Chapter 3: Public and Private sector Pathways to Reviving Labour Markets
The challenges facing labour markets today are significant but not insurmountable. To jointly lead economies and societies to greater prosperity, the public and private sector will need to tackle the factors that lead to the misallocation and waste of human capabilities and potential. For over half a century, economic thinkers have been able to track the benefits of expanding human skills and capabilities to economic prosperity.39 One of the most valuable assets of any economy or company is its human capital–the skills, capabilities and innovation of its citizens. Distortions that undercut individuals’ skills development and their ability to find a job that matches their current and potential capabilities erode the factors of economic productivity, innovation and growth that are derived from harnessing human skills and capabilities.40
To harness human potential towards greater prosperity and inclusion, leaders will need to shift talent from areas of decline to areas of growth in the economy. They will be called on to create effective systems for upgrading individual’s skills and capabilities in line with emerging skills demand—in essence, expanding access and delivery of mid-career reskilling and upskilling through private and public sector investment and to ensure that such efforts by workers are rewarded with adequate job opportunities. To realize the value of such investments, businesses and governments will need to accompany such efforts with policies and practices that ensure that workers are able to prosper on the basis of merit rather than the misallocation of talent due to social strata or characteristics such as race or gender, strengthening the connection between personal income and productivity, and expanding safety nets to alleviate economic strain during periods of transition.
3.1 From temporary public policy relief to long-term solutions
As illustrated throughout this report, the COVID-19 pandemic has laid bare the lack of mechanisms to support workers through mid-career transitions and to ensure worker well-being and livelihoods amidst disruptions. What is needed is fundamental reform—or, more accurately, a revolution in the way education and training systems operate, and in how they interact with labour market policies and business approaches to training workers with new skills. This section reviews the current public policy ecosystem for ensuring adequate social protection, including new temporary measures put in place since the onset of COVID-19.
Reacting to the current social and economic crisis, countries across the globe have announced packages of emergency fiscal and monetary measures of unprecedented scope, and the pandemic has led to the temporary adoption of measures enhancing social safety nets for workers and households in a number of economies. Governments and central banks have implemented fiscal and monetary packages of unique breadth and depth to counterbalance the economic impact of the pandemic as well as to protect workers and households. According to recent estimates by the IMF (International Monetary Fund), close to $11 trillion has been deployed through direct fiscal impulse and liquidity measures aimed at supporting households and businesses through the crisis.41 As illustrated by Figure 32, the fiscal measures implemented by G20 countries in 2020 are larger than those taken during and just after Global Financial Criss in 2007–2008.42 However, the breadth and scale of those policies remain out of reach for most developing economies, which have implemented less than half the number of measures implemented in developed economies. This continues to be a concern given that many developing economies still lack well-established health systems in addition to social safety nets.
In the immediate term it is possible to analyse the types of measures adopted and prioritized by different economies, while a longer-term horizon will allow a broader analysis of their overall efficacy. Data from the ILO presented in Figure 33 shows that more than 1,000 different policy measures have been implemented in more than 200 countries since the onset of the pandemic. They vary in focus and by instrument utilized. The majority of the measures observed span a range of agile policy solutions which have the capacity to protect the most vulnerable workers directly.While some instruments depend on in-kind services maintaining health, nutrition and having access to shelter, others focus on income stability, such as the widespread use of one-off cash transfers and allowances to subsidize household expenses, as well as a temporary extension and expansion of benefits to workers such as unemployment leave.
The timeliness and adaptability of cash transfer mechanisms have made them a critical tool to be deployed in the volatile context caused by COVID-19, which is why a number of governments across the world have expanded the provision and coverage of social protection schemes using this specific mechanism. However, the majority of the cash transfer measures implemented are time-bound and temporary and might not be the appropriate tool to provide the long-term economic relief necessary to vulnerable households. As illustrated in Figure 34, such mechanisms typically lasted one to three months, with only 16% of the programmes implemented as a result of the pandemic lasting longer than three months.43 Going forward, an innovative approach to addressing the uncertain nature of recessions could be to introduce cash stimulus payments which would be “automatically triggered” by a deterioration in economic conditions, preventing administrative lag and indecision.44
Note: Values include ‘above-the-line’ measures but exclude ‘below-the-line measures’ (equity injections, loans, asset purchase or debt assumptions, or guarantees).
Note: The values represent the distribution of 1,218 measures introduced across 203 countries.
Another set of key policies has been focused on preserving the retention of staff by businesses through wage compensation schemes as well as tax or payment deferrals. Figure 35 presents the unprecedented use of job-retention schemes across several countries—notably New Zealand, France, Switzerland and the United Kingdom—affecting close to 60 million workers across OECD countries.45 While these measures have been broadly welcomed and have been effective at buffering unemployment, such schemes obscure the possible true impact of COVID-19 on the labour market. It is only as wage support and replacement mechanisms begin to expire that some of the damage to the labour market will be revealed.
