Through a multicountry, practice-based review of establishment skills surveys, this article identifies conceptual issues with defining and measuring skills gaps. By harmonizing divergent conceptualizations, an operational definition of skills gaps as a situation in which current employees lack the skills to perform their jobs which results in the compromised ability of a firm to meet business objectives is proposed. This operationalization of the concept offers a more complete answer to how firms are impacted by workforce deficiencies in achieving business objectives implying that understanding job proficiency without assessing the organizational context in which workforce skills are deployed towards market objectives is insufficient. By addressing measurement issues, an alternative approach to establishment skills surveys is advanced that can play a more effective role in determining how workforce skills influence achievement of firm business objectives. The open systems model of the firm is used to explain how skills gaps serve as a bottleneck to the overall functioning of the firm and to demonstrate that firm mitigation strategies are subject to managerial perceptions which can influence the effectiveness and level at which strategies are targeted. A typology of the causes of skills gaps is also proposed as a starting point for government intervention.

1. Rethinking How Establishment
Skills Surveys Can More Effectively
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An alternative approach to skills surveys that can play a more
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2. A multicountry, practice-based review of skills surveys reveals skills shortages are an
expressed difficulty in recruiting individuals from the labor market with a particular skill set
Skills Shortage Definition Implied by Typical Survey Approaches
Filtering Criteria: Reasons
why the vacancies are
difficult to fill
Difficult to fill vacancies
attributed to skills related
Skills Shortage
Filtering Criteria: Are reasons such as
any of these vacancies A skills shortage is a sub-set of hard-to-
difficult to fill? • Lack of relevant skills fill vacancies due to a low number of
• Lack of experience applicants attributed to at least one of
Establishment survey • Inadequate qualifications
the following reasons for recruitment
Difficult to fill
identifies firm difficulties:
vacancies identified
level vacancies Difficult to fill vacancies
attributed to other reasons • Lack of required skills
such as • Lack of work experience the company
• Unsuitable to the work demands
• Too young/old
• Attitude/presentation • Lack of qualifications the company
• Other demands
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3. However, the concept of a skills gap lacks conceptual clarity …
Skills Gap Definition Implied by Typical Survey Approaches
Survey approaches to detect incidence and Based on the survey approach, a firm faces a
extent of skills gaps skills gap in the following scenarios …
Direct Single Question: asks a question such If respondent agrees that there is a gap
as “Do you think there is a skills gap in your between the organization’s skills needs and
organization?” its current workforce skills Skills Gaps
Establishment survey or self assessment
Proficiency Range/Quantification: If one or more staff are felt not to be fully These survey
respondents are asked how many (or to give proficient at their job; If ranges are given, a approaches imply that
a range) employees within an occupational cutoff proficiency level is specified below skills gaps refer to the
group are fully proficient in their jobs which a firm faces a gap following scenarios:
Dual Direct Question and Proficiency: If respondent agrees with the direct question • A situation in which
combines both the approaches above asking or has non proficient staff. Typically only one employers perceive
both a direct and a proficiency question measure is shown to avoid confusion. current employees
to be less than fully
Skills-Specific Upgrading Approach: proficient for their
respondents specify which skills areas need If respondent indicates any incidence of a current jobs
upgrading from a list of skills or rank the skill that requires upgrading in the firm’s
extent to which skills are underdeveloped current workforce • A gap between the
on a likert scale skills of current
employees and the
Importance-Proficiency Gap Analysis: Gaps are assessed by subtracting the % of
skills needed to
respondents rank skills according to their respondents indicating employees are
meet business
importance to performing a particular job proficient in a skill from the % indicating
objectives
and then assess employee proficiency on that a skill is important. If the importance is
likert scales higher than proficiency, a gap is concluded.
