EUROPEAN COMMISSION Brussels, 10.6.2016 SWD(2016) 195 final COMMISSION STAFF WORKING DOCUMENT Analytical underpinning for a New Skills Agenda for Europe Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions A NEW SKILLS AGENDA FOR EUROPE:

Working together to strengthen human capital, employability and competitiveness {COM(2016) 381 final}



Analytical underpinning for a New Skills Agenda for Europe Table of contents Introduction 1. Why do skills matter? 1.1. Employability and active engagement in the labour market 1.2. Productivity 1.3. Digitalisation and automation 1.4. Migration and intra-EU mobility 1.5. Signals of skills deficits in Europe and the cost of skills mismatch 2. What is the state of play in Europe? 2.1. Educational attainment in Europe 2.2. Challenges related to skills levels and relevance 2.3. Making skills visible and comparable 2.4. Skills intelligence, documentation and informed career choices in Europe 2.5. EU funding opportunities for skills 3. What is the view of stakeholders? 3.1 Views on the overall Skills Agenda 3.2 Views on the revision of Europass

3.3 Views on the revision of the EQF 3.4. Views on the Skills Guarantee 3.5. Key messages from stakeholder groups APPENDICES Appendix 1. Skills glossary Appendix 2. Overview of EU funding instruments for skills ANNEXES ANNEX I – TACKLING LOW SKILLS: THE SKILLS GUARANTEE ANNEX II – RESULTS OF THE PUBLIC CONSULTATION ON THE EU's MODERNISATION AGENDA FOR HIGHER EDUCATION ANNEX III - ENHANCING THE TRANSPARENCY OF QUALIFICATIONS: THE EUROPEAN QUALIFICATIONS FRAMEWORK (EQF) Introduction The purpose of this Staff Working Document is to accompany the Communication "A New Skills Agenda for Europe" and its three annexes "Tackling low skills: the skills guarantee", "Results of the public consultation on the EU's modernisation agenda for higher education", "Enhancing the transparency of qualifications and the European Qualification Framework (EQF)" and to present a general overview of the issues and the available evidence basis for this initiative. In line with Better regulation principles, the evaluation evidence and the ex-ante assessment take account of the nature and type of the policy initiatives. Preparing an analytical document, instead of a fully-fledged impact assessment, was considered a proportionate approach on this agenda. This Staff Working Document looks at the main problems and issues facing the EU with regard to human capital and skills needs which are addressed by the actions in the Communication and explains why Europe's economic and social success is and will be to a large extent based on the skills of its population. However, in the vast literature on skills, different definitions and concepts are used by different authors. For the purpose of this document, . Chapter 1 analyses why skills are important for employability and productivity and how demographic change, globalisation, technological progress, especially digitalisation and automation, impact on the changing nature of work and skills needs. Europe's ageing population and the decline in the working age population mean that economic growth will increasingly depend on higher employment rates through improved employability and on higher productivity growth through a better-skilled workforce. Equipping people with relevant skills and qualifications, maintaining and making full use of the skills available drives innovation and competitiveness and provides the basis for high productivity and sustained competitiveness and growth. At the same time, a high level of skills reduces significantly the risk of individuals becoming unemployed, the risk of poverty and social exclusion and is associated with increasing engagement in society . This is especially urgent as there are circa 21.7 million unemployed people across Europe – half of whom have been so for more than a year. 4.4 million are young unemployed. Low-skilled individuals are also often vulnerable consumers, especially in increasingly complex markets. Globalisation, technological progress, digitalisation, the move towards a greener, low carbon and resource efficient economy, demographic ageing and the call for better work-life balance are changing the nature of work, job profiles and the skills required. Disruptive changes will continue to alter economic structures and create new types of jobs that are unknown today. A sound basis of knowledge and skills is the best way to boost people's ability to adapt to unforeseen changes. New ways of working, including the collaborative economy, increased independent and contract-based work, more frequent job changes (for necessity and opportunity), and changes in work organisation all have an impact on the types of skills needed. These changes and the resulting impact on increased job and wage polarisation call for the need to re-skill and up-skill the European labour force. Higher- level and broader sets of skills and qualifications are increasingly required across the economy and are key to Europe's growth potential. By 2025 , 48.7% of all job openings (including both new and replacement jobs) in the EU will require high qualifications, 39.8% will be for medium qualified and only 11.5% will require low or no qualifications. There is a need for a broader set and higher levels of skills. Already in 2014, seven in ten EU workers needed to have at least a moderate level of ICT skills (use a PC for word-processing, creating documents and/or spreadsheets) to perform their jobs. About half of adult workers considered problem-solving, teamwork and communication skills as very important for doing their jobs. Chapter 1 also looks at how intra-EU mobility and third country migration can have a positive impact on resource allocation, productivity and growth, if managed through effective policies that make the most out of the available human capital. It also considers the risk of brain drain.

