Full report
Published: 16 December 2020

Global Competitiveness Report Special Edition 2020: How Countries are Performing on the Road to Recovery

Section 2: Human Capital

Human capital—the capabilities and skills of individuals and populations—is a key driver of economic prosperity and productivity. It can be developed by ensuring individuals are able to sustain good health, and they are in possession of in-demand skills and capabilities. The value of human capital is realized in the labour market through productive employment, and it is developed through education during the first two decades of an individual’s life as well as through mid-career training investments. Finally, a set of preconditions aligns incentives between workers and businesses—maintaining a tight connection between pay and productivity, meritocracy in pay and professionalization in firm management as preconditions for wider workforce productivity.20The challenges posed by the COVID-19 pandemic have reaffirmed the need to move beyond simply providing basic access to education and health. There is also a need to shift to active labour market policies and business practices that integrate education and health with mid-career training opportunities which match the needs of the labour market, safety nets for times of workforce disruption and workforce management underpinned by merit-based practices.

This section focuses on these aspects jointly. Section 2.1, using historical data, shows trends in education, skills and access to health, highlighting ongoing challenges that required policy attention even before the pandemic. Section 2.2 provides a set of priorities for policy interventions for broadening the human capital framework to encompass safety nets, education and training, and health to support economic growth revival in the short term (1-2 years), while making sure that no one is left behind. Section 2.3 offers policies recommendation for the longer run (3-5 years) to ensure that a reskilling revolution takes place, that health systems are reformed and that labour laws and safety nets deliver widespread, inclusive prosperity in the future.

Talent shortages have become more pronounced, underpinned by outdated education systems.

Over the past decade, human capital development across advanced economies has stagnated, although a number of developing economies have made investments in basic upgrading of education and training systems. Across developed and developing economies, talent gaps remain large, local education systems are increasingly outdated and there are limits to international mobility. For example, relative to 2008, the ability to import talent has dropped by 17% percent in advanced economies and 12% in emerging economies.

The adequacy of local secondary education systems to meet the needs of employment is rated at 59 points (out of 100) in advanced economies and 42 points (out of 100) in emerging and developing economies. A number of large economies have seen downward trends in adequacy of skill sets of all graduates in recent years (among them, India, South Africa, United States and Germany) while others such as Korea, Rep, Saudi Arabia, Turkey and China have improved their scoring (Figure 2.1).

Similarly, the adequacy of tertiary education to meet the needs of employment is rated at 68 points (out of 100) in advanced economies and 55 points (out of 100)in emerging and developing economies. In theaggregate, these figures have seen little change overthe past years. The tertiary education systems thatare rated as best placed to deliver to the needs ofemployers are those of Switzerland (82), Singapore(79), Finland (79) and Chile (71). In contrast thefollowing countries trail behind: Ethiopia (37), India(39), Brazil (45), Japan (59), Italy (62), and UnitedKingdom (63). Tanzania and China are among thebest improved, while India, Ethiopia and the UnitedStates have seen the largest decline.

As a result, the ability to find skilled employees has declined across advanced economies by 7% relative to 2016, while improving across developing economies by 3%. As presented in Figure 2.2, business leaders across geographies continue to report difficulties when searching for individuals who can fill vacancies in their enterprises and over time the trends in emerging and developing economies have converged to a similarly low base.

There is a particular shortfall in digital skills and other skills of the new economy as technology disrupts labour markets.

As new technologies are adopted by enterprises globally, skills shortages in digital skills and the skills needed for the jobs of tomorrow are set to become more pronounced as populations have switched to remote work during the COVID-19 pandemic.

The World Economic Forum’s Future of Jobs Report 2020 has projected that technological change is set to displace a range of skills in the labour market while driving greater demand for a new set of core skills such as analytical thinking, creativity and critical thinking as well as skills in the use and design of technologies (“digital skills”). While such changes are still likely to result in a net positive employment outlook in the midterm, there is significant additional disruption and stagnation in the labour market due to the COVID-19 recession.21

Since 2017 (when data was first available for this indicator) the perception of businesses on digital skills have, on average, decreased by 3.4% among advanced economies and increased by 1.8% among emerging and developing economies, while developing and emerging economies score 49 (out of 100) and advanced economies score 67 (out of 100). The largest improvements have been in Egypt, Bulgaria, Saudi Arabia and Tanzania while the United States, Norway, South Africa, Germany and Japan have seen the largest decline of digital skills relevance.