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4. The effectiveness of skills formation systems can be viewed in the context of allocative
efficiency in the external labor market and as effective utilization in the firm
Assessing Skills Formation Effectiveness in Labor Markets and at the Firm Level
Skills deficiencies within the Skills deficiencies internal
external labor market to the firm
Skills
Formation Effective Firm-level Utilization
Allocative Efficiency
Objective of Workforce Skills
Description Preparation of individuals with the skills, work Workforce skills levels meet the expectations of
of Objective experience, and qualifications in the quantity and employers either in terms of full occupational
quality to meet labor market needs proficiency or in the ability to meet business
objectives with current workforce skills levels
Lack of
conceptual
Evidence of Skills Shortages Skills Gaps clarity
a Deficiency
• Difficulty in recruiting individuals from external • Current workforce has inadequate skill types/levels
labor markets with a particular skill set due to a to meet business objectives
lack of skills, work experience, or qualifications OR
• Employers perceive current employees to be less
than fully proficient to perform their current jobs
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5. Unicorns can live in a fantasy world; companies and countries cannot afford to
Theory
General propositions, commonly
regarded as correct, used to explain and
predict phenomena
Theoretical Fantasies “The Facts” imply a need to:
• Skills shortages are ephemeral and • Ensure conceptual clarity
disappear as labor markets adjust
• The pricing mechanism, exercised through • Reconsider current measurement approaches
expected wage returns and premia leads
to allocative efficiency within labor • Understand the causes
markets
• Determine consequences
Fact
A truth known by actual experience or • Devise remediation strategies
observation
The Facts
Although shortages and gaps are both important
• Persistent shortages and gaps over the last to study, the focus of this presentation is on
decade in several countries understanding the phenomenon of a skills gap
• Not short lived
• Pricing mechanism seems ineffective: Firms
consistently rank pay or the market
mechanism as the least used measures
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6. Due to the normative way in which it is conceptualized, there are a number of sources of
difficulty operationalizing the measurement of the phenomenon of a skills gap
HR or Manager Evolving Business Needs Blur the Individual and Peer
Respondent Bias Normative Threshold Evaluation Bias
Influence Effects Evolving Business Objectives Overestimation of Abilities
• HR departments may understate skills issues • Evolving business strategies may mean that • Evidence from psychology and economics
to justify previous budgets current workforce skills do not match changes in suggests that people are over confident
• Studies show a positive relationship between company strategy, goals, markets, or business regarding their abilities
non HR respondents to skills surveys and the models
reporting of skills issues
Respondent Subjectivity Changing Job Requirements Peer Positivity Bias
• HR/managers may assess staff skills levels • Changing job requirements due, for example, to • Studies have shown that people rate familiar
differently technology adoption or job promotion, might group members as better than average
• HR/managers may also have different mean that a once proficient employee now lacks
opinions on the importance of particular skills the skills to perform a new or evolving role.
Occupations and Skills Are Contextual Some Employers are More Demanding
• Respondents may have varying • Some companies may be more demanding of
interpretations of the meaning of particular their employees
skills or merge skills (i.e. confusing
communication and customer handling
Latent and Unreported Skills issues
• Latent skills needs may exist
• Unreported skills needs may occur due to
little hope that a skill issue could be resolved
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7. Four areas emerge as potential causes of skills gaps: recruitment difficulties; HR practices;
strategic shifts in response to changing business environments; and transitional stages
Market and Institutional Human Resources Management
Structural Skills Gaps Transitional Skills Gaps
Failure Induced Skills Gaps Related Skills Gaps
Poor Skills Formation Policy Insufficient Staff Development Strategic shifts in response to Incomplete Orientation
changing business and Integration
• Lack or weakness of • Depressed levels or
environments
government institutions that inadequately planned training • Attributable to the beginning of
prevent underinvestment in and development • Failure to increase and the employee-employer
skills, provide adequate maintain workforce skills to relationship whether due to
regulation, and coordinate Poor Retention and Motivation build and renew firm recent recruitment or post-
stakeholders Practices competencies in response to merger employee integration
changing business
• HR practices that inadequately • Presumably decrease as
Education and Training opportunities
address employee retention or employees complete induction
System Misalignment
a misalignment of HR practices • A strategy-skills lag in which training and gain confidence in
• Accessibility, quality, and the with sources of workforce current workforce skills lag new their roles
degree to which education and motivation or expanded skills required by
training systems produce alternative strategic directions
employable students are associated with competency
insufficient renewal
Insufficient Individual
Investment
• Unclear returns to particular
skills which negatively impact
individual skilling decisions
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8. Because an organization’s systems are interdependent, skills gaps serve as a bottleneck to
limit overall effectiveness of the organization
Effects of Skills Gaps
An Open Systems Model of Organizations Implied by Questionnaires
• Impact on strategic planning
Strategic Logic
Rationale for achieving organizational goals
• Withdrawal from markets
Management Processes • Withdraw from offering certain products
Data gathering and interpreting, decision making, resource allocation
• Strain on management
Skills
• Increased workload
Intangible Resources Gaps
• Lower morale
Knowledge, capabilities, reputation, relationship
Resource Flows
• Turnover and increased recruitment costs
Data Flows
• Difficulties introducing technological change
Tangible Resources
Equipment, buildings, materials
• Increased operating costs
Operations • Loss of efficiency/increased waste
• Outsourcing
Product creation, realization, support
• Difficulties introducing new working practices
• Delay developing new products or services
Product Offerings
• Loss of business or orders to competitors
• Difficulties meeting quality standards
Position in Product Markets • Difficulties meeting customer service objectives
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9. The case of the Middle East: Many Arab countries face workforce skills deficiencies that
slow knowledge-based economic development and negatively impact high skill industries
10
High Skills Equilibrium
United Kingdom Germany
9 Ireland
Employer Demand for higher, knowledge-intensive
Estonia • Strong demand for high level skills
High
Spain
Czech Republic Hungary • Skills formulation institutions and the
Lithuania Korea, Rep.
