How can we best reduce skills
mismatches given a changing
labour market?
Arthur Sweetman
([email protected])
Two Approaches (do both)
Understand
1)
i.
ii.
Changing labour market needs
Changing skills generating processes
And use that information to strategize
regarding how to match them
Acknowledge that labour market needs and
skills generation process
2)
i.
ii.
Are too complex to understand fully (or manage)
Will experience shocks that are unpredictable
And, therefore, build a “robust” system that
can handle the unexpected
Arthur Sweetman (McMaster University)
2
Part 1. UNDERSTANDING
Background and Trends

Develop better labour market information on



Current (new) jobs
Medium and longer term success of various
groups
Provide (decision-specific) information to



New labour market entrants (including new
immigrants)
Those retraining
Planners/policymaker, institutions etc.
Arthur Sweetman (McMaster University)
3
What you see
depends on where you stand

From 1980 to 2005 the inflation adjusted
median annual earnings of Canadian full-time
workers have not increased



Average earnings have increased -- driven by the
top end of the distribution
Family incomes have gone up a bit
Who are we making policy for??

Earnings inequality and polarization mean that
policies do not have homogeneous effects
Arthur Sweetman (McMaster University)
4
Skill-biased technological change
& return to education


Technological change is probably best seen
as substituting for “routine” jobs that are
subject to computerization and automation
Also complementary to some jobs


Moving target
NOT exclusively a “low” vs “high” skills issue

Nevertheless, focus on return to education
Arthur Sweetman (McMaster University)
5

An increasing education premium in the
labour market is (many believe) driven by
skill-biased technological change

BUT, we have been overly influenced by US
research/trends and not looked at the
Canadian labour market nearly enough

Formerly some controversy on measures of
increasing return to education in Canada

Can’t see much/any change in the Statistics Canada
survey data (non-response bias?), need the census
and/or tax files to get the picture right
Arthur Sweetman (McMaster University)
6

Using census, most up-to-date work finds
clear evidence of modest increase in return
to schooling in early 1980s and since 1995 –
smaller effect in the middle decade



Much less dramatic than US
Increase has been primarily among men
Smaller effect for women

However, women have a higher rate of return to
schooling throughout
Arthur Sweetman (McMaster University)
7
FT Enrolment
(Canada, Age 15-24, 000s)
1400
1300
1200
A key issue: Trend to higher enrolment since about 1990.
BUT, note enrolment is NOT responsive
to the business cycle.
(Perhaps small effect among, e.g., community colleges,
but overall not much.)
1100
Male
Female
1000
900
Statistics Canada
LFS
800
Arthur Sweetman (McMaster University)
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Aggregate of all institutions/levels
FT Enrolment Rate
(Canada, Age 15-24)
65
60
55
50
Still no business cycle effect, but
dramatically different story in rates (% of the population)
as opposed to levels.
Total enrolment rate has been
stagnant in Canada
for the past 15 years.
Flat and increasing enrolment periods match
Flat and increasing periods of change
in the return to education.
45
40
35
30
Male
Female
Aside: Some substitution across institutions may be occurring.
e.g., small decline in high school drop outs,
but partly counterbalanced by a reduction
in college programs that do not require
Statistics Canada
high school graduation.
LFS
Arthur Sweetman (McMaster University)
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Population
(Canada, Age 15-24, 000s)
2500
2400
2300
2200
2100
2000
Female
Male
1900
1800
1700
Much of trend in enrolment rate is explained by hysteresis on the downside,
and slow response on the upside, of demographic change.
1600
1500
Source: Statistics Canada, LFS
Arthur Sweetman (McMaster University)
10
QUALITY: Mean prose literacy
(English or French) by age group
Age
26-35
56-65
16-65
Canada
287.3
234.1
278.8
U.S.
Australia
U.K.
Germany
Sweden
275.4
284.1
275.2
284.8
313.5
265.6
241.4
235.9
256.8
275.5
273.7
274.2
266.7
275.9
301.3
Source: IALS Final Report, Tables 2.1 and 3.4; score range is 0-500
.
Arthur Sweetman (McMaster University)
11
Future: 2 key points