Notes: Forecasts for Q4 2020 produced by the OECD assuming two waves of COVID-19, namely a “double hit” scenario.
While these temporary measures provide a lifeline to workers during this unprecedented crisis and ahead of a future recovery, the need for an urgent response should be transformed into an impulse to enhance permanent social protection mechanisms. New data from the OECD shows the projected employment growth of a number of economies in 2019–2020 if countries experience a potential second wave of COVID-19 infections. Figure 36 plots that possible new reality against the Social Resilience pillar of the World Economic Forum’s Global Social Mobility Index. The pillar score summarizes in one measure the level of social protection available in an economy alongside the presence of inclusive institutions. Countries that score high have well-developed social safety nets and protection as well as high levels of public service efficiency. Countries in the bottom-left quadrant of Figure 36 have low social resilience scores and at the same time are projected to experience lower economic disruption under this scenario. Countries in that quadrant include Mexico and the Republic of Korea. Those in the top-right quadrant can expect to see high disruption to employment but also have a high social resilience score. They include Ireland, the United Kingdom and Spain. Countries in the bottom-right quadrant can expect to see high labour market disruption and also have a low social resilience score. Those countries include Colombia, Turkey and the United States. In summary, scenarios such as these suggest that some economies will experience a ‘double-hit’ scenario—relatively low coverage of social protection mechanisms in place to protect workers heavily displaced from the labour market.
The political will to expand social protection has often been deadlocked, driven by concerns about the long-term impact on labour market participation, the efficiency of current tools and the capacity of government to deliver these public services with the adequate efficiency at scale. Given the large-scale disruption to workers from both the pandemic-driven recession and the accelerated pace of technology adoption, the question cannot be ‘if’ but should be ‘how’ to expand some of these essential protections.
Research shows that wages have, for some time, been misaligned from productivity and that wage level can be as much determined by the structure of local labour markets or disadvantaged by race or gender as they are by workers receiving a reasonable return on their skills and productivity.46 When it comes to preserving worker’s ability to save, governments can cap the erosion of wages, ensuring that all workers are able to gain a living wage. The economic strain on families subsisting on low wages is not conducive to maximizing long-term human potential and leaves workers vulnerable to disruptions. Legislating against bias on the basis of gender, race or other characteristics protects the connection between employment, wages and the skills and capabilities of workers—guaranteeing that the talents of all parts of the population are used and can drive further growth and prosperity in the economy.
Past research has shown that long-term displacement from the labour market has a persistent, negative effect on workers.47 When social protection mechanisms are lacking, individuals in the midst of a career transition are forced to maintain a dual focus—on the one hand trying to preserve their quality of life and keep poverty and potential destitution at bay, and on the other hand attempting to successfully transition to a new role. For those with historically low wages, it is much more likely that basic needs such as health, nutrition and access to shelter become paramount and overwhelming concerns during such periods detract from productive and successful transitions to new roles. An individual’s capacity to manage this labour market transition can thus be undermined, leading to rushed and potentially sub-par redeployment and re-employment.
While some social protection policies are remedial and short term, not all support can be temporary in nature. When it comes to long-term sick leave, disability leave or long-term unemployment, social protection becomes a fundamental pillar of the support for its citizens on an ongoing basis. For the purposes of this report we have focused on supporting the bounceback of those who are or will be unemployed in the short term due to the recession and technological change. To expand safety nets in the medium to long term, societies will need to rebalance current public spending and consider expanding fiscal room through effective and appropriate taxation.
Governments can proactively shape the preconditions for effective labour market transitions and worker productivity by strengthening the link between skills, wages and employment. This can be achieved through policies that fund reskilling and upskilling of workers who are mid-way through their career and will need further skills to secure employment in the future of work, policies which ensure that workers are able to create cash reserves during periods of employment, and policies which legislate against bias in hiring, firing and setting wages. Reskilling and upskilling policies that have been utilized to date span the conditionality of unemployment benefits on taking up new re-skilling and up-skilling, providing wage subsidies to companies which extend reskilling and upskilling to workers, providing online learning accounts to citizens, and starting to fund online learning in addition to university degrees, TVET and school tuition.