Chapter 2 looks at the state of play with regard to educational attainment and the skills stock in Europe as well as skills gaps and the macro-economic cost of skills gaps and skills mismatches, for instance through the misallocation of resources in the economy as well as the cost of not using the available skills (e.g. those of migrants, women, educated but unemployed youth and those in employment who do not fully use their skills). Chapter 2 also looks at skills-related policy implementation in the EU. An important conclusion is that a worryingly high percentage of the adult population do not have the basic skills level required for full participation in the labour market and society. Possessing these skills at a level equivalent to EQF 4 (upper secondary education) is seen as the minimum requirement for people to be able to live and work in today’s society, and in many cases is the minimum requirement for access to vocational and other further training. This is addressed by the Skills Guarantee proposal (Annex 1). To be effective, education, training as well as research need to provide quality outputs and respond to the fast-changing needs of the economy and society. Research shows that the skills most in demand in advanced economies are “non-routine and interpersonal” while many Europeans are still trained in more traditional “routine and manual” skills. Evidence shows that in advanced economies such as the US, the employment share of non-routine jobs, such as design-related occupations, grew from 28% to 38% between 1995 and 2010, whereas traditional routine jobs fell from 53% to 41%. This is further evidence that a targeted policy response is particularly needed for low-skilled workers who have been most strongly affected by the crisis and generally would require retraining to become employable again. Skills are acquired at all stages of education and also through non-formal and informal learning, long before people enter the labour market and continue throughout the career path. Formal education, training systems including Vocational Education and Training (VET) remain the essential providers of skills and qualifications, although new developments are transforming the way people learn within these systems. Because of the privileged status of VET for the labour market, the Commission will make proposals to support the modernisation of VET in late 2017. The modularisation of education and training, the combination of study and work periods (including mobility), and the emergence of new providers and innovative models have further contributed to diversify the supply of learning opportunities. The role of teachers is central to ensure the quality of learning and to respond to evolving skills needs. The same is true of trainers at all levels. High-level skills are developed primarily in higher education institutions and to some extent also in research institutions: Europe's universities, universities of applied sciences and colleges as well as research performing institutions. While enrolment and attainment in Higher Education in Europe has grown steadily during the past decade and higher education graduates continue to enjoy persistent advantages in both finding employment and earning, higher education systems still face important challenges in adapting to changing skills requirements in the real economy and preparing their students for a fast-changing world. These issues are being explored as part of the review of the EU's Modernisation of Higher Education. The main findings of a wide-ranging public consultation on the future of the modernisation agenda have fed into the Skills Agenda and are summarised in Annex II. To better understand the output of Higher Education and performance of graduates, the Commission will propose an initiative on Graduate Tracking in late 2017. Chapter 2 also looks at the skills situation and skills in some of the key sectors in Europe, providing supporting evidence for a Blueprint for Sectoral Cooperation on Skills to support stakeholders from each economic sector to understand their skill needs and to develop European skills strategies. After looking at the challenges related to the acquisition of the different kinds of skills, Chapter 2 also focuses on issues related to transparency and recognition of skills, the state of play of labour market and skills intelligence across the EU, including on sectoral and cross-sectoral skills challenges, and presents a snapshot of the current EU funding for skills. While developing the relevant skills is crucial, it is equally important that the skills already available are made visible and are used optimally. This includes the recognition of knowledge, competences and skills acquired outside formal education and training through non-formal and informal learning which poses significant challenges. The issues of visibility of skills are addressed in the specific proposal on enhancing the transparency of qualifications (Annex III). In the Skills agenda, there is a concrete proposal for the revision of the European Qualification Framework which aims at improving the transparency and comparability of qualifications. With regard to enhancing the comparability of migrant's skills and qualifications, the Commission is proposing a "Skills Profile Tool for Third Country Nationals" to support early profiling of asylum seekers, refugees and other migrants. In addition, to bridge the skills supply with the changing demand on the labour market it is essential to improve our understanding of and capacity to forecast skills needs and to improve the way this intelligence is disseminated and used by individuals, education and training providers and policy makers. Better skills intelligence also helps to tackle skills mismatch and the macroeconomic costs associated with it. These issues will be addressed in the proposals on Europass to be presented later in 2016 on better tools and services for skills and qualifications. The Commission is also proposing to further analyse and share best practice to tackle the brain drain. The Commission will also propose a simplification of the current governance structure to support a more coordinated implementation of some of the initiatives of the Agenda. To reinforce the evidence presented in Chapters 1 and 2, Chapter 3 summarises the views of a range of stakeholders both on the Skills Agenda as a whole and on the specific proposals. In the annexes, the evidence collected to support the concrete initiatives proposed by the Commission is presented. Each annex presents the challenges and then proposes a number of policy options for which the envisaged impacts are analysed. The analysis builds on the available evaluations and on stakeholders views that have been collected during the preparation of these policy initiatives. Detailed evidence supporting specific proposals by the Commission is presented in Annexes I- III: Annex I - Tackling low skills: the Skills Guarantee Annex II - Results of the public consultation on the EU's modernisation agenda for higher education Annex III - Enhancing the transparency of qualifications: the European Qualifications Framework (EQF).