The lack of adequate digital skills not only hampers the diffusion of ICT but also exacerbates the risk of job losses related to automation. As shown in Figure 2.3, in OECD countries, at least 14% of all jobs are at “high risk” of automation and 32% of all jobs are at “significant risk” of automation. In 16 of 27 OCED countries digital skills scores have declined over the past four years, making it more difficult for workers to transition to new roles.

There are misaligned incentives and rewards for workers.

Among developed economies, pay is increasingly de-coupled from the overall productivity of workers, driven in part by high rates of technological adoption, yet resulting overall in an increasing polarization of wages between workers employed in different professions. In addition, as tracked by the Executive Opinion Survey over the past decade, there has been a gradual erosion of meritocracy in labour markets across economies, a decline in the assessment of professional management and lower evaluations of the ability of firms to promote and develop diverse talent. For instance, business leaders reviewed meritocracy assessment downward by 3% on average, 12% in the United States, 14% in Sweden and 23% in Brazil.

A key emerging priority of the last decade has been the reallocation of the current workforce into emerging professions in tandem with relevant reskilling and upskilling. In this context, the persistent erosion of meritocracy, as well as the new challenges posed by the COVID-19 pandemic, call for governments to support both businesses and workers in the transition to the new world of work and improve quality, wages and standards of work in the new economy.

Health services, infrastructure and talent have lagged behind two dominant demographic trends, increasing population in the developed world and ageing populations in the developing world.

Average life expectancy has jumped by four years since 2010, and by nine years since 1990. The most significant progress has been achieved in low- and middle- income (developing) economies. In these countries, life expectancy has increased by 5.62 years since the start of this century.

This progress is largely due to improved sanitation across developing economies as well as, more broadly, to the emergence of new medical technologies. Such positive figures mask persistent under-investment in health system capacity which has become more apparent during the COVID-19 pandemic.

The gap between the demand and supply of health personnel remains large. According to World Health Organization estimates, healthcare services in high-income economies are set to experience a shortfall of 78,000 professionals by 2030. In developing and emerging economies, despite a 15% increase in the average number of physicians per capita between 2000 and 2017, there is still a shortage of doctors to meet a rapidly growing demand.22

2.2 What are the priorities for human capital development in the short-term revival of economies?

Manage a gradual transition from furlough schemes to new labour market opportunities.

Holistic labour market policies will be needed to support the transition of the cohort of individuals whose employment has been supported by government-funded furlough schemes or through other emergency support measures. In the coming year these schemes will have to give way to other, less temporary policy measures.

With a significant rise in unemployment in the COVID-19 context and risk of further expansion of those figures, the labour market will benefit form a new cohort of policies which support workers’ income and health needs in the short term, but also power their re-allocation to new jobs and professions in the short- to medium-term.

Job creation measures such as funding small and medium-sized enterprises and new entrepreneurial clusters, as well as creating a cohort of new, quality-focused apprenticeships collectively focused on the professions of the future, could further ease the transition to the new labour market.

Individual efforts to undertake an investment in mid-career reskilling and upskilling can be motivated by government programmes but also by employers’ commitments to training, fair wage practices and merit-based management practices. These behaviours by firms can signal to workers who are exploring both short-cycle and fundamental training that their efforts will not be wasted, and they will be rewarded on the basis of investments they make in their human capital.

Scale up reskilling and upskilling in emerging skills, combined with active labour market policies.

A revival in the development of human capital and the functioning of labour markets across economies requires focused efforts to renew training systems across various age and experience cohorts, with an emphasis on the skills needed for emerging jobs. This update is urgently needed in secondary education to ensure that future generations of young people enter the labour market with job-ready skills. However, talent shortages will remain endemic until there is substantial escalation in mid-career re-skilling and upskilling programmes as many of the individuals who need further reskilling and upskilling are beyond school age and current members of the workforce.

Specific policy efforts will need to target reskilling and upskilling for those who are at greatest risk of job displacement or are currently displaced. For example, unemployment services aimed at those out of work can encompass both income support schemes to maintain living standards during times of hardship and access to relevant retraining opportunities mapped to emerging jobs and skill sets to empower future labour market re-allocation. For example, in the past year, the Danish Ministry of Employment provided furloughed workers with an increase on typical unemployment benefits under the condition that they pursue upskilling and reskilling. Other governments, in Singapore and France for example, have provided workers with funded skills accounts for completing additional training. New technologies can support this process, mapping career trajectories and identifying personalized training opportunities with unprecedented granularity.

