Chapter 1. Policies and practices for improving skills utilisation locally

This chapter highlights why it is increasingly important for policy makers to focus on demand-side skills policies. Traditional supply-side approaches often overlook how employers are using skills in the workplace, which can undermine productivity and growth and weakens the demand for skills. Across the OECD, many countries are dealing with stagnant productivity growth while inequalities are simultaneously rising across a number of key employment and social measures. Policies to better use skills can create the conditions for enterprise growth and new economic opportunity and development but they remain under-developed across many countries. This chapter also highlights a number of areas, where policies can be targeted for better results on the ground.

Introduction

Countries across the world face a set of intertwined policy challenges. Across the OECD, labour productivity has steadily declined over the past two decades, a trend that has also spread to emerging economies. In parallel, inequalities have continued to deepen both within and between places, as economic welfare and well-being outcomes reinforce each other (OECD, 2014). Urban areas continue to capture the majority of the gains of economic growth, while less dense places are increasingly being left behind (OECD, 2016a). The pattern of production also increasingly favours the wealthiest people. The share of income accruing to the top 10% of earners in the OECD area is now almost 10 times that of the bottom decile, an increase of over 40% since the mid-1980s (OECD, 2016b).

Given the megatrends impacting economic growth, such as urbanisation, rapid technological changes, an ageing workforce as well as increasing labour market polarisation, skills have emerged as a key priority for policy makers. To date, governments have primarily engaged with the issue of skills from the supply side – namely, focussing on the need to improve the number of people with post-secondary academic or vocational qualifications. However, there is an increasing recognition that policy makers must also engage with the issue of skills from the demand side. This involves understanding the nature of the skills demanded by employers and the optimal utilisation of those competences in the workplace.

This increasing focus on skills use reflects a contemporary approach to holistic design of economic development and labour market policies, including the consideration of issues outside the traditional purview of policy makers. As noted by the ILO, an international, national and regional strategy based on improved quality and availability of education and training can engender a ’virtuous circle’ in which skills development fuels innovation, productivity increases, enterprise development, technological change, investment, diversification of the economy and competitiveness (ILO, 2008).

Across many places in the OECD and around the world, there is considerable diversity to the degree to which employers value and utilise the skills of their employees. There is a broad distinction between employers that pursue “high road strategies”, where employees and the skills that they possess are viewed as an integral part of a business’s competitive advantage, or “low road” strategies, where labour is considered a commodity and workers are seen as a cost to be minimised. A recent analysis of the performance of local labour markets across the OECD found that the percentage of sub-regions in a position of low skills equilibrium is uncorrelated with national labour market performance (OECD, 2016a). While “low road” and “high road” strategies can deliver good labour market performance in terms of unemployment and labour market participate rates, a low-road strategy will expose workers to different risks at the local level, hampering potential innovation and R&D opportunities.

There are a series of internal and external factors that influence the decision of firms about whether to pursue high or low road employment strategies. These strategies can become self-reinforcing not only at the level of individual workplaces, but also within national and local economies. This is a significant policy issue for policy makers at all levels, in a global context where disparities in social and economic outcomes are fundamentally linked. In general, boosting productivity and economic growth without sacrificing job quality can only be secured by getting more employers onto the “high road”. This require the creation of more and better jobs that make full use of highly-skilled workers, while also improving the quality of jobs held by low-skilled workers.

Box 1.1. Looking beyond the jargon: What is skills utilisation?

Despite an increasing amount of literature generated in the last 15 years, there is no commonly agreed definition of skills utilisation (Payne, 2010). At its core, skills utilisation refers to the way that employers use the skills of employees in the workplace, and the alignment of the competences of workers to the demands and needs of the business.

A working definition of skills utilisation developed by CFE (2008) on behalf of the Scottish Government is “skills utilisation is about ensuring the most effective application of skills in the workplace to maximise performance through the interplay of a number of key agents (e.g. employers, employees, learning providers and the state) and the use of a range of human resources, management and working practices. Effective skills utilisation seeks to match the use of skills to business demands/needs.”

A variety of terms have been used to conceptualise the better use of skills. Some of these concepts are normative while others are more descriptive. The list below provides several examples of how these issues are generally discussed.

High road vs. low road employers. Economic development professionals and advocates for low-wage workers often refer to high road vs. low road employers. In their study of low-wage work in the Netherlands, van Klaveren (2008) identifies four aspects of firm strategies that distinguish between high and low road firms: 1) product market strategies (focus on high value-added, high quality production and services vs. low-cost, low quality; 2) work organisation (enhanced forms of work organisation versus traditional, strict divisions of labour); 3) human resource policies; and 4) job quality.
High performance/high-involvement working. A considerable body of evidence looks into HR practices known as high performance or high-involvement workplaces. High performance working practices are bundles of activities that include both aspects of work organisation (e.g. team work, employee autonomy, task discretion, mentoring, job rotation, and applying new learning) and management practices – employee participation, incentive pay, training practices and flexibility in working hours) (OECD, 2016a; Johnhston and Hawke, 2002). In general, there are two broad schools of thought within the literature: “high commitment management” emphasises the improvement of employee autonomy and intrinsic satisfaction, while ’ high involvement management’ focusses instead on the ability of employees to make decisions to improve production processes (Harley, 2005; Guthrie, 2001).
Organisational capital. The economists Prescott and Visscher (1980) made early reference to what they called organisational capital. Black and Lynch (2005) identify three aspects of “organisational capital” that have a significant impact on productivity: 1) employer-provided workforce training 2) employee voice, especially in relation to decision making associated with the design of production processes and greater autonomy and discretion in work structure; and 3) work design, including the use of cross-functional production processes that result in more flexible allocation and re‐allocation of labour in the firm. However, other researchers define organisational capital somewhat differently. For example, Youndt et al. (2004) define it as the institutionalised knowledge and codified experience residing within and utilised through databases, patents, manuals, structures, systems, and processes.
Organisational forms and learning dynamics. Using the European Survey on Working Conditions, Lorenz et al. (2005) identified four types of types of organisational forms: 1) learning (e.g. high levels of autonomy, task complexity, learning and problem-solving and low levels of monotony, repetitiveness, and work rate constraints; 2) lean (e.g. strong learning dynamics and reliance on employees’ contribution to problem-solving but low autonomy in work and tight quantitative production norms); 3) Taylorist (e.g. minimal learning dynamics, low complexity, low autonomy and constraints on the pace of work); and 4) simple (e.g. work organisation methods that are for the most part informal and non-codified).
Workplace innovation. The term “workplace innovation” is commonly used in a European context. The Dortmund Brussels Position Paper on Workplace Innovation (2012) defines workplace innovation as a social process which shapes work organisation and working life, combining their human, organisational and technological dimensions. This participatory process simultaneously results in improved organisational performance and enhanced quality of working life.

Use of skills varies within and across countries

Evidence collected by the OECD through The Programme for the International Assessment of Adult Competencies (PIAAC) suggests that the extent to which skills are used in the workplace differs markedly across and within countries. Figures 1.1 and 1.2 show the percentages of workers that report that they are either over-skilled or under-skilled in their jobs. For literacy, the percent of workers who report being over-skilled ranges from 27.8% in Greece to 5.8% in Sweden. For numeracy, it ranges from 22.1% in Greece to 5.1% in the Netherlands. In general, more workers report being over-skilled than under-skilled in literacy and numeracy across the OECD countries surveyed.1

Skills mismatch is a broad term that can refer to a range of concepts (OECD, 2016c). A phenomenon that receives much public attention is the difference between the aggregate demand for and supply of skills in the labour market. Structural change in economies will impact employers and workers at the point of hire: workers may lack the skills they need to become employed and employers may face persistent vacancies. Skills shortages of this nature receive much attention but tend not to be extensive (Felstead et al., 2017).

Another form of mismatch is based on skills under-utilisation. This is based on the alignment of skills use to business demands and needs. In general, this form of “mismatch” is premised on the skills of hired workers exceeding the competences actually used in the course of their employment (Warhurst and Findlay, 2012). This phenomenon has many names, including “under-utilisation and under-employment”, and “over‐qualification” and “over-education” by those who use qualifications as a proxy measure for skills.

As noted in the section above, most workers surveyed in the PIAAC in most places report that they are over-skilled in their workplace use of numeracy and literacy. This is confirmed by other international studies. Studies of the United States note that skills under‐utilisation impacts over half of employees (Vaisey, 2006). Livingstone (2017) notes three points about under-utilisation of skills in the workplace: namely, that it is widespread, persistent and relatively more common than skills shortages in the labour market.

Examining workplace practices often associated with higher levels of skills use can also provide useful indications of the degree to which skills are being put to good use. Data from the OECD PIAAC Survey shows considerable variation in the share of jobs characterised by high levels of high-performance work practices – from just over 10% in Greece to 42% in Denmark. Research and analysis conducted by the OECD demonstrates that there is a strong correlation between the prevalence of High-Performance Work Practices (HPWP) and skills use (OECD, 2016d).