1. Why do skills matter? Europe's economic and social success is to a large extent based on the skills of its population. Equipping people with relevant skills and qualifications, making full use of the skills available drives innovation and competitiveness and provides the basis for high productivity and sustained competitiveness and growth. At the same time, a high level of skills reduces significantly the risk of individuals becoming unemployed, the risk of poverty and social exclusion and is associated with increasing engagement in society . This is especially urgent as there are circa 22 million unemployed people across Europe – half of whom have been so for more than a year. 4.4 million are young unemployed. Low-skilled individuals are also often vulnerable consumers, especially in increasingly complex markets. Globalisation, technological progress, digitalisation, the move towards a greener economy, demographic ageing and the call for better work-life balance are changing the nature of work, job profiles and the skills required. New ways of working, including the collaborative economy, increased independent and project-based work, more frequent job changes (for necessity and opportunity), and changes in work organisation all have an impact on the types of skills needed. 1.1. Employability and active engagement in the labour market Education levels and skills have been shown to be strongly correlated with the probability of being employed as well as with wage levels. Eurostat analysis shows that the employment rate of those aged 25-64, who had completed a tertiary (short-cycle tertiary, bachelor’s, master’s or doctoral levels or equivalents) education was 83.7 % across the EU-28 in 2014, compared to 73.4 % for persons with at most an upper secondary or post-secondary non-tertiary education and 52.6 % for those who had attained no more than primary or lower secondary education. The largest falls in employment rates since the beginning of the financial and economic crisis (comparing 2008 with 2014) were witnessed for persons with at most a primary or lower secondary education (down 3.9 percentage points), while notably smaller falls were observed for persons with a tertiary education (down 1.4 percentage points) and persons with at most an upper secondary or post-secondary non-tertiary education (down 1.3 percentage points). Analysis of the current levels and distribution of skills for seventeen Member States which participated in PIAAC Survey also shows a positive association between education, skills, training, and employment opportunities, suggesting that part of the positive effect of education may pass through the level of skills possessed by the individual. The level of skills seems to be positively associated not only with employment opportunities, but also with the type of occupation in which individuals are employed and significantly to a number of social outcomes. Thus, upgrading skills in the sense of actual abilities, not only in terms of educational attainment, is crucial to improving labour market performance and beyond. Another way of looking at the link between labour-market outcomes and skills is to analyse the effect of different proficiency levels on the probability of being employed, unemployed or inactive. It has been found that both unemployment and inactivity are more common among the least skilled (Level 1 and below). On average, about 57% of those individuals who score at Level 1 or below the PIAAC literacy proficiency scale are employed, 7% are unemployed, and the remaining 36% are inactive. The picture drastically changes when high skilled are considered. For individuals who score at Level 4 or 5, 79% are employed, about 4% are unemployed, and 17% are inactive. Moreover, employees with a low level of education are almost five times more likely to be low-wage earners than those with a high level. In 2010, the proportion of low-wage earners among employees with a high level of education was 5.8 % in the EU which points to a problem with regard to use of their skills. This proportion increases to 19.3 % for a medium level of education and to 29.0 % for a low level. The relationship between literacy proficiency and labour market participations, employment and wages varies considerably among countries. This is likely to reflect differences in institutional arrangements (such as wage setting) as well as the relative weight given to educational qualifications and other factors in employers' hiring, promotion and wage-setting decisions. Hourly wages are strongly correlated with proficiency levels. The OECD found that on average across countries, the median hourly wage of workers scoring at Level 4 or 5 on the literacy scale is 60% higher than that of workers scoring at Level 1 or below. Differences in returns as proficiency increases vary across countries.

Proficiency in literacy, numeracy and problem solving in technology-rich environments is positively associated with the probability of participating in the labour market (Figure 1) and being employed and with higher wages. After the effects of educational attainment are taken into account, an increase of one standard deviation in an individual’s literacy proficiency (46 score points) is associated with a 20% increase in the probability of participating in the labour market and a 10% increase in the probability of being employed as opposed to being unemployed. An increase of one standard deviation in literacy proficiency is also associated with an 8% increase in hourly wages, on average across countries. The link between literacy proficiency and labour force participation is strongest in Sweden and Finland, where an increase of 46 points on the literacy scale raises the probability of being employed or looking for work by 56% and 43%, respectively. On the other hand, it is weakest in Estonia and Poland, where the likelihood of labour-force participation increases by 15% and 16%, respectively, following a 46-point rise in the literacy score. Figure 1: Effect of education and literacy proficiency on labour market participation Odds ratio showing education and literacy proficiency on the likelihood of participating in the labour market among adults not in formal education Source: Quintini, G.; 2014, OECD As argued above, investing in skills, education and research has a crucial role for labour market participation. But skills are also associated with wider social and economic benefits. EU average estimates of proficiency in literacy, numeracy and problem solving in technology-rich environments and of adults' participation in learning programmes are positively and significantly associated with the probability of reporting high social trust, belief in having some impact on the political process, participating in volunteer activities and reporting good health. These effects are independent from those of educational attainment indicating that not only formal education per se is important; other individuals’ competences understood as the ability to successfully meet complex demands in the current global economy are key for an effective and fruitful participation in the social and economic life of advanced and innovative economies. 