8 Latvia Portugal enabling environment work in tandem
Knowledge Economy Index Ranking)
Slovak Republic Greece • Knowledge-based economies with
skills (as proxied by the World Bank
Poland Croatia
Chile Bulgaria lower levels of skills gaps
7 United Arab Emirates Qatar
Romania Uruguay
Bahrain Malaysia Costa Rica
Kuwait
6 Serbia
Brazil Russia Turkey • The perception of Arab employers
Medium
Saudi Arabia Jordan Oman Mexico Africa
South
may deter entry into knowledge-
Belarus based industries which are perceived
5 Colombia Lebanon
China to require skills unavailable in the
Egypt Tunisia Sri Lanka Philippines national workforce or too costly to
Morocco Botswana Azerbaijan build internally
4
Bolivia Vietnam
Cape Verde Indonesia
Syria Honduras
India
Guatemala Swaziland
3 Kenya
Algeria
Senegal
Uganda
Pakistan
Ghana Low Skills Equilibrium
Zambia Yemen Tanzania
Lesotho
Burkina
2 Nepal • Employers face few skill gaps in a
Low
Faso Mozambique Cambodia
Bangladesh
Ethiopia Eritrea predominantly low skilled workforce
Rwanda
Guinea
• Little incentive to participate in
1 education and training and raise
qualification levels and aspirations
0
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%
Low Medium High
% of firms with sufficient internal skills levels
(1- % of firms reporting major or very severe skills gaps)
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10. The interconnectedness of the various systems of the firm implies a range of approaches
may be required to address skills gaps
Remediation Strategies for Skills Gaps
An Open Systems Model of Organizations Implied by Questionnaires
Centralized systems for assessing the
productive possibility frontier
Workforce
Strategic Logic • Predicting future skills needs planning
Rationale for achieving organizational goals • Conducting skills inventories
Feedback mechanisms and discretionary control
Management Processes • Staff appraisals / performance reviews
Data gathering and interpreting, decision making, resource allocation • Disciplinary action or making staff redundant
• Nothing, leave to market
Skills Development, motivation, retention, recruitment
Intangible Resources Gaps • Training and development practices
Knowledge, capabilities, reputation, relationship • Recruitment practices
Resource Flows
Data Flows
Technical substitution
Tangible Resources • Task automation
Equipment, buildings, materials
Altering production practices and routines
Operations • Changing working practices
Product creation, realization, support • Redefining existing jobs
• Reallocating work within the company
Product Offerings
Position in Product Markets
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11. Several survey design considerations must be taken into account in order to effectively
measure the sufficiency of workforce skills
1 Several sources of bias must be considered which impact incidence reporting
The probing of generic skills applicable across industries and occupations is perhaps inevitable in light
2
of a lack of a common framework for describing sector and occupation-specific skills
3 Our current focus on general skills is not ideal but is overcome by operational compromises such as
weighting occupational groupings and skills
4 Empirical evidence suggests an occupational level approach is more effective in highlighting differences
between occupations , skills lacking, attributed causes, measures taken to resolve gaps, and impacts
By addressing the above operational measurement issues, establishment skills surveys can play a more effective role in determining how
workforce skills influence achievement of the macro level objectives of firms
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12. A recommended establishment skills survey approach
Questions are asked for
each occupational group Incidence and Skills Lacking
1
Occupational Group How many employees
have all the skills to
• Managers, directors and
senior officials perform their job to
• Professional occupations the required level? Thinking about your
• Associate professional employees who do not In which departments
and technical occupations How important is this This question refers to How important are the of your organization
• Administrative and have all the skills to
occupational grouping employees who have all the following skills to are there the most
secretarial occupations basic skills, personal attitudes
perform their jobs,
to achieving your performing jobs in this employees who do not
• Skilled trades occupations workplace specific, and how would you rate
• Caring, leisure and Other business objectives? occupational grouping? have all the skills to
technical skills that allows their sufficiency in the
service occupations your company to meet following skills? perform their job?
• Sales and customer service business objectives. It does
occupations not refer to personal
• Process, plant and machine performance, ability, or
operatives individual attributes of
• Elementary occupations employees.
Causes Impact Remediation Barriers
2 3 4 5
How significant is this
Which steps has this
problem in terms of
establishment made to
the effect on your
identify and overcome
establishment’s ability Which of the following
What are the main the fact that some
to meet its business barriers would you say
causes of some of your employees do not have
objectives? may exist to your
employees not having all the skills to perform
developing staff with
all the skills to perform their job ?
How does the fact that all the skills to perform
their jobs?
some of your staff do their job?
What impact have
not have the skills to
these interventions
perform their jobs
had on your firm?
impact achievement of
business objectives?
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