Employment creation potential, labor skills requirements, and skill gaps for young people: A methodological framework

An employee of tech start-up Sendy, which offers online logistics services, works on her computer at their office in Nairobi, Kenya, October 30, 2018. Picture taken October 30, 2018. REUTERS/Baz Ratner

This paper presents a methodological framework for assessing the extent to which youth unemployment can be addressed through employment creation in industries without smokestacks in individual countries, as well as the skill gaps in the youth population that need to be addressed for this potential to be reached. There are two components to the method: (i) estimating skill demand, and (ii) identifying skill gaps in the target youth population. On the labor demand side, the framework seeks to identify the skills required for a sector to reach its employment potential. On the supply side, the methodology ultimately aims to answer the question: Do the skills to meet the demand in the sector exist in the population; and if not, where are the gaps?

On the demand side, we first present a number of methods to estimate potential employment in a sector that make use of measures of labor force intensity for a sector, such as labor-value-added ratios and employment elasticities. We also present an alternative global value chain-based approach that considers how future employment in a sector may be greater than projected employment in a sector. This approach, however, requires the extensive use of surveys and in depth sectoral research The framework has a strong emphasis on the occupational requirements of sectors, and, based on the assessment of potential employment in the sector, we then present methods for determining the occupational requirement profile of the sector. A skill requirement profile is then obtained using this occupational profile. This profile relates the set of occupations required for the sector to reach its employment potential to a measure of skill such as education.

On the supply side, the framework uses the skill requirement profile for the sector to consider whether the skills to meet a sector’s skill requirements exist in the youth population; and where the youth may currently be lacking in respect of the skills required by the sector. We identify two types of skill gaps. The first is a sectoral skill gap, an indication of the gap between the set of skills available in the population and the set of skills required by the sector. The second is an occupational skill gap identified for key occupations that relates the skill requirement for each occupation to the skill level of the average unemployed youth. Both these gaps are important for assessing the extent to which there is currently a skill deficit in the target population for any particular sector, and taking appropriate action to address that gap so that the youth can attain the skills to be able to participate in the sector, as well as to enable sectors to reach their potential.

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