HPWPs include aspects of work organisation and management practices; however they tend to be in large firms and not micro and/or small and medium-sized enterprises. OECD (2016d) found that high performance workplace practices are most common in large firms, but that micro firms with 1-10 employees are actually more likely to apply these practices than firms with 11-50 employees. Many researchers have identified that SMEs may find it particularly difficult to put in place practices that make the most of their employers skills because of poor management or a lack of specialised HR function (Osterman, 2008; Warhurst and Findley, 2012). The level of impact of training provision in SMEs is highly dependent on the formal/informal approach to training, the type of training methods included and the staff group targeted, as well as factors such as the growth orientation of the firm, its sector and the institutional training background in the particular country. Consequently, some have argued that caution is needed when promoting HPWPs as a vehicle for better skills use, noting that the concept is too narrow to represent a centrepiece of a viable strategy (Keep, 2016).

The challenge with much of the data and information that is available to policy makers on whether skills are being put to good use is that it is focused on the individual worker. Much of the data available focuses on whether an individual is well-placed within their job or company. Data on the different forms of skills mismatch tend to focus on measures of over- or under-qualification or over- or under-skilling. In contrast, firm-level measures of skills gaps and skills shortages are arguably more important to assess the level of skills utilisation (ILO, 2016).

Furthermore, available data do not tell policy makers much about overall local and regional performance, nor does it provide sufficient information on the perspective of employers. While more will need to be done to develop information on the employer perspective, the OECD has developed a typology to understand whether skills are being put to good use at the level of local economies. This analysis assesses the supply of and demand for skills at the local level (see OECD, 2014 for more information).

As shown in Figure 1.4, local areas can fall into one of four categories: 1) high skills equilibrium, where both the supply of and demand for skills is relatively high; 2) skills surplus, where the supply of skills is relatively high but the demand is relatively low; 3) skills deficit, where the demand is relatively high but the supply is relatively low; and 4) low skills trap, where both the supply of and demand for skills is relatively low. Figure 1.5 shows how this tool is applied in the case of France. Analysis of a broader set of countries is available in the OECD’s publication Job Creation and Economic Development, 2016 (OECD, 2016c).

Box 1.2. Explaining the OECD’s measurement of supply and demand at the local level

The analysis is carried out at Territorial Level 3 regions (regions with populations ranging between 150 000-800 000). The supply of skills was measured by the percentage of the population with post-secondary education. The demand for skills was approximated using a composite index: percentage of the population employed in medium-high skilled occupations and GVA per worker (weighted at .25 and .75 respectively). The indices are standardised using the inter-decile method and are compared with the national median. Further explanations on the methodology can be found in Froy, Giguère and Meghnagi, 2012.

Source: Froy, F., S. Giguère and M. Meghnagi (2012), “Skills for Competitiveness: A Synthesis Report”, OECD Local Economic and Employment Development (LEED) Working Papers, No. 2012/09, OECD Publishing. https://doi.org/10.1787/5k98xwskmvr6-en.

When both the supply of and demand for skills is low, a low skills trap can develop within a local economy, which can create a vicious cycle or low investments in skills and poor quality jobs. In such a situation, workers will not have the incentives to upgrade their skills, knowing they will not be able to find jobs in the local economy that use them, and employers may be reluctant to move to more skill-intensive production and services, knowing that they are unlikely to find the workers with the skills needed to fill these positions. The concept of a low skills trap has also been applied to national economies. For example, the United Kingdom has been characterised as being stuck in a low skills equilibrium (CIPD, 2014).

Although limited by the absence of empirical data, the analytical tool developed by the OECD to compare the supply of and demand for skills at the local level is one of the tools available to policy makers to assess skills utilisation. While more complex methodologies for measuring skills utilisation have been outlined by the OECD in Buchanan et al. (2013), longitudinal data is being collected by the OECD to track progress within local economies over time. Looking more specifically within countries, a rich source of data is also available through the United Kingdom’s Employer Skills Survey and the European Jobs and Skills Survey (CEDEFOP, 2015).

Through the British survey in particular, sub-national information is available about the proportion of employers that have staff that are “under-utilised” (e.g. those that have both qualifications and skills that are more advanced than required for their current job role), the proportion of employers accredited with the Investors in People Standard (which recognises high quality people management practices), and the proportion of employers using different levels of product market strategies.

As shown in Tableau 1.1, the results of this survey show considerable variation at the geographic level of Local Enterprise Partnerships (LEP). The results also demonstrate that the best performing LEPs tend to have establishments with the Investors in People Standard and companies that are pursuing higher level market strategies.

Tableau 1.1. Results of UK Employer Skills Survey at the Level of Local Enterprise Partnerships, 2015
	Total for England	Best performing LEP	Worst performing LEP
Establishments accredited with Investors in People Standard	25%	12%	16%
Establishments pursuing high or very high product market strategies	51%	38%	46%
Establishments reporting 30% or more of staff are underutilised	21%	13%	18%
Source: UK Commission’s Employer Skills Survey, 2015 LEP results data tables (standard), www.gov.uk/government/publications/ukces-employer-skills-survey-2015-england-and-local-toolkit.

Beyond this example of good practice from the UK, the majority of OECD and non-OECD countries do not collect data of this nature. More effort should be taken to collect information on skills utilisation within enterprises and regions.

Putting skills to better use can improve outcomes for individuals, employers, and economies

Putting skills to better use in the workplace is important for workers, firms and broader society. From the perspective of the employee, better use of skills is associated with job-related well-being (Morrison et al., 2005). Poor use of skills creates job dissatisfaction and can be related to increased turnover (Felstead et al., 2017; Okay-Sommerville and Scholarios, 2013). The OECD has found that skills use is positively associated with being ’extremely satisfied’ at work after accounting for skills proficiency, educational attainment, wages and a number of socio-demographic characteristics (OECD, 2016d).

Workplace organisation practices associated with higher levels of skills use are also linked with job quality. For example, in looking at SMEs, Lorenz (2015) found that employees working in “discretionary learning” forms of work were 74% more likely to be satisfied than employees working in “constrained learning” forms or “simple or traditional forms” of work, after controlling for employee’s educational level, sex, occupation, country and sector.

Links have also been established between skills use and wages. PIAAC data shows that workers who use their skills more frequently earn higher wages after holding education and skills proficiency constant (OECD, 2016a). In particular, the ILO (2016) has noted that the literature indicates there is a wage penalty associated with over-skilling, with the average wage penalty being 7.5%. The same review found that that being overskilled also increases an individual’s probability of future unemployment (Mavromaras et al., 2015) and lower workplace harmony (Belfield, 2010). Other research suggests that one way to address rising inequality is by putting skills to better use (OECD, 2015a), or upgrading routine jobs to enhance the creative content of this work (Martin et al., 2016).

For employers, the improved use of skills in the workplace represents a better alignment of the competences of employers to the needs of the business. A range of research has found that this is intimately related to improved retention of workers, but also higher productivity, greater employee engagement and improved relations between management and workers groups (OECD, 2016a; Skills Australia 2012; UKCES, 2014; Findlay et al., 2011).

Strong linkages between innovation and work organisational practices that make better use of skills have also been identified. Incremental innovation, which involves “endless minor modifications and improvements in existing products” is often a result of learning by doing or using rather than technical or scientific knowledge (Rosenberg, 1994). This “learning by doing” often occurs on the shop floor or in front line services, but is dependent on workers having some level of autonomy and structures in place to communicate their insights to management and colleagues.

Based on research undertaken in 166 Italian manufacturing firms, Santangelo and Pini (2011) found incremental improvements in a firm’s existing product and work process were positively linked to the adoption of new HRM practices (e.g. the delegation of decision rights, channels for employees’ suggestions, incentives to employees, and flexible labour organisation) at the shop floor level. In fact, there is some literature that argues that this type of innovation is as important as “radical innovation” that involves the introduction of new products or technologies (Toner, 2009).

Improving skills use also has benefits for the national economy. OECD research has shown that improving skills use could result in considerable gains in aggregate productivity (e.g. ranging from a 3% gain in the United States to around 10% in Italy) (Adalet, McGowan and Andrews, 2015). Black and Lynch (2004) credit changes in workplace organisation – such as re-engineering job design, incentivising teamwork, introducing incentive pay and encouraging employee autonomy and feedback – as a “significant component of the turnaround in productivity growth in the US during the 1990s”.

An analysis of the OECD PIAAC data shows that even after accounting for average proficiency scores in literacy and numeracy, the use of reading skills at work accounts for a statistically significant share of the variation in labour productivity across countries (see Figure 1.6). Similar analysis undertaken at the industry level shows a positive link between skills use and productivity (OECD, 2016a). At the firm level, stronger skills utilisation has been linked to improved retention, higher productivity, and greater employee engagement (OECD, 2016a; ILO, 2013; UKCES, 2014).