A number of countries have in recent years developed innovative funding mechanisms to finance reskilling of workers. Singapore recently complemented its pioneering Skills Future Initiative through the deployment of Enhanced Training Support Package (ETSP)48 to support workers and organizations in sustaining investment in reskilling and upskilling during COVID-19. The package includes a significant increase in funding for Absentee Payroll Support and Course Fee Support among industries severely hit by the pandemic. At the end of 2019, France created an individual skills account with an integrated mobile application dedicated to vocational training and lifelong learning. Under the “moncompteformation.gouv.fr” (“MySkillsAccount”) scheme, 28 million eligible full- and part-time workers will receive €500 annually directly into their skills account to spend on upskilling and continuous learning, with low-skilled workers and those with special needs receiving up to €800 annually, capped at a total of €5,000 and €8,000, respectively. The Danish Ministry of Employment has introduced a number of measures aimed at providing additional opportunities for upskilling and job-focused education aimed at workers furloughed following as a consequence of the economic impact of the pandemic. First, both skilled and unskilled workers who pursue a vocational education are being provided with 110% of their usual unemployment benefits. Additionally, the Danish government expanded the scope of its current apprenticeship scheme, at the same time as prolonging its job rotation scheme, making it possible for more unskilled workers to have access to upskilling and reskilling opportunities.
3.2 From deploying human resources to leveraging human potential
As changes to work accelerate, employers are bearing witness to a fundamental shift away from the linear transitions made by workers in previous points of history from school, into specialized training, into work and then along a progressive career ladder, defined by increasing responsibility within an established occupation structure. In today’s labour market, workers pivot between professions with significantly different skill sets, and navigate mid-career job transitions accompanied by substantial reskilling and upskilling. Those pivots are as important to the success of firms as they are to the prosperity of workers. Without such pivots skills shortages will remain endemic and a scarcity of adequately skilled individuals to fill the jobs of tomorrow will lead to a persistent productivity lag.
The route to unlocking the value of human potential in tandem with profitability is to employ a ‘good jobs strategy”—halting the erosion of wages, making work meaningful and purposeful, expanding employees’ sense of growth and achievement, promoting and developing talent on the basis of merit, and proactively designing against racial, gender or other biases.49 Fundamental to this strategy are two inter-connected, ambitious priorities which, between them, have the power to pave the way to a better, more productive and more rewarding future of work: 1) increasing company oversight of strategic people metrics; 2) effective job transitions from declining to emerging roles through well-funded reskilling and upskilling mechanisms.
There is an emerging consensus among companies that long-term value is most effectively created by serving the interests of all stakeholders. Companies that hold themselves accountable will be both more viable and valuable in the long-term. To do so, companies need a series of new metrics which can, at the Board and C-suite level, make visible the impact companies have on key desirable outcomes to governance, planet, people and prosperity.50
In collaboration with the International Business Council (IBC) the World Economic Forum has defined a set of key metrics which can track how businesses are creating broader, long-term value through an investment in human and social capital. People are at the heart of all organizations as investors, workers, customers, suppliers, distributors and contractors. The well-being, productivity and prosperity of individuals is at the core of all successful economies and firms. Human ingenuity is at the core of companies’ competitive advantage and no firm can prosper for long if it proves damaging to the social fabric around it. In the framework outlined within the paper Measuring Stakeholder Capitalism, the Forum in collaboration with the IBC have identified a set of key measures that track: the representation of employees by age group, gender, ethnic and racial category and other markers of diversity; the pay equity between those different groups; the wage levels paid within the organization as a ratio to local minimum wage and the ratio of CEO pay to median employee pay; hours of training undertaken by employees; and average training investment by company. In addition to these core measures the report outlines basic standards of good work such as ensuring health and safety, as well as eliminating child and forced labor.51
To complement such key oversight metrics, businesses can benefit from more granular operational metrics which quantify the human capital—the skills and capabilities of employees—within an organization. Currently, business leaders lack the tools to adequately illustrate, diagnose and strategize for talent capacity. While businesses and economies have extensive systems to account for monetary assets at their disposals, there is a lag in establishing the value of human skills and capabilities. The losses incurred by talent attrition as well as the gains of acquiring individuals with exceptional skills or of developing talent pools through strong reskilling and upskilling programmes remain unrecorded and unobserved.
Companies without the tools to account for the value of skills and capabilities lack oversight of the depreciation or appreciation of one of their key intangible assets—the capabilities of their workforce. Without that oversight, setting the right investment strategy for reskilling and upskilling becomes a challenging feat. A recent World Economic Forum report, authored in collaboration with Willis Towers Watson, Human Capital as an Asset: An accounting framework for the new world of work, identifies additional areas of measurement that can start to quantify the value of human capital within an organization.52 In the outlined framework are the labor market value of the aggregate talent in an organization, the value added through additional reskilling and upskilling into job-relevant skills and the depreciation of those assets through gradual skills redundancy and a decrease in workforce engagement. The approaches to undertaking this quantification are in their infancy and there is need for further efforts to expand such efforts.
Frameworks to track the value of human capital in company balance sheets, to determine a re-investment strategy for human capital through redeployment, reskilling and upskilling, as well as to account for return on investment remain nascent. It is therefore not surprising that few Future of Jobs Survey respondents expected a return on investment from reskilling and upskilling workers within the first three months after employees complete reskilling, and that 17% of businesses remain unsure about the return on investment from reskilling. Survey responses also indicate that companies continue to struggle to quantify the scale of reskilling and upskilling investment that their companies currently make.
