Skills Inadequacy and Thailand Competitiveness

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Skills Inadequacy and Thailand Competitiveness
Seminar on Sustainable Growth, Regional Balance
and Social Development for Poverty Reduction in
Thailand Bangkok, October 26, 2006

• Albert G. Zeufack, Ph.D.
• The World Bank

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Key Messages

• Irrespective of size, ownership structure,
  industry or location, Thai firms identify Skills
  deficiencies as one of their three most binding
  constraints (PICS, 2005).
• Probing deeper, we find compelling evidence of
  failure in the market for skills in Thailand.
• First, a serious mismatch in skills is
  empirically supported from both the perspectives
  of employers and employees
• Second, the incidence and intensity of
  hard-to-fill vacancies, the most used indicator
  of skills shortages, are far greater in the
  manufacturing sector of Thailand than in most
  benchmark countries.
• Third, firms pay large wage premiums to college
  graduates and workers with advanced technical
  skills, indicating high levels of excess demand
  for labor with these qualifications.
• The Cost for Thailand Competitiveness is
  significant
• Skills shortages cost in average 15 of sales to
  Thai firms
• Firms seems to be coping for poor quality
  education by providing significant levels of
  training to workers
• English and ICT are skills workers lack the most
  in Manufacturing
• Skills shortages affect and ICT use and
  performance and Technological capabilities of
  Thai firms.

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The PICS Survey

• The Thailand Productivity and Investment Climate
  Survey (PICS) is a rich dataset particularly
  suited to the analysis of skills issues.
  Conducted between March 2004 and February 2005,
  the PICS covered 1385 establishments in
  Manufacturing, 100 in ICT and around 14,000
  workers.
• The survey included interviews with CEOs, Human
  Resource Managers, and workers. Employers were
  asked about their experience in filling vacancies
  and their experience with deficiencies in the
  quality of their existing workforce.
• The worker survey provides information on the
  demand-side of the labor market and
  individualspecific information needed to
  properly assess the shortage or mismatch of
  skills in Thailand.
• Employees were asked independently about the
  skills they lack most in doing their jobs as well
  as about the adequacy of their field of education
  as it relates to the work they do.

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Disentangling Skills Inadequacy

• Skills mismatch refers to a situation where
  existing staff in firms, with the required level
  of education, do not have the skills they need to
  do their job effectively (Quality).
• Skills shortage occurs when there are not enough
  workers available in the labor market to fill
  positions that are available in firms (Quantity).

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Structure of the Presentation

• I. Evidence of Skills Mismatch
• II. Evidence of Skills Shortage
• III. Impact on Thailands Competitiveness
• IV. Skills Development
• V. The Way Forward

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I. Evidence of Skills Mismatch

• Employers and Employees perspectives

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Employers Perspective on Skills Mismatch
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(No Transcript)
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Workers PerspectiveThe Education Skills
Mismatch in Thailand
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English Skills in High Demand
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English Language and ICT Skills are the skills
the worker lack the most in Thailand, with
significant impact on wages
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An issue with qualityThai Secondary Education
Students score lower than average in
International Tests
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Areas of Specialization Required of Engineers
(unit )
Source JETRO report, Actual Management
Conditions of Japanese Manufacturing Industry in
Asia, released March 2006
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II. Evidence of Skills Shortage
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Hard-To-Fill Vacancies of Professionals
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Hard-To-Fill Vacancies of Skilled Production
Workers
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Time To Fill Vacancies
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Causes of Vacancies
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Thailand has a Large Deficit in Secondary
Education Completion Rates 1980, 1990, 2000
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Scientists and Engineers in RD (Per Million
People)
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A Cross-Country perspective on Skills Shortage in
2006Difficulty in Hiring Workers Needed (unit
percentage)
Source JETRO report, Actual Management
Conditions of Japanese Manufacturing Industry in
Asia, released March 2006
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Note figures for Senior High School Graduate
or Higher includes those for University
Graduate or Higher. Statistics are from 2004 for
Malaysia and the Philippines and 2005 for
Thailand, Indonesia and Vietnam. Source
Statistics released by each country
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Note Statistics are from 2000 for India 2004
for Indonesia, Philippines, Singapore and China
and 2005 for Malaysia, Thailand and Vietnam..
Source Statistics released by each country
(except India from ADB)
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Note Statistics are from 2002 for Philippines
2004 for Thailand , Singapore, and China and
2005 estimates for India. Source Statistics
released by each country (for India from NACCCOM)
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III. Impact on Firm Competitiveness
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Skills deficiencies Impose a Significant Cost to
Thailand CompetitivenessEstimates of Benefits
from Relaxing Skills Shortages