Finally, expected changes in the workplace as a result of the megatrends – technological change, population ageing and globalisation suggest that making good use of skills will be critical. Improving skills utilisation and job quality is especially important in the context of growing job polarisation in a number of OECD countries, with growth concentrated in both relatively high-skilled professional service and relatively low-skilled services, such as care and personal service jobs that require social intelligence skills and involve non-routine interpersonal tasks (OECD, 2015a). Going forward, particular attention will need to be paid to improving low-wage jobs held by low-skilled workers (ILO, 2016a). While creating more high-skilled jobs and preparing more workers to fill them is important, lower-skilled service jobs will continue to be a key feature of the labour market.

Additionally, while increases in human capital have been a key factor of productivity gains over the past 50 years, the rate of increase in the stock of human capital in OECD countries is projected to slow (OECD, 2015b). Conversely, in non-OECD countries where the number of new labour market entrants continues to grow, the relatively high levels of over-qualification in these labour markets also demands greater attention to the issue of skills utilisation (ILO, 2015). This suggests that alternative approaches to improving labour productivity – such as making better use of skills – will take on increasing prominence. Recent ILO research in the Asia-Pacific region has found that skills utilisation was listed among the top five priorities related to skills for the future.

A number of factors influence the degree to which skills are put to good use

Workplaces are often described as a “black box” – relatively little is known about how skills are used in the workplace, how employers conceptualise skills as part of their overall business strategy, or how jobs are designed (Keep, 2012; Warhurst and Findlay, 2012). More effective application of skills in the workplace occurs through the interplay of a broad spectrum of stakeholders, including employers, employees, training providers, government actors and groups representing employers, workers and civil society.

Employers must consider every aspect of the production process in order to improve the utilisation of skills in the workplace, including issues as diverse as workplace design, management practices, the use of technology and organisational culture (Field and Ford, 1995). External factors, including current economic conditions, local or regional skills landscapes, and the broader value chain or industrial cluster, may also play a factor in decisions related to skills use.

Researchers from a wide range of disciplines, including organisational psychology, personnel economics, economic development, industrial relations, business, and human resource management have all addressed this question using varying methodological and analytic frameworks. While a full examination of the findings across these fields is beyond the scope of this chapter, this section highlights some of the key issues most relevant for public actors at the local and regional level.

Work organisation and job design

The organisation of work and the design of jobs can impact the use of skills in the workplace. The Australian Workforce and Productivity Agency (which is now under the Department of Employment) has outlined a number of workplace organisational practices that are linked to the enhanced use of skills (see Box 1.2). In addition, research on “high performance working” shows skills utilisation is intimately linked to mutual gains and discretionary effort. To support both outcomes, work practices need to enhance the notion of career, participation, ownership and well-being – which are factors that make employees engaged or committed to the organisation and therefore willing to maximise the use of skills.

Box 1.2. What practices promote more effective skills utilisation?

The Australian Workforce and Productivity Agency (formerly Skills Australia) has identified the following workplace practices that make the use of skills more effective:

Job redesign: involves changing the role or description of a job so that the skills of the employee are put to better use. This can include teamwork and flexibility in job descriptions and work arrangements with colleagues.
Employee participation: includes involving employees in discussions of business strategy, which aims to more effectively use employees’ knowledge and experience.
Autonomy: includes giving employees more freedom and autonomy to make decisions about how they perform their job.
Job rotation: involves facilitating the learning of new skills by shifting employees into different jobs and positions within the company.
Skills audit (training needs assessment): aims to identify the skills that employees currently have and identify which skills are most needed.
Multi-skilling: is related to job rotation and involves training employees in multiple skill sets, which enables them to perform other tasks that are not included in their job description.
Knowledge transfer: these types of initiatives can include developing new skills and training that is related to work or working with experienced workers to develop mentorships opportunities for younger staff.

Source: Skills Australia (2012), Better Use of Skills, Better Outcomes: A Research Report on Skills Utilisation in Australia, Commonwealth of Australia, Canberra, www.awpa.gov.au/publications/documents/Skills-utilisation-research-report-15-May-2012.pdf.

Product market strategies and skills use

The nature of the business and the competitive advantages pursued can also impact the level and types of skills that employers seek and use. As companies move into higher value-added product and service markets, the levels of skills that they require, and the extent to which they utilise skills, tends to increase. Analysing data from the National Employers Skills Surveys in England, Mason (2011) showed that firms varied greatly in the extent to which they were seeking to engage in “high-end” or high value-added production, and that product market strategies and the level of workforce skills in an establishment were strongly positively correlated.

The history of this literature is strongly grounded in industrial and manufacturing contexts. A number of researchers have subsequently noted that the relationship between product market strategies and skills may be more complicated in the services sector, which accounts for 74% of employment in developed countries and 45% of employment globally (ILO, Global employment outlook 2014). For example, when examining the jobs of room attendants in different tiers of the hotel industry, Lloyd et al. (2013) found that while there were differences in the job tasks of room attendants in mid- and upper-market hotels, there were also key similarities in relation to pay, autonomy, working conditions and levels of work intensity.

Interactions between work organisation and business strategies

Sung and Ashton (2014) have developed an analytical framework known as “the strategic skill model” to examine the combined impact of businesses strategy on skills utilisation. Figure 1.7 shows that work organisation and the technical dimension influence skills utilisation at any workplace. As highlighted in the figure, the “strategic skills model” indicates that a combination of standardised production and a task-focused work environment (e.g. the shaded area in the model) is not conducive to higher levels of skills utilisation.

Along the work organisation dimension (e.g. the x axis), work and processes can be designed to maximise the discretionary effort of the worker, leading to higher skills utilisation. Much of the high performance working and HRM-performance literature covers this area of work (see Hutchinson et al., 2002; Tamkin, 2005; Harney and Jordan, 2008; and Sung and Ashton, 2014). However, it is important to point out that to derive benefits from the “people focused” end of this dimension, the first step is to build trust within the workplace as well as elements of “mutual gains” (Ashton and Sung, 2002). All those who are involved in the productive system require buy-in and have to see value in their discretionary efforts to raise skills utilisation. Otherwise, the end result is likely to be work intensification which is both harmful to the overall performance of the workplace and will not result in higher levels of utilisation (Sparham and Sung, 2006).

The other end of the work organisation dimension is more task-focused, where workers tend to “fit into” the jobs that they are performing. In this instance, individual considerations (e.g. expertise, soft skills, experiences) tend to play a secondary role in the design of the work environment. Efficiency and performance are expected to be derived from the intrinsic design of the work system and less from skills utilisation.

On the other axis (e.g. y axis), the technical dimension describes the extent to which the productive system relies on mass/standardised work. Standardised work tends to limit the opportunities for skills utilisation because the work scope tends to be narrowly defined (e.g. producing the same products in huge volumes or treating all customers as if they were the same in services). The nature of differentiated work on the other hand demands a wide range of skills, knowledge and innovation. The work itself can sometimes be less structured (moving towards the top-right direction Figure 1.7).

Workplace relations

It is generally recognised that conflict in the workplace can undermine the best of management intentions (Field and Ford, 1995; ILO, 2013) and that employers face greater difficulties in introducing high-performance work practices in organisations where there is a high level of mistrust between management and employees (Ashton and Sung, 2002). Organisations need to foster participative employee relations in order to build trust so that employees will learn; reward systems need to support learning through pay for skills and employers need to implement team-based work organisations to enhance learning. There is evidence that training, better working hours and wages are associated with improvements to enterprise performance, although there are fine nuances in relation to the conditions under which these outcomes materialise (ILO, 2013).

In the case of the Union Learn initiative in the UK, an independent evaluation found that the impact of union workplace learning representatives supported a sustained “conversation” between the union, employers and workers about learning and building a culture of learning and supporting structures in the workplace (DfBIS, 2012). Such efforts to improve employee voice and ensure harmonious workplace relations are an essential building block to address the issues of skills utilisation in the workplace.

Broader economic and labour market context

Other researchers have explored how the broader policy and economic context impacts the use of skills in individual workplaces. This research suggests that there may be considerable external factors that influence why particular countries or places have relatively more firms that adopt particular strategies or skills profiles (Ashton et al., 2017). A range of diverse factors and institutions, including education and training systems, welfare and employment regulations, will impact the structure of incentives that motivate firms to prioritise and invest in skills (Hall and Soskice, 2001; Estevez-Abe et al., 2010).

As Bosch (2009) describes, “in some European industries the ’beneficial constraints’ on business strategies by more labour and product market regulation were pushing companies towards high road strategies based on innovations in work organisation and increased capital intensity. This has, however, not happened in other industries”. A number of researchers have also made the argument that a higher minimum wage “leads a firm to reconsider and redesign its employment and production system in order to increase efficiency and obtain the productivity that would sustain the higher wage” (Osterman, 2008). Other labour market institutions, such as employment protection legislation and collective bargaining, may also impact the use of skills (OECD, 2016b).

