Given that multiple typologies of skills are used even within the same economic discipline, it is necessary to discuss which are the most appropriate ones for this book. These different typologies can be organised into two groups: those that focus on the worker’s skills and those that use a task-based approach.
2.2.4.2. Worker skills
At an early stage, human capital theory stated that necessary skills for work could be obtained through education (Becker 1962; Mincer 1958). In consequence, educational attainment is regarded as a way to define skills. An educated worker is considered highly skilled and, thus, more productive when he/she accumulates more years of education and experience. Accordingly, increased human capital through education (the main source of scientific knowledge) is thought to increase employee productivity in a range of tasks (Attewell 1990; Becker 1962; Mora and Muro 2008).
Consequently, the accumulation of skills (in terms of knowledge) rather than the use of skills toward specific jobs has been the focus of analysis for academics and policymakers (Becker 1994; Psacharopoulos 1985; 2006). However, the economic literature has found that educational attainment only explains a relatively small fraction of the variance of life accomplishments between individuals (Kautz et al. 2014, p. 9) Additionally, measuring skills by observing educational levels has several limitations. First, educational attainment might be a weak indicator to measure knowledge levels. Education (or qualification) is acquired before people start to participate in the labour market; however, those qualifications might not be appropriate or might depreciate over time, compared to other skills learnt in the workplace.5
Second, Becker (1994) acknowledges that educational measures ignore some sources of learning, and Cunha and Heckman (2007) suggest that skill formation/acquisition occurs through a variety of processes and situations. For instance, skills can be acquired outside of schools, through on-the-job training (such as apprenticeships, coaching, etc.) and/or off-the-job training (such as lectures, simulations, etc.). An extended literature review on labour economics shows the effects of job training on different outcomes. Bassanini et al. (2007, p. 128) completed an exhaustive review of data resources (Continuing Vocational Training Survey, CVTS; International Adult Literacy Survey, IALS, among others) for on-the-job training in Europe. The authors found evidence that on-the-job training has a positive correlation with private returns for employees and employers (Bassanini et al. 2007, p. 128). Likewise, Asplund (2005), Barrett and O’Connell (1999), and Blundell et al. (1999), among others, extensively reviewed the different effects of off-the-job training on social and private outcomes. Most of the studies reviewed found a positive impact on social and private returns.6
Third, education variables do not take into account other skills generated via learning-by-doing in the production process. People continue to learn new skills and reinforce them through repetition (Arrow 1962; Dehnbostel 2002; Rutherford 1992). Different empirical studies show that these learning processes increase a firm’s productivity. For instance, Bahk and Gort (1993) observe that in 15 industries in the US, learning-by-doing generates skills (knowledge) and reduces the production costs of incumbent, established organisations.
Finally, employers not only require cognitive and academic skills (qualifications), but also consider personal characteristics as important elements to perform a job. As Green (2011) and Grugulis, Warhurst, and Keep (2004) note, companies have labelled behavioural characteristics (e.g. reliability, responsibility, leadership, motivation, politeness, and commitment, among others) as skills needed in the production process. It is not just the knowledge learnt through formal education, job training or learning-by-doing that produces more-skilled workers; personal characteristics, such as traits, behaviours, and attitudes towards work are also considered as skills (Grugulis, Warhurst, and Keep 2004; Kautz et al. 2014). For instance, Brunello and Schlotter (2011) and Lindqvist and Vestman (2011) note that wages tend to be higher for workers with higher non-cognitive skills, while people with low non-cognitive skills are significantly more likely to become unemployed. In contrast, when Cunningham and Villaseñor (2016) reviewed 27 studies on the skills-demand profiles of employers in developed and developing economies, they found a greater demand for socio-emotional7 and higher-order cognitive skills8 than for basic cognitive9 or technical skills.10
Given the importance of the behavioural characteristics of workers and analysing these skills, broader typologies have been recently adapted to measure more of these skill dimensions. For instance, Green (2011) notes that contemporary approaches favour the categorisation of cognitive,11 physical, and interactive skills.12, 13
2.2.4.3. Skills as attributes of jobs
As an alternative to the above worker skills approach, other typologies focus on the attributes of jobs rather than the attributes of a person to measure job complexity. More complex activities require greater skills (Attewell 1990; Green 2011); thus, task-based typologies have become widely used in the economic literature on labour market because these typologies provide a framework to describe processes and changes in job tasks, such as job polarisation,14 and the effect of implemented new technologies in the occupational structure (Acemoglu and Autor 2011; Autor and Dorn 2012).
Occupation classifications appear to be the most common task-approach used in the economic literature. According to the ILO (2012b, p. 59), an occupation can be defined as a “set of jobs whose main task and duties are characterised by a high degree of similarity.” Occupational groups or titles are constructed by a group of experts who survey different workplaces and observe workers doing their jobs (ILO 2013).15
Nevertheless, this occupational approach has its limitations. Within occupations, skill levels or the kinds of skills being utilised can differ depending on the sector, company size or the country (UKCES 2012). Moreover, occupation classifications are not updated as fast as labour market changes occur. For instance, the International Standard Classification of Occupations (ISCO) is updated approximately every ten years; yet, between these processes and periods, many changes in terms of skills can occur. Thus, prevailing occupation classifications can be obsolete when analysing actual labour market skills.
Another limitation worth considering is that most occupation classifications do not take into account personal features, such as attitudes, traits, and values. An exception can be seen in the Occupational Information Network (O*NET) system in the US, which contains information on hundreds of standardised and occupation-specific descriptors. It describes occupations in terms of knowledge, skills, and abilities required by workers, as well as how the work is performed in relation to tasks, work activities, and other descriptors (onetcenter.org 2016).
Given the above labour market concepts (supply, demand, unemployment, informal economy, and skills, among others), the literature has provided a theoretical framework that helps to understand the labour market dynamics of interest for this document. The following two sections present the main theoretical model for this study in order to explain why skill mismatches might arise, as well as their relevance and implications for labour market outcomes such as unemployment and informality.
2.3. How the labour market works under perfect competition
The third section of this chapter describes the labour market and its main outcomes, such as unemployment, wages, etc., under the assumption of perfect competition. At an early stage, to analyse the matching problem between the demand and supply of skills in the labour market, scholars in the field of economics have developed a basic theoretical framework based on the assumptions of perfect competition (Cahuc, Carcillo, and Zylberberg, 2014). This framework outlines that, on the one hand, employers faced with a need for labour services (a derived demand, based on the demand for their product) create job offers with certain requirements (skills), and, on the other, existing employees and new applicants with those characteristics accept these jobs when the wage offered is more than their reservation wage.16
The