Adult skills play a crucial role in shaping productivity. This column uses data from the 2023 OECD Survey of Adult Skills to analyse the relationship between productivity and the level and allocation of skills across industries. Differences in skill levels account for one-quarter of productivity gaps between the OECD average and the top three performers. Productivity is also higher where labour market mismatches are lower. Structural reforms that support firm dynamism and reduce barriers to mobility can help ensure that skilled workers are deployed where they are most productive.
Human capital is a key determinant of living standards across countries via its impact on productivity (Hall and Jones 1999, Hanushek et al. 2022). Slowing human-capital accumulation, linked to declining student test scores, is found to account for one-sixth of the OECD productivity slowdown (Andrews et al. 2024). OECD countries also vary in how efficiently they allocate human capital. Against this backdrop, this column analyses the relationship between productivity and the level and allocation of skills across industries in OECD countries.
The 2023 Programme for the International Assessment of Adult Competencies (PIAAC) survey adds a unique perspective on the skills of working-age adults across member countries. The survey assesses the literacy, numeracy, and problem-solving competencies of adults aged 16–65 across 29 OECD and 2 non-OECD countries, using adaptive tablet-based tests and realistic, culturally relevant tasks. The 2023 results reveal significant cross-country disparities in skill levels: countries such as Finland, Japan, and Sweden perform approximately 10% above the OECD average and 25% above the lowest-performing countries (Figure 1).
Figure 1 PIAAC scores in 2023 in the OECD
Notes: Average PIAAC scores at the country level, in points. For Poland, caution is required in interpreting the PIAAC numbers due to the high share of respondents with unusual response patterns. For more details, see the Note for Poland in the PIAAC Reader’s Companion (OECD 2024b).
Source: PIAAC 2023 (OECD 2024a).
PIAAC also reveals important differences in the level of adult skills across industries: skills are the highest in intangible-intensive sectors such as ICT, financial, and professional services, while they tend to be lower in the construction and hospitality sectors.
Why skills matter more than ever
These differences in skill levels have direct implications for productivity. Within any given sector, a larger share of highly skilled workers, relative to those with lower skills, not only supports the broader diffusion of existing technologies but also fosters the creation of new ideas through increased investment in R&D.
In our recent analysis (Andrews et al. 2025), we find a robust positive correlation between the level of labour productivity and the average level of adult skills in the non-farm business sector. This partly reflects a positive association between R&D intensity and adult skills, and this innovation channel can account for over one-third of the impact of adult skills on labour productivity. The economic magnitude is also material: if the average OECD country were to reach the skill levels of the top three performers, aggregate average OECD productivity could increase by 17% (see Figure 2). Moreover, this level of skills effect can potentially account for at least one-quarter of cross-country sector-level labour productivity gaps.
Figure 2 Country-level labour productivity gains resulting from closing the skills gap
Note: Countries marked with an asterisk (*) lack sectoral productivity data. See Andrews et al. (2025) for further details.
Source: Andrews et al. (2025).
Beyond skill levels: Smarter allocation unlocks productivity
But skills alone are not enough. The ways in which scarce skills are deployed to different jobs and firms also shape productivity. Labour market mismatch arises when a worker’s qualification does not match the required qualification or because the worker’s field of study is misaligned with the type of job he/she is employed in. The 2023 PIAAC data suggest that more than 10% of workers on average experience mismatch, according to this metric, across the OECD. The incidence of mismatch tends to be higher in industries such as transport, hospitality, and administrative services and lower than average in ICT, finance, and professional services (Andrews et al. 2025).
We find that productivity is higher in sectors where labour market mismatch is lower. And firms also play a role: for instance, productivity is higher when high-skilled workers are deployed to growing firms, while it tends to be lower when they are trapped in declining firms. Overall, the results suggest that improving match quality can materially boost productivity. For example, closing the mismatch gap would be associated with a productivity boost of almost 5% on average across OECD countries, but this figure exceeds 8% in Canada and Japan, where mismatch is high (Figure 3).
Figure 3 Country-level labour productivity gains implied by closing sector-level labour market mismatches
Note: Labour market mismatch is calculated based on both qualification mismatch and field-of-study mismatch. See Andrews et al. (2025) for further details.
Source: Andrews et al. (2025).
Moreover, closing the labour market mismatch gap of the average OECD country to the best-performing countries can potentially account for more than one-tenth of the cross-country sector-level productivity gaps to the best-performing countries.
OECD countries face varying challenges in skills and their allocation
Figure 4 provides a snapshot of how countries perform along two dimensions: average adult skill levels and labour market mismatch. The top-right quadrant features countries with both above-average adult skills and below-average mismatch; Finland, the Netherlands, and Norway stand out as exemplary cases. Countries in the bottom-right quadrant – particularly Japan and to a lesser extent the UK –may not be making the most of their human talent, due to relatively poor match quality. In contrast, countries in the left-hand quadrants face more pressing challenges. For those in the bottom-left quadrant, such as Korea and Lithuania, the dual constraints of low skill levels and high mismatch present significant obstacles to productivity.
Figure 4 OECD countries: adult skills vs labour market mismatch
Policies to raise skills and improve matching
Against this backdrop, two policy challenges emerge. First, how can policy raise the skill levels of workers across the economy? Second, how can countries better allocate their existing adult skill base, given that sector-level labour productivity tends to be higher where labour market mismatch is lower?
The first policy challenge is particularly pressing for countries in the left quadrants of Figure 4, which underlines the need for a combination of foundational education reforms and lifelong learning initiatives to raise adult skills. Yet, despite the clear economic payoff, participation in adult training remains low, especially among low-educated workers.
The second challenge, labour market mismatch, is especially relevant for countries in the bottom-right quadrant of Figure 4. While the productivity gains from improving skill allocation are somewhat smaller than those from raising average skills, this channel may be more actionable in the short term, yielding more immediate productivity pay-offs. Improving skill allocation requires more adaptable labour markets. Structural reforms that support firm dynamism and reduce barriers to mobility, such as insolvency reform or more flexible job-matching systems, can help ensure that skilled workers are deployed where they are most productive.
Source : VOXeu