Attention has also been paid to what is the called the overall “skills ecosystem” at the national or local level. Building on the concepts developed by Finegold (1999) in relation to high-tech clusters, Buchanan et al. (2001) defined skills ecosystems as “clusters of high, intermediate or low level competencies in a particular region or industry shaped by interlocking networks of firms, markets or institutions”. Such an approach emphasises the link between the development and the use of skills, suggesting the need to simultaneously address both issues. These factors include (Buchanan et al., 2001):

Business settings (e.g. the type of product market, competitive strategies, business organisation/networks, financial system);
Institutional and policy settings;
Structure of jobs (e.g. job design and work organisation);
Level and type of skill formation (e.g. apprenticeships, informal on-the-job training).

Should skills utilisation be in the domain of public actors?

Across OECD and non-OECD countries alike, skills policies have predominantly focused on improving the supply of skills, on the basis that market failures can lead to underinvestment in training and skills development. Thus, public actors have focussed on addressing supply-side constraints, including through increasing public funding for vocational training or competence-based qualifications.

Comparatively little attention has been paid to building demand for skills. Skills utilisation policies seek to influence what occurs within workplaces, including with respect to the structure and design of work, the approach to management, workplace relations and the use of technology in the workplace. Interventions at this level face a major hurdle: with the exceptions of health and safety, employment protection and equality legislation, there is little precedent for public intervention in the workplace. Furthermore, public agencies often face a credibility gap when trying to advise firms on human resources management policies.

Additionally, as noted above, a wide variety of benefits accrue to firms that invest in skill use but many firms choose to view human resources as a cost to be minimised. While there are benefits associated with pursuing “high road” strategies, not all employers choose to pursue such strategies. Several factors can help to explain why employers may not focus on the better use of skills:

Firms can continue to make profits on the low road. To the degree that there is demand for low-cost, low-quality products, there are still opportunities for firms to make profits using low-road approaches (Warhurst and Findlay, 2012). For example, when examining the plastics processing, commercial printing, logistics, and general insurance sectors, Mason (2005) found that low value-added activities are profitable and are likely to remain so, and that firms in these markets face no immediate market pressures to upgrade their production process.
Low road strategies can be self-reinforcing at the level of firms and economies. In a study of firm decisions to operate in high or medium value-added markets, Mason (2005) found that the choice of product markets strategies was constrained by previous choices related to physical capital, human resource, and existing organisational culture of the firms. Additionally, beyond individual firms, local areas can end up in a low skills trap or within a skills ecosystem that contributes to poor use of skills.
Managers may not be aware of the potential benefits of better utilising skills, or know how to put these ideas into practice. At a basic level, managers and other business leaders may not be aware of the potential benefits of better using the skills of their workforce, or if they are aware of the research, may be sceptical of its relevance or applicability to their own firms. Even managers who have “bought in” to benefits may lack the skills or knowledge of how to concretely put them into practice in the workplace. Such challenges may be especially prevalent in SMEs, which often lack dedicated human resource staff and where management quality is typically lower. Another aspect of HRM practice that impacts on efforts to improve the use of skills is the quality of workplace relations and the extent to which constructive social dialogue takes place in an enterprise (ILO, 2016c).
Short-term concerns may outweigh longer-term benefits. Even if there are gains to be made in the long-term, the short-term costs associated with moving towards higher value-added production or re-organising work to better use the skills of employees may be off-putting. Such challenges can be compounded by investors that have short-term horizons for measuring returns on investment. This has been highlighted as a factor by the OECD (2010) when considering institutional tools to address low-skill equilibriums.
Economic downturns can exacerbate these challenges. Holm and Lorenz (2015) found that between 2000 and 2010, there was a decline in discretionary learning forms of work organisation in Europe. They suggest that “during economic expansions, firms use HRM practices such as increasing employee autonomy and influence; in contraction, firms tend to employ strategies that focus on the short-term (e.g. cutting costs and employee discretion to achieve higher accountability of costs).”
The interplay between these factors necessitates a strategic approach to encouraging and supporting more effective skills utilisation.

Improving skills utilisation is predicated on policy coherence across employment, skills, economic development and innovation policies

Despite longstanding research on the importance of better using skills, previous OECD work conducted under the OECD Reviews on Local Job Creation found that specific policy actions to boost the use of skills are largely piecemeal and that there is generally much greater policy attention given to increasing the pool of skills (OECD, 2014; ILO, 2016). It is important to highlight that traditional skills, employment, economic and innovation policies can have knock-on impacts that can be both positive or negative for skills utilisation at the local level.

Traditional skills policies are dominated by supply side approaches and risk being steered by employers with low ambitions

As already discussed, skills policies, for the most part, have disproportionately focused on increasing the supply of skills side to boost competitiveness and growth – with relatively little attention paid to shaping how skills are used in the workplace. This is not surprising, as it is much easier to conceptualise public interventions to boost the supply of skills rather than examining the role the public sector can play in shaping how skills are used in the workplace. It also reflects a long-standing orthodoxy that skills is only a supply-side issue and that reform of skills systems will remove constraints and reduce the gap between the supply of and demand for skills.

Additionally, while promoting employer leadership in shaping skills agendas is increasingly seen as a means of ensuring the labour market relevance of education and training, there are also risks involved. Such an approach can be especially problematic when employer needs are taken as a “given” in places where there is a concentration of employers using low-road strategies and focused on low value-added activities. This highlights the importance of broad based representation from employers and workers organisations within governance and regulatory bodies to ensure that programmes develop a broad set of skills required across occupation and sector, rather than narrow or firm-specific skillsets.

Additionally, some research suggest that while employers may blame skills shortages as a key reason for why they are unable to find the workers, other factors such as job quality, wages, or hiring processes may be the reason (Cappelli, 2012; Herz and van Rens, 2015; OECD, 2014; ILO, 2008). For example, CEDEFOP (2015) estimates that between half and two-thirds of EU firms reporting difficulties finding skilled workers face this challenge not because of skills shortages, but because they are putting forward unattractive job offers or display a lack of commitment to talent management.

Public employment services rushing to fill job vacancies can actually be counterproductive in the long-term

Public employment services (PES) may be tempted to “firefight” to immediately fill employer vacancies or place people into jobs, regardless of the quality or sustainability of the job opportunities (OECD, 2014). This approach may mean that PES run the risk of placing people in low quality, low wage jobs, removing incentives for employers to consider whether this is really the best way to organise their work. Such practices can be exasperated by PES performance management frameworks that only consider short-term placement rates or outcomes. Whilst PES typically offer a wider range of services beyond placement, such as counselling services and labour market information, research on 29 public employment services undertaken in 2012 showed that only 3 considered employment quality/duration as an indicator of performance (EC, 2012).

Other research on PES has found that due to double-sided information assymetry, labour market discrimination and skills mismatch, many public employment services operate in the low end of the labour market, with “better” employers and stronger job candidates using other channels for job matching (Larsen and Vesan, 2012). One example is New York City’s new strategy for workforce development (see Box 1.3).

Box 1.3. Career Pathways: One City Working Together, New York City

While New York City accounts for a large proportion of the Untied State’s GDP, it also faces significant challenges related to growing income inequality. Like many places, job growth in recent years has been concentrated in high-wage/high skill and low-wage/low-skill industries, and the rising number of working poor face limited career progression opportunities. At the same time, employers report facing a shortage of high-skilled workers. Despite the fact that New York City’s workforce development system has a budget of approximately USD 500 million a year, serving roughly 500 000 clients, it was not well suited to address these challenges. In 2014, the mayor convened the Jobs for New Yorkers Task Force to set new priorities for employment and training programmes, such as:

Building Skills Employers Seek: focus on connecting New Yorkers to quality jobs with family-supporting wages and career advancement potential, including creating strong business partnerships that provide robust feedback loops with companies in priority sectors of New York’s economy.
Improving Job Quality: rewarding worker-friendly business practices such as consistent scheduling, access to commuter benefits and financial empowerment services.
Increasing System and Policy Co-ordination: align workforce and economic development initiatives, utilising local legislation and administrative policies as key levers to promote career pathway development and implementation.

More specifically, this task force identified ten recommendations:

Launch or expand Industry Partnerships with real-time feedback loops in six sectors: healthcare, technology, industrial/manufacturing, construction, retail, and food service
Establish Career Pathways as the framework for the City’s workforce system
Invest USD 60 million annually by 2020 in bridge programmes that prepare low-skill jobseekers for entry-level work and middle-skill job training
Triple the City’s training investment to USD 100 million annually by 2020 in career-track, middle-skill occupations, including greater support for incumbent workers who are not getting ahead
Improve and expand career and technical education and college preparedness programmes, adjust local universities’ alternative credit policy, and invest in career counselling to increase educational persistence and better support students’ long-term employment prospects
Increase work-based learning opportunities for youth and high-need jobseekers
Create a standard that recognises high-road employers who have good business practices, with the goal of assessing at least 500 local businesses by the end of 2015
Improve the conditions of low-wage work by expanding access to financial empowerment resources in partnership with at least 100 employers and pursuing legislative changes such as increasing the minimum wage
Maximise local job opportunities through the City’s contracts and economic development investments by establishing a “First Look” hiring process and enforcing targeted hiring provisions in social service contracts
Reimburse workforce agencies on the basis of job quality instead of the quantity of job placements by aligning service providers under a system-wide data infrastructure that measures job outcomes such as full-time work, wage growth, and job continuity

A 2015 progress report documents that progress has been made on each of these recommendations. For example, the city has launched “Best for NYC” a campaign and set of tools designed to inspire and help businesses assess their impact on workers, communities and the environment and job quality standards have been put in place for employers receiving recruiting services from Workforce1 Career Centers (New York’s public employment service offices).