Expand health system capacity to manage the dual burden of current pandemic and future healthcare needs.

The events of the past year have further revealed that health systems remain under-funded and under-staffed. In the short to medium term, investments will need to be focused on expanding personnel and capacity to manage the potential of COVID-19 resurgence as well as to deploy a future vaccine. In parallel, countries have already started to, and should continue to adapt their prevention strategies, improving public health messaging, developing greater expertise, implementing new monitoring mechanisms and supporting the safe development of telemedicine.23 These adjustments, together with stronger international collaboration and communications, will contribute to lay the groundwork for greater resilience in the future. In addition, developing economies will need support in funding and deploying their COVID-19 vaccine response as well as strengthening the resilience of their healthcare systems. Weak links in the management of chronic and infectious diseases wreak havoc on local economies and hold global economic consequences as revealed by the COVID-19 pandemic.

2.3 What are the priorities for empowering human capital to drive the long-term transformation of economies?

Beyond the immediate-term revival of human capital in the new economy, the following priorities cover the next steps required to drive a wholesale transformation across economic systems.

Update education curricula and expand investment in the skills needed for jobs in markets of tomorrow.

With a medium-term time horizon, it is possible to map and define the skills needed to drive the markets of tomorrow, to develop new and cutting-edge knowledge, and to engage in the production of frontier technologies. To create such a transformation towards the jobs of tomorrow, economies must fundamentally upgrade technical and vocational training and university education for both students and workers on an ongoing basis. Policy-makers must also innovate and refresh how school curricula teach the core skills that must be seeded for innovation capability later in life through creativity and critical thinking skills.24 In addition, to drive better economies and societies, education and training systems will need to be updated not only to prepare children and adults for future employment but will also need to prepare them to be socially just citizens. New technologies could unlock the ability to scale access to education and to update curricula with greater cadence.

Rethink labour laws for the new economy and use new talent management technologies to adapt to the new needs of the workforce.

With the rapid expansion of digitalization and the adoption of new technologies in all sectors, labour regulation will need to adapt to new forms of work as well as new labour market signals. New formats of work, such as work on online work platforms, calls for new forms of regulation and work standards in the digital economy.

Across the digital platform economy as well as the traditional economy, recent trends have seen a polarization of wages, the disconnect of pay and productivity, as well as erosion of wages to levels where they are unable to guarantee a basic living standard in a number of key economies. These trends suggest a need to examine appropriate minimum and living wage policies that can ensure that workers are able to profit on the basis of their skills and set the basis for a labour market that benefits people and society as well as firms and the economy. Those same aims demand the introduction of further regulation over time that can ensure that adults have the leisure time to maintain civic and familial ties, as well as subjective well-being.

New tools and technologies can support adaptation of the workforce and offer solutions to employers and the public sector. For example, such tools, if managed well, can help reduce the time needed to claim benefits and taxes, or to monitor diversity and inclusion challenges. Such new tools can also be employed to ease the burden of government reporting, allowing public sector oversight, which requires lower levels of private-sector burden.

Expand eldercare, childcare and healthcare infrastructure and innovation for the benefit of people and the economy.

Broad public investments in healthcare and the childcare and eldercare infrastructures can support a future more inclusive economic transformation while offering numerous societal benefits. For example, increasing investment in health can achieve the dual goal of strengthening the capacity of health systems, already insufficient before the pandemic, but also offer an additional area of increasing employment, especially in newly revalued ‘essential’ work. These investments can create preparedness for new health emergencies and promote greater inclusion by broadening access to healthcare, especially among under-served populations.

Such investments are also critical for expanding the care economy for both young people and the elderly. The scale of government investment in this sector has the potential to have significant additional dividends while greatly benefiting societies and individuals; in particular, women, who currently perform most unpaid care work.25

The use of technology can support efforts to scale health and care, and innovation in associated business models, opening the possibility for higher-wage, higher-quality work for health and care industry professionals. For example, new technologies could support eldercare workers to prolong time spent in the home rather than in a care home and to provide early alert systems for worsening conditions. New technologies can also further support the expansion of broader healthcare through new monitoring and tracking tools.

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