We are entering a phase like that in the early
1980s when post-secondary entry cohorts
are smaller than those who came before



Enrolment rates are likely to increase
Education/skill levels will rise as cohorts shrink
& universities/colleges seek not to shrink
Education system does not change swiftly



No/little response to business cycles
Hard to “fine-tune”
Basic skills of Canadians have improved by
international standards (but no resting on laurels)
12
Economic return to general labour
market experience

Canadian pattern differs from other nations

Very substantial increase in return to
experience (age) starting in recession of early
1980s and stabilizing mid-1990s
New labour market entrants (mostly youth,
but including new immigrants) hard hit in
1980s and early 1990s

Arthur Sweetman (McMaster University)
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Wages:inflation indexed
Men working full-year full-time
1969 = 100
150
55-64
140
130
45-54
120
35-44
25-34
110
100
18-24
90
80
69
71
73
75
StatsCan, Picot, 1998
77
79
81
83
86
88 89 90 91 92 93 94 95
Not all business cycles affect all age groups similarly.
E.g., 1980 recession had major “age bias
14
Wages: inflation indexed
Women working full-year full-time
1969 = 100
180
170
45-54
160
150
35-44
140
55-64
130
25-34
120
18-24
110
100
90
69
71
73
75
77
79
81
83
86
88 89 90 91 92 93 94 95
StatsCan, Picot, 1998
Arthur Sweetman (McMaster University)
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Future

Not clear what will happen to return to
experience in the future

But, appreciable chance it will decline


I find it hard to believe that current high return to
experience can be sustained given elimination of
mandatory retirement
Young workers may start to do relatively
better than in the past few decades
Arthur Sweetman (McMaster University)
16
Offshoring and Globalization


Limited hard Canadian evidence
US evidence (use with care) shows
offshoring to be a growing phenomenon


May be beneficial to those in the highest and
lowest deciles, but reduces incomes in much of
the earnings distribution
May be MORE the issue in the future than
skill-biased technological change
Arthur Sweetman (McMaster University)
17
Future

Many young and middle aged workers think
that finding a job in the future will be like
“falling off a log”



Because of the baby boom retirements
Looking forward to real increases in earnings
BUT, the baby boom is mostly a developed
world phenomenon, and globalization is
pushing in the opposite direction

Future may be more competitive than anticipated
Arthur Sweetman (McMaster University)
18
Future II
“Information based outsourcing”


Just beginning
Potential to be a lot more than “call centres”



E.g., computer programming, copyediting/
typesetting, medical diagnoses
Traditional “jobs” seem to be being broken into
component parts with relevant elements allocated
to low cost locations/workers
Slow, and some early retrenchment, but
overall moving forward
Arthur Sweetman (McMaster University)
19
Part 2: Prepare for the Unexpected
A risk-reward trade-off

Idea: National-level diversification &
individual-level specialization

Can think of Canadian workforce as having
(being) a portfolio of basic and specific skills
Individual-level specific skill investments are
risky, but have high (average) returns




Therefore, beneficial/valuable
Risk born by individuals from specificity-insurance
But, diversified at national level
20


National-level ability to pick & deliver winning
non-diversified strategies is very limited
Many government decisions are by their
nature not easily “diversifiable”



E.g. accreditation and funding models for
education/training within a province
Try to build flexibility/diversity into relevant
“systems /institutions” so as not to carry too
much risk
Of course, diversification is only an issue for
specific skills/knowledge
Arthur Sweetman (McMaster University)
21
Basic Skills


While several aspects of education/training
have beneficial labour market effects
Basic skills as measured by tests of
literacy/numeracy/problem solving ability
seem to be



Surprisingly important for individuals (e.g.
earnings) & the national (e.g. productivity, growth
in real GDP/capita)
Associated with adaptability
Literacy and numeracy seem to be almost
exclusively generated in formal education
Arthur Sweetman (McMaster University)
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Future

Flexible/diverse national level investments



Specific skill investments at individual level


Since institutional change is slow
Less easy to diversity
Since diversify across population and can pool
risk to insure each other
Emphasis on basic skill development


Substantial rate of return in its own right
Promotes flexibility
Arthur Sweetman (McMaster University)
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