Source: The City of New York (2014), “Career Pathways: One City Working Together”, www1.nyc.gov/assets/careerpathways/downloads/pdf/career-pathways-full-report.pdf; The City of New York (2015), “Career Pathways: Progress Update”, www1.nyc.gov/assets/careerpathways/downloads/pdf/Career-Pathways-Progress-Update.pdf.

Economic development policies have historically focused on job creation policies

Economic development policies have historically focused on the quantity of jobs, not necessarily the quality of jobs. In a 2011 survey of Canadian economic development professionals, the most popular metric used to measure success was “new businesses opened” (73%), followed by population (67%) and full time jobs created (60%). Only 19% reported that average salary/wage offerings of new businesses was used as a metric (Matthew Fischer and Associates Inc., 2011). Another survey undertaken by the International Economic Development Council found that 91% of respondents in the field of economic development tracked the number of jobs created, but only 71% tracked the wages/salaries of these jobs (IEDC, 2014). Another study of state-level economic development subsidies in the US found that only 98 out of 238 programme – significantly less than half – impose any kind of wage requirement on employers to qualify for tax credits, subsidies, or favourable loans. (Mattera et al., 2011).

However, this is not to say that the field of economic development is blind to issues of job quality. In its flagship annual report, the World Economic and Social Outlook, the ILO tracks decent work deficits and assesses trends in job quality. In 2017, it concluded that as global unemployment has risen, progress on improving job quality has stalled.

Despite this, the International Economic Development Council has documented a shift from supporting industrial development as the primary means of creating jobs to supporting high-growth, high-wage, high productivity jobs. At the same time, IEDC notes that economic development professionals must do more to support quality job creation for workers across the skills spectrum, not just for the highly-skilled (International Economic Development Council, 2010).

In the United Kingdom, the Innovative Workplaces programme (see Chapter 2 for more information) is an example of one regional development agency focusing on workplace innovation. Additionally, sector-based strategies, that bring together economic and workforce development programmes to improve industry competitiveness and productivity while also creating career pathways for low-skilled individuals are one such approach, are also becoming increasingly common.

Box 1.4. Innovative Workplaces

The Innovative Workplaces programme was a regional pilot initiative in 2009-10, funded by the East Midlands Development Agency. While initially the East Midlands Development Agency did not include workplace innovation as a means of achieving its strategic goals relating to competitiveness and skills, matters began to change when the focus of national policy began to embrace skills utilisation as well as skills supply. Eventually, in 2008, EMDA’s annual Corporate Plan contained the following commitment:

Developing new ways of organising work and utilising more effective deployment of people in the workplace will be needed for businesses to remain globally competitive and ensure business survival. EMDA will focus activity on supporting organisations to stimulate learning amongst their employees and developing collaboration within and between organisations. This activity will seek to change organisational culture and develop strong, inspirational leaders, as well as building effective employee relations.

It was intended that the project would benefit a small cohort of business leaders, managers and supervisors across ten organisations, each of which would benefit from long-term organisational change. The project was justified as a means of breaking out of the low skills equilibrium by developing and unleashing the enterprise skills and competencies of those in work, enabling employees to use their initiative to innovate and create new business strategies and solutions whilst achieving maximum productivity. Both UK WON, a not-for-profit body involved in disseminating and developing innovative workplace practice, and Acas, a UK government body with a tripartite structure, charged with promoting and facilitating strong employment relations, were involved in the design and delivery.

See Chapter 2 for additional information on the programme.

Innovation policies should be expanded to consider incremental innovation

Innovation policies are often key to boosting productivity and enhancing competitiveness over the long-term. However, the vast majority of innovation policies focus on research and development (R&D) or innovation that emerges from universities and laboratories. Relatively little attention is paid to how to foster innovation that is based on the tacit knowledge of workers, including those on the frontline of production and services. This style of innovation is more prevalent within organisations and therefore more relevant to developing an understanding of skills use in the workplace (Toner, 2011).

The OECD Innovation strategy states that “learning and interaction within organisations and at workplaces are at least as important for innovation performance as learning through interactions with external agents. Therefore, in order to understand national systems of innovation, it is necessary to bring the organisation of work and employee learning into the analysis” (OECD, 2010). However, national governments still tend emphasise science and technology-based approaches to innovation versus those driven by internal production processes (Mako et al., 2016).

Looking at implementation practices across the OECD, notable exceptions can be found in Finland, where the agencies responsible for innovation manage programmes related to workplace development and workplace innovation (see Box 1.5). Similarly, examples exist in non-OECD countries that demonstrate the effectiveness of supporting innovation through better work practices and conditions to improve productivity and competitiveness.

Additionally, despite the growing importance of the service sector across OECD countries, many innovation policies were conceived from a manufacturing and R&D perspective (although some countries are increasingly considering the service sector in their innovation policies) (OECD, 2012). Such policies may be ill-suited to drive innovation in the services sector where innovation is less likely to be the result of formalised R&D, and more likely to be driven by human and organisational factors (Rubalcaba et al., 2010).

Box 1.5. TEKES in Finland

Tekes (the Finnish Funding Agency for Technology and Innovation), runs a number of programmes to foster innovation, including “Liideri – Business, Productivity and Joy at Work Programme”. Unlike more traditional innovation programmes, this programme focuses workplace development, in particular developing management practices and forms of working that promote the active utilisation of the skills and competences of employees. Liideri is the latest in a series of publicly funded workplace innovation programmes in Finland, which were first launched in 1993. While these programmes were initially co‐ordinated through the Ministry of Labour, in 2008 there were transferred to Tekes .This transfer was part of the adoption of a new national innovation strategy that emphasises demand and user-driven innovation and non-technological innovations.

The Liideri project has three focus areas: 1) renewal of management; 2) employee participation in renewal of products, services and their production; and 3) new forms of work organisation and working. A number of instruments are used to effect change in these areas, including work organisation development projects, integrated R&D projects, funding for research, and widespread dissemination of the outcomes.

Source: Tekes (2014), Liideri – Business, Productivity and Joy at Work; a new Finnish National Programme, www.workplaceinnovation.org/nl/kennis/kennisbank/liideri---business--productivity-and-joy-at-work--a-new-finnish-national-programme/1235.

Box 1.6. Better Work Programme

As a partnership between the UN’s International Labour Organization and the International Finance Corporation, he Better Work Programme brings diverse groups together – governments, global brands, factory owners, and unions and workers – to improve working conditions in the garment industry and make the sector more competitive. Operating in seven countries, 1,300 factories and involving more than 1,750,000 workers, The Better Work service model is rooted in four key themes: Ownership, Partnership, Accountability and Dialogue.

Ownership means that each factory improvement process takes into account the views of the women and men working in the factory regarding what is important in the workplace to them and how they can bring about sustainable change. By promoting dialogue in factories, it empowers management and worker representatives to identify their needs and improve their working relationships, as a basis for effective prevention and remediation of problems. While engaging with factories it also builds partnerships with other industry stakeholders, to capitalize on their efforts and strengthen their roles. Finally, accountability is essential to ensure that needed improvements are implemented and to bolster the reputation of the industry among consumers and other stakeholders.

An independent impact assessment found that factories experienced a rise in profitability (measured as the ratio of total revenue versus total costs) due to their participation in the programme. After four years of the Better Work program in Viet Nam, the measure of profitability increased by 25%. Researchers also found the program resulted in: lower injury rates among workers; fewer instances of unbalanced lines, where work piles up at some stations while other workers are idle; supervisors with more confidence in their ability to do their job and supervisors more likely to listen to workers’ concerns regularly (ILO and IFC 2010).

Source: ILO and IFC (2010) Progress and Potential: Findings from an Independent Impact Assessment of the Better Work Program, International Labour Organisation and International Finance Corporation, Geneva and Washington.

Policies and programmes that have demonstrated success

The better use of skills is an emerging area of opportunity for policy but it requires new thinking across employment, skills, and economic development policy portfolios. It requires countries to focus on new approaches to stimulate demand-side interventions, which can raise employer ambitions and offer strong skills development and career progression opportunities for individuals. Through a literature review and case study work, the following policies and programmes have been identified as offering the potential to enhance the use of skills and better contribute to productivity and increased equality within local economies.