1.2. Productivity Economic growth is increasingly driven by labour productivity and share of employed people. As working-age population declines, greater participation of women on the labour market and additional human resources from international migration (both EU and third-country) as well as bringing the unemployed back into the labour market would help to compensate in part, the impact of ageing on the labour market and growth. However, productivity growth will eventually become the most important source of potential economic growth as employment starts declining. A more skilled workforce, capable of contributing and adjusting to technological change and new patterns of work organisation, can help to tackle disruptive developments. Investment in education and training systems, anticipation of skills needs and matching and guidance services are thus fundamental in order to raise productivity, competitiveness, economic growth and ultimately employment . Economic growth theories generally consider the accumulation of human capital and productive knowledge to be of similar importance to the accumulation of physical capital. Human capital accumulation is an investment in the upskilling of individuals which is rewarded through increased employability as well as higher productivity, wages and salaries in the future. Higher levels of skills, including flexibility and problem-solving, enable workers and employers to develop or adopt new ideas and processes. It also fosters the circulation of ideas and the absorption of technologies from leading countries which increases the productivity of capital and labour and results in higher GDP growth. In addition, there is a strong complementarity between investments in physical and human capital, as the investment decisions of companies and people influence each other triggering a virtuous circle: companies investing in more sophisticated technology attract well-qualified staff while at the same time people willing to improve their competences encourage companies to innovate and invest in new equipment. 1.2.1. The demographic challenge and the productivity imperative For decades, economic growth across Europe has been pushed by increases in both labour productivity and the share of employed people: an increasing workforce went hand in hand with the increase in their productivity, in turn driven by capital investment, technological change and the continuous reallocation of the labour force towards more productive industries. However, the challenges brought by demographic ageing may bring this scenario to an end. The EU is projected to move from having four working-age people for every person aged over 65 years to about two working-age persons by 2060. The population of working age (20-65) is projected to decrease from 306 million to 269 million by 2060. Figure 2: Potential employment path assuming different activity scenarios, EU-28 As shown in Figure 2, in a context of demographic decline, there are limits to increases in the labour force. According to scenario analysis, starting from today’s EU activity rate of around 76%, the EU would approach activity rates of around 88% by 2032 under a high activity scenario. With no further progress in activation (low activity scenario) the EU will see employment growth turn negative relatively soon - around 2021. Even using very optimistic assumptions, EU employment growth will be unable to maintain a steady annual growth rate of 1% sustainable growth path for more than ten years. At the latest, it would turn negative around 2032.

Before the crisis, the EU's economy grew by an average of around 2% each year: the sum of 1% employment growth and 1% productivity growth on average. In order to continue growing at this pace in times of declining employment, the EU would have to more than double the rate of annual productivity gains. In the medium term, it is thus evident that the workforce decline will leave productivity growth as one of the most important leverages to sustain economic growth and to maintain current welfare levels. 1.2.2. Skills as a Driver of Productivity Skilled workers are more likely to be employed and are more productive than unskilled ones. Besides the direct impact that knowledge (know what) and competences (know how) has on the work output: skills can affect productivity growth also by promoting the transfer of knowledge and the mobility between universities, research institutes, firms, industries and countries; by developing absorptive capacity so that firms can better innovate or adopt best practices; and by promoting mobility of skilled workers to disseminate innovative ideas and knowledge of processes. High level skills contribute more to productivity the closer a country is to the technological frontier . Research suggests that a 1% increase in skills is associated with a 0.3% increase in average labour productivity and with a 0.365 % increase when the model is extended to take account of the potential role of skills in assisting productivity follower countries catch up with countries on or near the frontier. As companies approach the frontier they are more likely to innovate as opposed to imitate. One-year increase in average education is associated with a 3 to 6% increase in the level of GDP per capita and a 1% increase in school enrolment is associated to an increase in GDP per capita growth of between 1% and 3%. In addition to its direct contribution to growth, human capital has indirect effects as well, by stimulating the accumulation of other productive inputs (e.g. physical capital, technology or health) which in turn foster growth. Nevertheless, all adults of working age need a necessary foundation of basic and digital skills in order to upskill according to labour market needs. This is very important when taking into account that low-skilled employees often do jobs that offer no on-the-job learning, receive less training organised by employers, and compared with high-skilled people miss out on the benefits of continued learning. The empirical analysis based on the European Skills and Jobs Survey highlights the close relationship between the degree to which adult employees improve their skills in their jobs and the skill intensity and job complexity of such jobs. The net result is that low-skilled adults get stuck in a 'low skills-poor jobs trap', in unskilled work, with few opportunities to improve their skills. The most