Company leaders can ensure the success of workforce strategies by directing the transition of employees with empathy, within the rule of law, in line with company values and culture, by ensuring outcomes are equitable, and by directing learning to effective resources and meaningful curricula. A range of motivating factors can fuel reskilling and upskilling uptake—connected broadly to employees’ sense of purpose, meaning, growth and achievement. Employers can signal the market value of new online-first credentials by opening up role opportunities to new cohorts of workers who have completed mid-career reskilling and upskilling. Employers can make broader use of hiring on the basis of potential rather than current skill sets and match potential-based hiring with relevant training. The data featured in this report has shown that a number of emerging roles are already staffed by individuals who first transition into those positions and then ‘grow into’ the full skill set required. As an overarching principle, business leaders need to place equity and diversity at the heart of their talent ecosystem, ensuring that employees believe in their capacity to prosper based on merit.
Expanding effective workforce strategies requires strong capabilities in real time, as well as dynamic mapping of the types of opportunities that remain available to workers displaced by the COVID-19 pandemic and the fast pace of automation. A set of technology companies which are broadly classed as EdTech and reskilling services companies can support the process of redeploying workers into the jobs of tomorrow.53 Such companies utilize advanced data and AI capabilities matched with user interfaces that guide workers and managers through to discovering possible pathways into new job roles. The data featured in sections 2.2 and 2.3 already indicates the types of insights that can be accessed through such services—dynamically matching opportunities to workers, identifying possible job destinations and singling out bridging skill sets. Companies with such capabilities can become part of a new infrastructure for the future of work which powers worker transitions from displaced to emerging roles. The efforts of matching workers to possible opportunities can be complemented by the delivery of reskilling and upskilling at scale through educational technology services.
Finally, the necessary reskilling and upskilling demands substantial attention and broad-base systemic solutions to funding the job transitions which the current labour market context requires at an unprecedented pace and scale. As shown in Figure 37, the Future of Jobs survey shows that 66% of businesses believe they can see return on investment within a year of funding reskilling for the average employee. It remains concerning, however, that the survey also reveals that only 21% of businesses report being able to make use of public funds, and merely 12% and 8% collaborate across companies and within industries, respectively. Previous estimates have shown that businesses can independently reskill some employees with positive return on investment; however, the employees who are most disrupted and with the largest need of reskilling are likely to need a larger investment.54
This report calls for renewed efforts to understand the division of spend on reskilling and upskilling workers between business and the public sector. A typical return on investment framework considers the costs on the side of both businesses and governments under various scenarios—such as the extent of training costs, the cost of employees taking time out of work, and the need to pay unemployment benefits. On the benefits of reskilling and upskilling workers, a calculation takes into account avoided severance and hiring costs borne by business, the avoided lag in productivity when onboarding new employees and the additional productivity of employees who feel supported and are thriving. Additional benefits to governments include the income tax dividends of citizens who are employed as opposed to out of work.
A number of companies have in recent years experimented with a range of approaches to reskilling and upskilling. The role of business in such a programme can be to directly drive such efforts and define the approach to reskilling and upskilling. In other cases, businesses can be in a supporting role, agreeing to redefine their approach to hiring and accept candidates who have been reskilled through new types of credentials. In one example, Telecommunication company AT&T has worked with Udacity to create 50 training programmes designed to prepare individuals for the technical careers of the future which are distinctively relevant to AT&Ts future workforce and digital strategies.55 In particular, these strategies include courses focused on skills in web and mobile development, data science and machine learning. To date AT&T has spent over $200 million per year to design this internal training curriculum, known as T University, and has already achieved over 4,200 career pivots with 70% of jobs filled internally by those that were reskilled. In a similar effort, Shell launched an online education effort titled the Shell.ai Development Program, which focuses on teaching artificial intelligence skills to its employees.56 Both programmes have created customized versions of Udacity’s Nanodegree programs to reskill and upskill employees with hard-to-source, in-demand skill sets.
An additional example is provided by Coursera for Government.57 At the start of the COVID-19 pandemic, a number of countries experienced a surge in unemployment. Governments in over 100 countries provided access to the platform to citizens looking to gain new skills and credentials to re-enter the workforce. The programmes connected graduates directly with local companies who agreed to accept those credentials as the basis of hiring decisions. Since April, this programme has reached 650,000 unemployed workers who enrolled in over 2.5 million courses that provide the skills needed for fast-growing jobs in IT, healthcare and business. In one example, Costa Rica’s government has worked with local employers across the country to identify current job openings and skill demand and tailored the programme offering to that local demand. Similar structures of collaboration have been established across local government in the United States, specifically across a network of job centres.