• If firms increased their skill intensity to
  optimal skill mix in industry
• benefits would be large, on average 15 of
  sales
• Larger benefits from relaxing skills shortages
  occur in industries
• where vacancies for professionals take longer
  to fill (i.e., where skill
• shortages are more binding)

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Benefits from relaxing skills shortages are
larger in industries where time needed to fill
vacancy for professional is longer
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Shortages Translate into very High Returns to
Schooling, especially to Tertiary Education
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And the gap between wage premiums for Tertiary
and secondary Education Graduates has been high
for the past 15 YearsReal Monthly Wages by
Education of Monthly Wage Earners 1991 2004
(LFS)
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Estimated Returns to High School Diplomas and
College Degrees in Malaysia and
Thailand Selected Worker Characteristics
Dependent Variable individual log hourly wage
Note Robust standard errors are denoted in
parentheses. Coefficients are estimated using
ordinary least squares. denotes significance at
5 level denotes significance at 1
level. Source Malaysia Productivity and
Investment Climate Survey 2002 Thailand
Productivity and Investment Climate Survey 2004.
Authors calculations.
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Inadequate IT Skills Impacts Firm Performance

• 45 of manufacturing firms rated the IT skills of
  their skilled production workers as very poor.
• Thai firms perceive, lack of knowledge,
  availability of trained IT personnel and
  experienced consultants to be major constraints
  in adopting ICTs.
• The constraint is more severe for Small firms.

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IV. Skills Development
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Training Incidence is High
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And Returns to Training are Substantial

• Workers with basic IT skills (e.g. printing
  invoices), intermediate (e.g. word processing,
  email), and advanced (e.g. programming) computer
  skills earn 9.9, 18.9, and 29.2 percent higher
  wages, respectively, than those with no computer
  skills.
• Workers who lack English proficiency in doing
  their jobs earn 2.6 percent lower wages than
  those with sufficient English skills.
• Workers who have received formal training from
  their current employers in the areas of marketing
  and management/quality technologies earn 12.7 and
  4.6 percent higher wages, respectively, than
  those who have not received any training from
  these current employers.

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Returns to Training (2)

• Workers who received training from their previous
  employer have 4.9 percent higher wages than those
  who did not receive training from their previous
  employer.
• The return to outside training is not
  statistically significant, begging the question
  of its quality.

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Estimated Sheepskin Effects in Thailand and
Malaysia, Selected Worker Characteristics
Dependent Variable individual log hourly wage
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V. The Way Forward
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Addressing the Skills Inadequacy

• Enforce the Nine years Compulsory Education
• Address Issues of completion and quality of
  Secondary Education
• Sustain efforts in providing improved education
  in rural areas
• Strengthen provision of English, Science,
  Technology, and ICT at all levels of Education

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Skills DevelopmentMore Sustained Efforts Needed

• Most of the courses offered by Skills Development
  institutions are still supply driven
• Need for more coordination among the 9 different
  ministries that provide training courses for
  different target groups.
• The Vocational Education Act may provide a
  platform to improve both curriculum and system
• Programs under the Department of Skill
  Development (Ministry of Labor ) should be
  strengthened and monitored for results (tracer
  studies).
• So, should be the activities of the Skill
  Development Fund