significant skills contribution to labour productivity growth for seven Member States between 1980 and 2007 came through total factor productivity growth and capital accumulation followed by build-up of skills, most importantly higher-level skills (bachelor degree and above, ISCED 5a to 6). However, in six of the seven countries, upper-intermediate (technician level, ISCED 4 and 5b) and lower-intermediate (craft level, ISCED 3A and 3B with vocational orientation) vocational skills also made positive contributions to labour productivity growth. Skill accumulation appears to improve productivity not only of individuals directly concerned, but also other members of the workforce, who benefit from ‘spillovers’, for example, knowledge passing between colleagues. There is significant complementarity between high- and intermediate-level vocational qualifications. Such a complementarity between intermediate vocational skills and high-level skills seems higher in manufacturing sectors of countries with apprenticeship-based systems. According to one CEDEFOP study, productivity performance is augmented by developing a mix of both intermediate-level and high-level skills. 1.2.3. Skills obsolescence Lower-skilled workers, together with older workers and those without an opportunity to develop their skills throughout their careers, are most at risk of skills obsolescence and this can transfer into decrease of productivity. For lower-skilled workers, particularly those in precarious jobs, the threat of skills depreciation is greatest. Some 33% of the lower-skilled workers experience a lack of skills development in their present career, compared to around 19% of highly-educated people. Skills obsolescence may also restrict the chances of people being able to move to more suitable (or better matched) jobs either with their current or a new employer. Unemployment adds to their skills’ difficulties since by not exercising the skills they have attained they are losing them. Skills obsolescence could be counteracted by access to learning during periods of unemployment, but only limited numbers of low-qualified unemployed people participate in education or training. 1.3. Digitalisation and automation Innovations in digital technologies are having a huge impact on the economy and society in Europe; delivering substantial benefits to the lives of people in Europe but also bringing challenges and the need to adapt. In particular, they are leading to structural change in the labour market and the need for new skills sets. Future growth and jobs will depend on the re- and up-skilling of Europe's citizens and labour force in the face of the digital transformation. Already over the past two decades around a third of GDP growth can be attributed to the production, investment and use of digital technologies in the EU. However, in the US the growth contribution has been higher and academic work suggests that making complementary investments in human capital and other intangible assesses is key to achieving the economic gains from ICT. Digital technologies have also contributed to employment. Over the last decade, an extra 2 million ICT specialist jobs have been created, one million in the last three years alone. Increasing demand for skilled ICT professionals is already outstripping the supply. 40% of firms looking to hire ICT specialists report significant difficulties in finding adequately skilled people. Latest estimates suggest that by 2020 there could be around 800 000 unfilled vacancies for ICT specialists in the EU. Increasingly these jobs are created outside the ICT sector, in other sectors such as automotive. As such, over half of ICT professional jobs are now outside the ICT sector as the whole economy becomes digital. Furthermore, it has been estimated that 4-5 extra jobs are created in the economy for each new ICT job. The growth of the internet and a constant stream of new innovative services have also resulted in huge benefits for consumers. While the computer and internet revolution of the past two decades has largely impacted on services and consumers, the latest wave of innovations is revolutionising industry and thus the production side. Developments in robotics, the Internet of Things, big data and cloud technologies are causing a fourth industrial revolution. There are significant gains to be made for competitiveness, innovation and growth if we embrace these changes in Europe. Achieving future gains from ICT requires tackling skills challenges related to digitalisation. Digitalisation is leading to the automation of routine tasks and there are concerns by many that this will lead to the net destruction of jobs and that this will result in high rates of unemployment. Evidence from a recent Eurobarometer poll, for example, shows that while most European citizens (72%) feel that robots are a good thing for society, they believe that robots steal people's jobs (70%). However, there is no real clarity yet with regard to the overall effects of automation and therefore it is difficult to have a balanced assessment. These concerns have been fuelled among other things by a number of academic papers trying to estimate the potential of technologies in development to replace certain job tasks carried out by people i.e. looking purely at the negative side of the equation. A different approach to analysing the number of jobs at risk of automation, based on the analysis of task content in individual jobs rather than average task content in occupations, leads to a much lower effect i.e. – just 9% of jobs risk being automated (as opposed to 50%). A balanced assessment needs also to take into account job creation through technology. For instance, Bessen shows that technology tends to have a positive net employment effect for many occupations affected by automation, also because new technologies create new product and consumer demand. Digitalisation is also leading to an increasing demand for job roles involving work with technology. Whatever the balance, the existing workforce will have to undergo quick and effective re-training in order to be able to respond to new requirements as traditional sectors diminish and new markets develop. This requires a more responsive education system and improved coordination and cooperation among academia, research and business environments. Nevertheless digitalisation is impacting on the structure of employment. Many so-called "routine" tasks and the jobs associated with them are being automated. At the same time, many existing jobs are being increasingly supported or complemented by digital technologies and new jobs are also being created for people operating, repairing and programming the new robots, machines and other digital tools. Furthermore, completely new jobs are being created throughout the economy.