Building awareness of the issue and recognising employers that take the high road

One of the barriers to improving the use of skills is a low level of awareness amongst managers, social partners and business support organisations that skills under-utilisation is an issue (Wright and Sissons, 2012) and the potential benefits of innovative forms of workplace organisation (Totterdill et al., 2002). As such, the public sector can play a role raising awareness and continuing to build the evidence base for why action is needed in this area.

A number of such projects exist. For example, in Australia, the Centre for Workplace Leadership was established in 2013 as a joint initiative between the Australian Federal Government Department of Employment and the University of Melbourne’s Faculty of Business and Economics. Its research focuses on building the capability of frontline leadership; creating and sustaining a high performance workplace culture; transforming workplaces through technology and workplace innovation; and workplace leadership for the future. In 2016, it released the Study of Australian Leadership, a national survey of leadership in Australian organisations. Another example can be found in Europe, where the European Commission created the European Workplace Innovation Network (EUWIN) in 2013 to stimulate awareness of workplace innovation and to share knowledge and experience between enterprises, researchers, social partners, and policymakers through conferences, workshops, film, social media and an online Knowledge Bank.

Other types of soft mechanisms can be used to persuade employers to take up such approaches. One such mechanism is recognising and awarding high road employers. In the Philippines, the National Wages and Productivity Commission oversees the Productivity Olympics, a national competition to award micro, small and medium enterprises with the best productivity practices nationwide. Interested businesses can submit applications to Regional Screening Committees co-ordinated by Regional Tripartite Wages and Productivity Boards, who in turn select a regional nominee to be submitted to the National Screening Committee. Businesses are scored based on business excellence (total productivity, expansion and growth, and awards/recognition/certification) and resource management (people, and system, technology and green). Winners receive a cash award, the right to use the Productivity Olympics logo for publicity purposes, and priority endorsements for other training programmes and public services. In the United States, the Hitachi Foundation’s Good Companies @ Work programme recognises “Pioneer Employers” that provide quality jobs and pathways to the middle-class for their lower-wage workers, while remaining competitive in their industries. In Australia, the Australian Training Awards recognise small enterprises that have achieved excellence in the provision of nationally recognised training to employees that have improved productivity and profitability.

In Scotland, employers can sign up for the Scottish Business Pledge if they pay a living wage and meet the requirements of at least two other pledge elements (and make a commitment to meeting the other requirements over the long term): not using exploitative zero hours contracts; supporting progressive workforce engagement; investing in youth; making progress on diversity and gender balance; committing to an innovation programme; pursuing international business opportunities; and playing an active role in the community. As of April 2016, almost 250 businesses had signed up for the pledge, accounting for over 57 000 Scottish jobs (Scottish Business Pledge, 2016).

However, it should also be noted that there are limits to this type of persuasion-based approach, especially as many managers may not have the capacities or skills to put in place new workplace practices even if they understand their importance.

Providing support for employers to reshape workplaces

More direct interventions involve funding or other types of interventions to support employers reshape workplace practices or move to higher value-added production. Such support can take the form of staff or management training, using consultants or other external experts to support management in diagnosing and upgrading workplace organisation and technology, supporting action-oriented research in businesses. Such programmes exist in a number of European countries (see Alasoini, 2016; Totterdill, 2009 for reviews), but can also be found outside of Europe.

For example, in South Africa, the Workplace Challenge Programme seeks to improve the productivity and competitiveness of South African firms, through constructive workplace relations; improving workplace practices based on “best operating practices and world class manufacturing” principles; and sharing and disseminating processes and lesson. It was created at the initiative of the National Economic Development and Labour council, a tripartite body. Labour representatives, middle management, supervisors and shop-floor employees from participating firms attend capacity building workshops and a consultant, whose fees are subsided by the programme, assists in helping firms develop and implement a workplace change plan.

Chapters 3and 4 of this report highlight two other promising examples of programmes that are working with employers to reshape workplace organisation and provide employees with more autonomy in performing work-related tasks on the job (see Box 1.6 for a short description – consult Chapters 3and 4 for more information).

Box 1.6. Designing programmes to improve job quality and competitiveness in the United States

Targeting the restaurant industry in Boston

The restaurant industry is one of the largest and fastest growing sectors of the U.S. economy, but job quality remains a large concern. Even though over 58% of workers in the industry are 25 and over, the restaurant industry has one of the highest proportions of workers earning at or below the minimum wage: 39% of the industry’s workforce. Workers in food preparation and serving-related occupations earned a median wage of USD 9.02 per hour (including tips) in 2010, which falls below the poverty wage for a family of four for a full-time worker (The Aspen Institute Workforce Strategies Initiative, 2012). Not only do restaurant jobs tend to be low-paying, but they also provide limited opportunities for skill development, promotion, and advancement.

Following a year in which the business had lost money on an unsuccessful food truck venture, management of the Paris Creperie cafe, located in a suburb in Boston, recognised that in order to remain competitive, they needed to grow revenues, decrease staff turnover, (which was at 82%), and reduce high operational costs. To address these challenges, management of the cafe decided to implement Open Books Solutions, a profit sharing programme, using funding from the Massachusetts’ Workforce Training Fund Program.

The premise of Open Book Management is that financial information (including revenue, profit, cost of goods sold and expenses) provided to employees should not only help them develop skills to do their jobs effectively, but also help them understand how the company is doing as a whole. It is a management philosophy founded on the idea that all employees down to the frontline will perform better if they know how the company is doing financially, are empowered to make changes, and have a stake in its success through profit sharing.

Through this initiative, Paris Creperie had a total of USD 67 000 in cost savings to distribute to employees after one year. Performance bonuses were distributed based on hours worked. They also achieved the goal of reducing employee turnover from 82% to 60%.

Singapore Enterprise Training Scheme

In Singapore, the Enterprise Training Support (ETS) scheme was introduced in 2013 to 1) raise employees’ productivity and skills levels; 2) attract and retain valued employees by developing good human resource (HR) and management systems and practices tied to training; and 3) attract and retain valued employees by benchmarking compensation and benefits. ETS seeks to make skills development relevant to workplace performance and link skills acquisition and utilisation to retention.

While it is too early to ascertain the overall impact of the programme, the case study presented in Chapter 3 demonstrates how to businesses have been able to use this scheme to improve both skills supply and skills use in their organisations.

One of the key learnings from the implementation of these programmes is the importance of working with trainers, consultants or other experts who have demonstrated expertise in specific sectors or in issues related to work organisation. Technical expertise on how to improve job quality in ways that benefits both workers and employers is often sector specific, with relatively few organisations and consultants having the requisite experience (Conway and Dawson, 2016).

For example, in the case of Paris Creperie, Delta Foodservices Group oversaw the training and implementation of Open Book Solution. Following decades of experience advising and training food service providers, this group decided to offer Open Book Solutions in order to address the dual challenge of low profit margins and increasingly low wages in the industry. In evaluating the success of action research projects in which universities and colleges work with employers around skills utilisation projects in Scotland, Payne (2012) also noted the special skill set needed for universities to work with businesses and that university and college staff may lack the requisite skills, expertise and interest for this type of work.

Another key learning from this work and the literature is that narrowly defined interventions are unlikely to have the desired impact. Rather, targeting change across “bundles” of HR and organisational practices, other management aspects, as well as broader product market strategies may be needed, given the linkages between them. In a major international literature review conducted in 2013, the ILO found that the weight of evidence strongly suggests that combinations of HR practices are associated with positive outcomes related to productivity, innovation, staff retention and customer satisfaction (ILO, 2013).

In examining the practices of firms that are able to offer “good jobs” in low cost settings such as retail, Ton (2014) points to the necessary synergies between investing in people and other operational decisions. In this study, firms shared a common set of characteristics: offering fewer products and no promotions; combining standardisation and employee empowerment; cross-training so that employers can be shifted between tasks depending on customer traffic; and operating with slack to improve customer service and allow employees to be involved in continuous improvement.

As a growing number of countries are also using employer levies to fund skills development through for example, national human resources or skills development funds, their potential to provide resources to improve skills utilisation in the workplace also needs to be recognised. As noted by the ILO, the shift from primarily funding training to funding an array of workforce enhancement services is based on the understanding that it is important to build and support capacity inside and outside of individual firms (ILO 2016e). See Box 1.7 for an example from Singapore.

Box 1.7. Singapore Skills Development Fund (SDF) and Enterprise Training Scheme (ETS)

Whilst its primary focus is the training of existing workers, new entrants and re-entrants to the workforce, it also goes beyond training to influence company choice of technology and promotes special training programs focusing on the upgrading of workers skills. The SDF also supports a training leave scheme for older workers and on-the-job training consultancy services for accelerating skills development in the knowledge economy. It forms part of a broader government industry strategy to restructure the economy towards more capital intensive production systems and higher skills use in the workplace. The Skills Development Levy is imposed on employers, with a higher levy rate applying to lower wage workers earning S$2,000 or less a month. The SDF is administered by the Skills Future Singapore Agency which also funds the Singapore Enterprise Training Scheme.

