Imperfections in the market for skilled workers

The paper identifies and suggests policies to deal with the barriers and market imperfections that can inhibit skill development. Such skill development is crucial to take advantage of the new opportunities and to convert challenges into opportunities so as to foster productivity, innovation and competitiveness in the new world of work. The paper deals with barriers and imperfections that inhibit both the development or production of the appropriate skills and human capital formation at all levels of the skill distribution (including the less skilled), as well as the effective...  [+] Show more

The paper identifies and suggests policies to deal with the barriers and market imperfections that can inhibit skill development. Such skill development is crucial to take advantage of the new opportunities and to convert challenges into opportunities so as to foster productivity, innovation and competitiveness in the new world of work. The paper deals with barriers and imperfections that inhibit both the development or production of the appropriate skills and human capital formation at all levels of the skill distribution (including the less skilled), as well as the effective utilization of existing skills (e.g., immigrants, retirees). Particular attention is paid to the barriers or imperfections that are subject to a degree of policy control, as well as the trade-offs that are involved in removing such barriers since many exist because they serve other broader purposes. Emphasis is placed on understanding the underlying causal relationship between the imperfections and market adjustments so as to predict future changes as those causal relationships change and to predict the effect of policy initiatives that may alter the imperfections or barriers. The paper begins by discussing the imperfections arising from the demand side of the labour market. It then turns to the various dimensions of the supply side of the labour market, emphasising the barriers and imperfections that inhibit the appropriate supply response to adjustment pressures and the need for skill formation. The various dimensions of labour supply include labour force participation, retirements, immigration and emigration, regional and occupational mobility, school-to-work transitions, hours of work, intensity of work and human capital formation in areas such as job search and labour market information, mobility, education and training. Institutional barriers and imperfections that inhibit the matching of labour demand with the various dimensions of labour supply are then outlined. The analysis of this paper suggests that policy initiatives in the area of human capital and skill development should involve a three-pronged approach: (1) identify the barriers and imperfections that inhibit the private parties from adjusting; (2) reduce the government imposed barriers that are the (often unintended) consequence of government policies and programs; (3) facilitate the removing of barriers and imperfections that arise from the actions of the private market participants. Policy initiatives in each of these areas are discussed.

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