As the tasks and jobs being automated largely require low/medium level skills and those being created more often than not require higher levels of skill, digitalisation is contributing to so-called job "polarisation"; that is, an increase in the employment share of higher-skill and lower-skill jobs and a decline in middle-skilled work (Figure 3). Figure 3: Employment change (% per annum), EU, by job–wage quintile Reading note: The changes do not add up to zero. Notes: EU-27 for 2008-2014 (HR not included), EU-23 for 1998-2007 (PL, RO, MT, BG missing). Quarter two employment data used for each year post-2008, annual data for 1998-2007. Sources: ESDE 2015 - EU-LFS, SES (own calculations). The issue of job polarisation could greatly affect the relationship between skills and economic growth. While it is not fully clear how the effects of polarisation will play out, there will continue to be a high premium on having cognitive skills to solve non-standard problems. Global transformations and technological change pose new skills requirements. On the one hand, transversal skills such as learning to learn, communication, problem-solving, linguistic capacity become more prominent since they allow citizens and the workforce to keep up with the pace of job-task transformations. On the other hand, basic skills allow adults to confidently and critically use information for work, leisure, learning and communication. Technological progress which tends to make skills obsolete may end up increasing inequalities thus directing attention to the need to keep skills up to date with changing demand. But it is not just about training more engineers who design the new digital equipment. In fact, every employee in the future will need to be digitally literate. While most jobs already require a basic level of digital skills, around one third of the European labour force is still digitally illiterate. Fully benefiting from the digital transformation will require a massive effort to up-skill and re-skill the European labour force. 1.4. Migration and intra-EU mobility Intra-EU mobility and third country migration can have a positive impact on resource allocation, productivity and growth, if managed through effective policies that make the most out of the available human capital. In particular, intra-EU mobility and migration play an important role in bringing labour supply in line with labour demand and steer workers towards those places where their skills can be used most efficiently. Effective policies can facilitate the matching process between workers and their jobs, for example by increasing transparency on skills and qualification acquired abroad, or by helping migrants and mobile workers to fill remaining skills gaps. 1.4.1. Migration Simulations with the European Commission's Labour Market Model (LMM) suggest that the impact of international migration on the host economy depends on the specific skill set of migrants. According to these simulations, low qualified international migrants tend to lower average labour productivity and hence wages while high qualified migrants tend to increase average labour productivity and wages. In addition, higher skilled migrants tend to have stronger positive effects on total employment and GDP in countries where the share of high-skilled in employment is relatively low. However, host economies are not always successful in exploiting the full potential of migrants, even of high-qualified ones. In particular, migrants (and especially those with foreign qualifications) face a large discount of their qualifications in the labour market . Recent evidence shows that foreign qualifications have a much lower value in the labour market than domestic ones, and their returns are lower than those of the native-born and of immigrants with host-country qualifications both in terms of employment and job quality . Moreover, in Europe, foreign degrees from non-EU countries are more strongly discounted in the labour market than those from EU countries. As a result, there remains a large untapped potential among third-country nationals residing in the EU where, even among those with high education, around two thirds are either inactive or unemployed, or over-qualified for their jobs . Over-qualification rates for third-country nationals residing in the EU are largely above average, especially for those having qualifications acquired abroad . Migrant women are worse off than men in almost every country, with an over-qualification rate of 11 pp higher than that of their male peers and 13 pp higher than that of EU female citizens . To tackle this challenge, a swift assessment and recognition of migrants’ foreign qualifications and skills is key. Skilled migrants also require faster-paced, more challenging integration programmes which equip them rapidly with the advanced language and professional skills required for higher–skilled employment. These programmes should be particularly tailored to women’s needs. EU countries also need to have effective policies in place to retain and attract skilled workers. While future trends of skilled labour migration are difficult to forecast, the demand for highly skilled workers in “knowledge economy” fields is expected to continue to grow, not only in high-income countries but also, increasingly, in medium-income countries . As a result, highly skilled workers are expected to be more and more sought after and, due to the growing internationalisation of the highly skilled labour market, Europe will enter in an increasingly fierce global competition with a growing number of other economies to attract the talent it needs . The recent influx of migrants in search of international protection has added weight to the need to improve policies in the field of migration. In 2015 alone, around 1.26 million persons applied for asylum in the EU, compared to 550 000 in 2014. Around 70% of the asylum seekers is of working age, in other words between 18 and 64 years' old. Around 29% are younger than 18. Relatively little information is available on their education and skills. Some preliminary evidence suggests that qualification levels are relatively low compared to the host country population, although there are differences according to the countries of origin. Besides meeting these refugees' most urgent needs such as accommodation and food, there is a need to help improve their long-term situation, including by helping them to quickly improve their skills in the language of their host countries, in order to integrate into society, and to find employment. Their integration in the labour market is further complicated, however, by the fact that most of these have no evidence of their qualifications that could enable them to start a process of validation and recognition of their qualifications. In this context, the European Commission is developing a "Skills and Qualifications Kit" to support Member States in early profiling of asylum seekers, refugees, and other migrants.

1.4.2. Mobility and risk of brain drain In the context of the single market and free movement of persons, intra-EU mobility can enable those with required skills to move to areas where there are skills gaps. However, intra-EU mobility and mobility in general can also be associated with brain drain. Brain drain in the European Union: Facts and Figures Emigration is high in some European countries, in particular Cyprus and Greece and the Baltic states (see Figure 4). This may have impacts on potential GDP growth: a declining population may result in a shrinking economy. How living standards (GDP per capita) is affected by strong net emigration, depends on the composition of net emigration. Figure 4: Rates of population change and net migration in the EU, 2014 Source: Eurostat The trends in brain drain are however not so clear-cut. In Greece and Cyprus, the share of high-skilled among emigrants is higher than among stayers. This implies that Greece and Cyprus could be considered as suffering from a particular "brain drain" challenge, as the stayers are on average less educated than the leavers hence emigration reduces the average human capital level of the country. On the other hand, emigration from the Baltic countries seems to be more biased towards less-skilled emigration; and in Portugal, emigrants are on average similarly skilled as stayers. In these cases, emigration is not biased towards higher-skilled individuals. In the case of the Baltics, emigration even seems to raise the average skills level of the population that remains behind (see Figure 5). Figure 5: Share of population with a post-secondary degree, by country and among their citizens who recently settled abroad (living for less than 10 years in another EU MS), 2013 Source: ESDE 2015 Is emigration a problem? If emigration occurs in large numbers, the shrinking population can reduce potential growth. Especially if young generations are strongly overrepresented among the emigrants, this may accelerate ageing of the population and worsen the sustainability of pension and social security systems. On the other hand, emigration may also be a source of remittances. These may contribute to growth in home countries. Especially in the Baltics, a positive impact of remittances on GDP is likely. For Greece and Cyprus this is less the case (see Figure 6).