The Enterprise Training Support (ETS) scheme was introduced in 2013 to 1) raise employees’ productivity and skills levels; 2) attract and retain valued employees by developing good human resource (HR) and management systems and practices tied to training; and 3) attract and retain valued employees by benchmarking compensation and benefits. ETS seeks to make skills development relevant to workplace performance and link skills acquisition and utilisation to retention.

While it is too early to ascertain the overall impact of the programme, the case study presented in Chapter 3 demonstrate how to businesses have been able to use this scheme to improve both skills supply and skills use in their organisations.

Working at the level of sectors and employer networks

Where interventions directly targeted to individual workplace may not be feasible, there is also an opportunity to introduce programmes and measures targeted to multiple employers simultaneously, creating or leveraging employer networks or working at the level of sectors. Evidence suggests that such approaches are not only efficient in terms of the cost of delivery, but also are potentially more effective at catalysing change. According to UKWON (2015), workplace innovation “programmes have re-focused from case work policy models towards networking strategies” as “evidence suggests that when clusters of enterprises work together, this proves cost effective for public agencies and are likely to deliver sustainable results”. Likewise, Erickson and Jacoby (2003) found that managers who participated in industry and cross-industry associations, civic organisations and internal networks of multi-unit firms were more likely to adopt high-performance work practices and employee training programs.

Box 1.8. POSCO Human Resource Development (HRD) Consortium

The Consortium for HRD Ability Magnified Programme (CHAMP) has been a leading vocational education and training programme in Korea since 2001. CHAMP facilitates joint training between large companies and SMEs that are mostly situated in the supply chain as suppliers and contractors of the large companies. The POSCO Human Resource Development Consortium (POSCO HRD) in Gwangyang is one such example.

Since 2005, POSCO has participated in CHAMP and provided training for employees of SMEs and outsourcing partners. The company has also provided customised education requested by SMEs as well as safety/job/innovation education to reinforce the human resource management capabilities of SMEs.

POSCO’s HRD Consortium takes three approaches to solving company human resources management issues. The first involves change management, where POSCO’s HRD Consortium provides leadership education to mangers and developing a common company vision in partnership with employees. The second involves productivity improvements within the firm through POSCO’s six sigma program named Quick Six Sigma. Lastly, training is organised through certified industrial engineer education courses.

More information on the design of the initiative can be found in Chapter 5.

With such an approach, there is an opportunity to use other employers as role models or to have larger employers play a lead role in catalysing change within their supply chains. Such an approach can be seen in Chapter 5 of this report, which highlights the POSCO Human Resource Development (HRD) Consortium in Gwangyang, Korea.

A similar approach can be seen in the UK Futures Programme, which entailed a series of “productivity challenges”. One particular strand of this work sought to improve management practices by sharing skills, ideas and values through existing business relationships such as supply chains. Using UKCES research through the UK Employer Skills Survey, sectors were identified where management and leadership problems were more prevalent (e.g. manufacturing, construction, insurance and legal). Not all of these sectors recognised the concept of “supply chains”. Wider UKCES research suggested that whilst supply chains were not prevalent in insurance and legal, other forms of business relationships were likely through networks of dependency (e.g. insurance advisers, sub-contracted specialist legal services) (UKCES, 2015). The scope was then extended to include the notion of “networked organisations”.

Working at the sector level can take a number of forms – from creating enabling conditions for sectors to shift to higher value added products and services (e.g. through applied research and technology transfer projects) to improving skills use and job quality in sectors with high rates of low paid, low-skill jobs (e.g., through development of career ladders, and work re-organisation). The use of a sectoral strategy can create ecosystems that encourage skills utilisation as part of a “competitive model of choice” for employers (Sung and Ashton, 2014).

Sector-based strategies can be particularly effective as they are better able to take into account the overall “skills ecosystem” that serves as the broader context for how skills are used in the workplace. For example, Wrights and Sissons (2012) identified that in the UK, the key challenges for the retail sector are to improve the quality and completion rates of apprenticeships and creating more intermediate supervisor roles. In the hospitality sector, there is ample room for improvement in skills utilisation and in employers taking a more holistic vision of what skills are and how they are rewarded (e.g. to better take soft skills into account), but low firm profitability is a key barrier.

In the United States, Osterman (2008) identifies the healthcare sector as a “natural” target for upgrading poorly paid jobs for a number of reasons. There are multiple levels of jobs and potential for progression, healthcare employers are rooted in specific places and cannot leave to locations with lower wages, firms are dependent on various public policies (licensing, regulation, as well as public reimbursements for services), they face challenges related to high turnover, and many hospitals are unionised, which means there may already be strong interest approaches such as career ladders.

Box 1.9. SCORE programme, Viet Nam

The Sustaining Competitive and Responsible Enterprises (SCORE) programme is a practical training and workplace improvement program to increase the productivity of small to medium-sized enterprises (SMEs) while promoting respect for workers’ rights, supported by the International Labour Organisation. The programme demonstrates best international practice in manufacturing and service sectors and helps SMEs to participate in global supply chains. In supported by the Swiss and Norwegian governments, SCORE is a global program with country activities in China, Colombia, Ghana, India, Indonesia, Peru, South Africa and Viet Nam. Since its inception in 2010, the SCORE program has involved over 1 000 enterprises and built the skills of over 8000 workers and managers. Participating firms report results in the form of better workplace co-operation, a better working environment, reduced absenteeism, reduced waste (48%), reduced costs (91%), defect reduction (64%) and increased productivity (50%) (ILO, 2016d).

In Viet Nam SCORE started in October 2011 and targeted the wooden furniture manufacturing industry in Ho Chi Minh City, Binh Duong and Dong Nai. The program is also currently expanding to Binh Dinh province in central Viet Nam and the garment sector in southern provinces.

SCORE is a modular training programme that focuses on developing co-operative relations at the workplace. The five SCORE modules cover workplace co-operation, quality management, clean production, human resource management, and occupational health and safety. Module 1: Workplace co-operation is the fundamental module, setting the approach and methodology for the other 4. Each of the modules includes a baseline assessment, joint two-day classroom training for managers and workers and on-site consultancy visits from experts to the participating enterprises. In Viet Nam, between 2011 and 2015, 87 furniture manufacturing enterprises employing 26,438 staff participated in the program, with 734 undergoing training and 410 on-site consultancy visits providing advice on a range of management and process issues.

More information on the program in Viet Nam can be found in Chapter 6.

Leveraging the role of anchor institutions

There may also be opportunities to leverage the influence of “anchor institutions” to create change in local economies (Smallbone, 2015). Recent work by the UKCES has pointed to the importance of anchor institutions in helping to address productivity issues related to the poor use of skills (UKCES, 2014). An anchor institution is one that has a strong local presence and makes a strategic contribution to the local economy. They include universities; vocational education and training institutions, chambers of commerce, banks and major employers. The OECD’s research into this area has demonstrated the important role that can be played by vocational education institutions (OECD, 2014).

In Ontario, Canada, local community colleges and universities appear to be particularly useful partners in helping to raise product market strategies locally (OECD, 2014). Niagara College, for example, has not only geared their curricula towards meeting local industrial demands in horticulture and wine making (an example being the Winery and Viticulture Technician programme), but has also set up an applied research unit which helps local firms to upgrade their products and business strategies. It collaborates with firms in areas such as product and process applied research, engineering design, technology development, product testing, proof of concept, piloting and problem solving. In the United States, a number of universities and hospitals in the city of Cleveland have come together to use their purchasing power to support large-scale worker-owned and community-benefitting businesses through the Evergreen Co-operatives.

However, many potential “anchor institutions” require assistance to enable them to better support change in the workplace. Anchor institutions require a specific skills set to guide, facilitate and deliver training and other services that can enhance the demand for and utilisation of skills in workplaces. In the Riviera del Brent for example, European Social Funds have been important in supporting the research and innovation carried out by the local polytechnic, Politecnico Calzaturiero, and facilitating their efforts to collaborate with local employers (OECD, 2014). In Australia, the Workforce Development initiative of TAFE NSW, the country’s largest training organisation, provided training and resource materials to promote the role and capacity of their colleges to provide consultancy services to employers on workforce development issues, including how structured training could support the better utilisation of skills in the workplace (TAFE NSW, 2008).

Building on institutional changes in legislation and regulation

At a system level, labour market and education institutions can impact on the way that skills are used in the workplace. Some OECD research has pointed to strict employment protection legislation (EPL) on permanent workers as increasing mismatches and potentially leading to poor utilisation (OECD, 2016; Adalet McGowen, and Andrews, 2015). It should be noted that unions have shown themselves to be valuable partners in working alongside firms in tripartite agreements to raise labour productivity and skills utilisation while also improving wage levels and working conditions (OECD, 2014; Findlay et al., 2011). Their involvement is crucial to ensuring that any productivity gains from increased employee discretion and problem-solving are passed back to workers in terms of raised salaries and improved working conditions

Chapter 7 highlights how an unrelated change in product market regulations and occupational licensing can serve as a trigger to reshape how skills are used within a sector. In this case, the Disability Services sector in Australia launched a new client-centred qualification (Certificate III in Individual Support and Diploma of Individual Support) which created opportunities for providers to consider the skills implications of consumer directed care. It also demonstrates how governments can use their influence as a major purchaser of goods and services to impact job quality.

