all odds, disadvantaged people manage to succeed in the education system in the first place. “
Even in terms of basic skills, many young people face difficulties in reaching the employability threshold. If they do not succeed, they stand a high risk of underperforming as adults in the labour market, not least because the employability threshold is by no means static. It is increasing fast as digitalisation is favouring increasingly higher-skilled jobs. The skills profile needed today may have to be adjusted tomorrow. It is therefore of utmost importance that workers have the chance to adapt to change and transitions through CET. No one must be left behind, and in particular inherited social disadvantages need to be overcome.
The need for an increased focus on continuing education and training and for strengthening digital literacy and skills has become even more prominent in light of the coronavirus pandemic. Skills are key to reintegrate people who have lost their jobs during the crisis into the labour market and to prepare the workforce in view of the ongoing transformations. Skill shortages need urgent addressing to enable companies to participate in full in the recovery and the parallel transition towards a greener and more digital economy. Fast policy action is warranted to enhance the digitalisation of education and training systems and ensure access to online education and training facilities for all. Moreover, proactive provision of digital training and reskilling opportunities by companies is necessary to prepare the labour force to remain competitive and resilient also in future labour market situations.
„The skills profile needed today may have to be adjusted tomorrow. It is therefore of utmost importance that workers have the chance to adapt to change and transitions through CET.“