Figure 6: Remittance inflows and outflows, as a share of GDP Source: ESDE 2015 Brain drain and the possible negative effects of high emigration is a matter of concern within the EU, however as mentioned above the effects vary markedly between countries. More evidence is therefore required and the Commission will propose to analyse further and exchange best practices on effective ways to address brain drain. 1.5. Signals of skills deficits in Europe and the cost of skills mismatch 1.5.1. Skills mismatches In many EU Member States, the efficient use of human capital is complicated by the incidence of skills mismatches, reflecting imbalances between the supply of certain skills and the demand for those skills. Skills mismatch can be studied from various perspectives. Macro-economic skills mismatch compares the skills sets of individuals available for work with the skills demanded by the labour market at an aggregate level. On-the-job mismatch, on the other hand, looks at whether the skills sets of those individuals who are working corresponds to the skills needs of their job. Macro-economic skills mismatch can be measured through the relative dispersion of employment rates across education groups, which quantifies the differences in employment rates between low-qualified, medium-qualified, and high-qualified individuals of working age. Countries with large disparities in employment rates between low-qualified and high-qualified individuals have a high relative dispersion or macroeconomic skills mismatch, pointing at a potential need for policy intervention in labour markets and/or education systems to mitigate problems of structural unemployment. In some cases, mobility and migration can also help alleviate the consequences of skills mismatch, e.g. by steering lower-skilled workers towards regions with a higher demand for them, or by supplying high-skilled workers to those regions that face specific skills shortages. While most EU Member States have made substantial improvements over the past decade at the level of macroeconomic skills mismatch, including through upskilling of their population, some countries (including Spain, Portugal and Greece) saw a strong deterioration in labour market outcomes for low-skilled individuals as a result of the crisis and therefor a worsening skills mismatch. Although some improvement was observed since 2005 in most cases, macro-economic skills mismatch remains alarmingly high in Belgium, Bulgaria, Ireland and Lithuania (see Figure 7). Figure 7: Macroeconomic skills mismatch across EU countries (2005, 2015) Note: Macroeconomic skills mismatch is measured as the relative dispersion of employment rates by education level. Annual average based on the average of four quarters. Source: EC own calculations based on Eurostat data. There is also some evidence that for a substantial share of employees, their skills set is not well-suited for the job they occupy. According to the OECD Survey of Adult Skills (PIAAC), roughly one-third of workers in OECD countries are over- or under-qualified for their job. When going beyond qualifications and looking at specific skills used on the job, one-sixth report a mismatch between their own skills and those required for their job. More detailed analysis of skills and qualification mismatch on-the-job however points at challenges in the correct measurement of such mismatch, as the correlation between different measures is not always as strong as expected. From the perspective of a given firm, hiring an over-skilled or over-qualified worker may be beneficial for individual productivity, assuming that there are no adverse effects on job satisfaction and that the wage premium paid to over-qualified individuals does not offset any associated productivity gains. However, from an economy-wide perspective, over-skilling and over-qualification could point at the inefficient allocation of resources, as some workers could possibly be employed more productively in other jobs. Recent research suggests that on-the-job mismatch may contribute to explaining cross-country differences in labour productivity , which underscores the need for further analysis in this field. 1.5.2. Gender difference in the use of skills The analysis in section 1.2 on the relationship between skills and productivity calls point to the importance of designing a comprehensive approach to the development and requalification of skills and for better use to be made of existing human resources. For instance, although women now form the majority of students and university graduates in most Member States, they are more likely to be inactive or in part-time employment than men: 26% of women are inactive and a third of employed women are in part-time employment. Moreover, women earn less than men, and they rarely make it to the top . GDP per capita losses due to gender gaps in the labour market have been estimated at up to 10 percent in Europe . Raising the employment rate of women is therefore a key policy option to boost growth and counteract the shrinking of the working age population in the EU. In addition, given that returns to education differ widely for men and women, reducing the wage gap of women to men is also essential to putting in place incentives that will lead to higher returns on investment in skills.