Box 1.10. Impacting skills use through regulations in the disability sector in Australia

In 2012, the Australian Government together with the governments of its states and territories agreed to transform the way that disability services are funded and provided. The National Disability Insurance Scheme (NDIS) aimed to shift service provision to a client-centred approach while also eventually expanding access to support for many more Australians with a disability. The Scheme, once fully operational, is expected nearly double the size of the disability sector workforce as well as create demand for new job roles, skills, and employment models. The NDIS is currently undergoing a staged rollout with trial sites across Australia, including in the small island state of Tasmania. As part of the trial, the Australian Government together with other stakeholders is sponsoring a number of workforce development projects.

In Tasmania, disability service provider engagement in workforce development activities is organised around the Tasmanian Disability Industry Workforce Development and Skills Plan: 2013-18. The plan was released by NDS Tasmania in June 2013 after consultation with NDS Tasmania members and other industry stakeholders. The plan details four priorities for the sector and the outcomes sought.

Industry capacity and capability for workforce development and training. A strategic and integrated approach to workforce development and planning as a foundation for navigating the transition to greater emphasis on self-directed funding and a “managed market” environment.
Management and leadership skills. Current and emerging leaders and managers are skilled in adaptive management and leadership, and able to effectively and innovatively navigate the transition to a managed market environment.
Attracting and retaining our workforce. An industry of choice characterised by a growing and diverse workforce that is inspired and rewarded by working with people with disability to live as they wish.
Skilling the workforce for the future. A workforce that is committed to continual skills development; that has the competency and capability that support new ways of working with consumers and their families and carers; and a responsive VET system that offers best quality training and support for the current and emerging workforce.

More information on the initiative can be found in Chapter 7.

Creating a regional brand

Local authorities often have an overview role which makes them natural brokers and catalysts for bring together those involved in both skills supply and skills demand in a local economy (OECD, 2014). In addition to galvanising a local community approach, it is also important that they make use of their capacity to better train and utilise skills within their own workforce, while influencing change as a local purchaser of services. At the local level, a place-based approach can also be taken to create a community-wide vision for how the local economy should be organised. This could include bring together firms to collaborate on a common marketing strategy, while also pooling investment in training provision and helping firms to collectively upgrading their product market strategies. This can result in the creation of a regional brand or reputation that marks a particularly place as valuing job quality, or producing high quality goods and services. Box 1.11 provides an example from Gipuzkoa, Spain, which is implementing a programme to become a socially responsible territory.

Box 1.11. Gipuzoka socially responsible territory

Since 2004 the Gipuzkoa province in Spain has been implementing a policy to promote new forms of organisation based on people, where participation (in the fields of management, decision making, capital and results) has a fundamental role. The Department for Economic Promotion, Rural Environment and Regional Balance of the Government of Gipuzkoa, by means of the “Programme for the Promotion of a Socially Responsible Region” aims to foster organisational, social and regional innovation, focusing on the commitment of economic, social and regional agents to people, organisations and the environment. This programme includes two streams of work: 1) R&D and experimentation projects and 2) broader dissemination and knowledge sharing. The aim is to enhance participatory approaches in companies in order to create stronger ties to the business project and get the company involved in their surroundings (bringing the power of decision-making closer to their everyday reality), also making the business management easier.

Conclusions and key lessons

This chapter highlights key findings from a literature review undertaken to understand the state of play which regards to better using skills. Traditional approaches to skills have focused on the supply side but there is an increasing recognition of the importance of also stimulating the demand for skills to boost productivity, competitiveness and job creation. There are benefits to be gained by both individuals and employers from focusing on how to improve skills use. Firms will have a dynamic workforce, which is more adaptable, profitable, and more engaged, thereby reducing turnover. Individuals gain from stronger wages and general overall job satisfaction.

There are a number of influences that impact how skills are used in the workplace, including work organisation, product market and business strategies, workplace relations as well as broader institutional factors. Data from the OECD PIAAC shows that skills use varies within and across countries. Furthermore, while there is considerable variation across countries, the prevalence of High-Performance Workplace Practices can positively influence the extent to which skills are used. In addition to understanding if people are well-matched in their jobs, it is also important to understand the dynamic mix of skills supply and demand. This can help local policy makers understand whether the education and training system is being responsive to strategic growth sectors of the economy as well as whether the quality of jobs is sufficient for productivity gains.

Skills utilisation policies require policy coherence across employment, skills, economic, and innovation policies as well as new way of formulating and implementing strategies outside of programme silos. Each policy portfolio can play a critical role in stimulating the demand for skills among employers and raising their product offer. In designing and delivering public programmes to affect change within “the black box” of workplaces, policymakers should consider a number of overarching lessons that have emerged from this study.

Skills utilisation should be identified as a priority across policy domains, in addition to being the focus of targeted interventions

Public actors can do more to support employers in putting skills to better use, both by considering skills utilisation as a cross-cutting element of interventions originating in other policy domains and by putting into place specific programmes to tackle these issues. As discussed earlier, interventions in the fields of labour market policy, economic development, skills development and innovation could all do more identify “win-win” approaches to achieving the objectives set out for those particular domains while simultaneously getting more employers on the high road to better using skills (or at least not facilitating employers taking the low road). Similarly, financing models from a particular sector could be adapted to provide options to support enhanced skills utilisation in the workplace, as has been the case in Singapore.

High levels of employer engagement and leadership are key

While employer engagement has increasingly become a mantra across a variety of employment and training systems, securing high levels of buy-in and engagement from employers is even more critical in the field of skills utilisation. For example the case study of restructuring of disability services in Australia highlights the important role played by NDS, the peak body representing non-government disability services, NDS’s engagement meant that the strategy and activities were industry-led, and were able to be integrated into workforce development activities and other initiatives. Employers are also more likely to trust other employers as role models than public actors, and engaging large, anchor, or prime firms can help to pull smaller firms in their networks or supply chains down the path to the high road.

The case studies also demonstrate that while public funding can be used as a trigger to overcome short-term inertia or to change the framework conditions in which businesses operate, but meaningful, long-term changes will rest on the business case being made and a high level of commitment on the part of management. For example, the case study in Singapore shows that when skills support – acquisition, retention and utilisation – becomes part of an overall sound business model, employer buy-in becomes more likely. And after the initial adoption, a skills-driven business model becomes the “normal” way of running the business.

Specialised, technical expertise is needed to get employer buy-in and affect change

Working with employers to effect change at the level of workplaces requires deep, technical expertise, which is oftentimes sector specific. Public actors and their traditional partners may not hold this level of technical expertise, suggesting a need to engage external consultants or others with deep sector experience. Attention may also need to be paid to how to build such capacities in other places, such as universities where staff may have relevant expertise, but may not be accustomed to working directly with employers.

Initiatives should be strategically targeted in order to maximise effectiveness and efficiency

Initiatives should be targeted to where there is the most potential for traction and uptake, or the most need for change. This may include targeting SMEs, focusing on low-wage sectors and occupations, or strategically linking skills utilisation to other policy changes impacting sectors (as was the case with disability services in Australia). However, it should be noted that there can be trade-offs in working with SMEs: managers have little slack time and may be distrustful of government; programmes such as career ladders may have limited applicability in smaller organisations; and it can be resource intensive to work with a large number of small firms as opposed to a smaller number of larger firms (Osterman, 2008). Working at the level of employer networks can help to overcome some of these challenges, especially those related to economies of scale.

Multi-faceted interventions are needed – both at the level of workplaces and local economies

As discussed earlier, a variety of factors influence skills utilisation – both internal and external to individual workplaces. As such, single shot or narrow interventions may be insufficient to affect long-term change. For example, the experience if programmes in Finland has shown that “the target of development at the workplace level should be a work system that consists of several interrelated work, organisational and human resource management practices on the whole, rather than individual practices as such” (Alasoini, 2015). In other words, bundles of management practices as well as the links between product market strategies and skills need to be taken into account.

A similar logic applies to interventions at the level of sectors or local economies. Encouraging greater skills utilisation will require creating an environment in which high skills utilisation is the basis for achieving a competitive position and makes business sense. Co-ordinated approaches across training, employment and economic development can help to create an environment in which better utilising skills “pays”, and is a natural decision for firms. Additionally, the rising importance of skills utilisation does not necessarily mean that the influence of human capital theory is on the retreat. Instead, it is often necessary to address skills utilisation and skills supply (acquisition) simultaneously to create meaningful change.

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Note

← 1. It should be noted that these results are based on employee self-reports, and results of employer surveys may show different results.