Similarly, the employment rate of persons with disabilities is 22.9 percentage points lower compared to people without disabilities (48.5% versus 71.4%). In addition, 40.2% people with disabilities are inactive compared to 19% of persons without disabilities. Insufficient skills are one of the reasons of the high employment rate gap. Indeed, in the majority of countries the early school leaving rate is more than twice as high for persons with disabilities. There is a gap of more than 10 percentage points between people with and without disabilities when it comes to tertiary education attainment. Regarding non-formal education and training, in 2011 the participation of people with disabilities was 10 times lower (1.9 million) than that of people without disabilities (19.9 million). There is evidence that supporting the participation of people with disabilities in life-long learning and career counselling helps to reduce the employment gap, boost growth and facilitate their inclusion in the society. As there are around 80 million people with a disability in the EU, increasing their integration in the labour market would bring about significant benefits. The lack of adequate work-life balance policies also constitutes an obstacle to employment, especially for women. Moreover, men and women tend to work in different sectors. Women are overrepresented in sectors such as health (77% women), education (67% women), and the service sector (80%), while men constitute the majority of workers in construction (91%), transport (80%), industry (69%) and agriculture (65%). The gender segregation on the labour market reflects gender inequalities in education: women remain underrepresented in fields of studies such as mathematics, engineering, ICT, etc. Even when they graduate in this field, they are less likely to seek and find employment in these sectors. Evidence shows that educational and occupational segregation is detrimental to the economy, and appears to be associated with bottlenecks on the labour market : skills shortages and bottlenecks are experienced in occupations that are either female-dominated occupations (personal care workers, for instance) or male-dominated (science and engineering professional and associate professionals, etc.). The shortages could be addressed by enlarging the pool of available workforce and reaching the under-represented sex. This means tackling gender stereotypes early on at school, throughout the educational path, and during the school-to-work transition.

2. What is the state of play in Europe? Having focused on why skills are so central to Europe's economic and social success in chapter 1, this chapter now looks at the main challenges regarding the acquisition and use of skills in Europe and the state of policy implementation in achieving these. It also looks at the issue of better use of skills and their transparency and recognition, as well as addressing the issue of skills intelligence in Europe. Pointers are given to the annexes supporting specific policy proposals in the New Skills Agenda to address these main challenges. For the purpose of this document, . However, in the considerable literature on skills, different definitions and concepts are used by different authors. For a glossary of different kinds of skills and some conceptual considerations please see appendix 1. 2.1. Educational attainment in Europe In the EU, 23.4% (64 million) of the population aged 25-64 do not have upper secondary education, and only 29.9% hold a tertiary degree. These figures hide a broad variation among EU Member States in terms of educational attainment (see figure 8). Notably, the share of the population aged 25-64 having attained at most lower secondary education ranges from less than 10% in Lithuania, the Czech Republic, Estonia, Slovakia, Poland and Latvia to more than 40% in Malta, Portugal, Spain and Italy. At the other end of the spectrum, the share of the population with a tertiary degree ranges from less than 20% in Romania, Italy and Malta to more than 40% in Sweden, Luxemburg, Finland, Ireland, United Kingdom and Cyprus. Figure 8: Distribution of educational attainment among population aged 25-64 (2015) Source: Eurostat [lfsa_pgaed] Education outcomes are not evenly distributed across population sub-groups and some of them are much more likely to have adverse outcomes. For instance, around 44% of third-country nationals residing in the EU are without at least an upper secondary education qualification, which is a much larger share than among natives. For a cross-comparison of the performance of education systems today, it may be more relevant to look at educational attainment among young generations entering the labour market today, rather than at educational achievement of the entire adult population. Figure 9 shows that in 2014, 11.2% (4.6 million) of European youth (aged 18-24) left initial education without an upper secondary school diploma. While this share of early school leavers has been continuously declining since 2004, when it stood at 16%, there is still ample room for improvement for many Member States. For example, the share of early school leavers remains at 15% or above in Italy, Portugal, Romania, Malta and Spain. Some convergence can be observed: especially in Italy, Portugal, Malta and Spain, early school leaving declined a lot over recent decades. Again, some groups are more affected by early school leaving such as young third-country nationals (25.7% in 2014) as well as to some extent native children of foreign-born parents (the so-called "second generation"). Figure 9 also shows that almost 38% of people in Europe aged 30-34 hold a tertiary degree. Again, there is wide variation: tertiary attainment ranges from 23.9% in Italy to 53.3% in Lithuania. Figure 9: Education outcomes among young cohorts (2014) Source: Eurostat [t2020_4 and t2020_41] Note: Early school leaving measures the % of the population aged 18-24 with at most lower secondary education and not in further education or training. 2.2. Challenges related to skills levels and relevance 2.2.1. Basic skills Basic skills are those that people need to play a full and active part in society and in the labour market, undertake their responsibilities, and develop their full potential through life-long learning. They are commonly defined as literacy and numeracy and, in today's fast-changing world, they include also digital skills which are becoming indispensable in daily life. In the context of this skills agenda it is considered that the required level is at least that comparable to those held by upper secondary school leavers – equivalent to EQF level 4 (broadly, PIAAC level 3). This is the level of skills that enables people to manage their own development and provides them with better protection from unemployment risk .As noted in section 1.5 above, 23.4% (64 million) of the EU28 population aged 25-64 did not attain an upper secondary education, and a fifth of European adults in the Member States that took part in PIAAC possess only rudimentary literacy and numeracy skills (below PIAAC level 2). How do adults in Europe compare with other major industrial countries on basic skills? Based on the OECD survey of adult skills (PIAAC) across the OECD, nearly 20% of the population aged 16-65 in the participating EU Member States has at most basic literacy skills (at most PIAAC level 1), while in Japan this applies to less than 5% of the population aged 16-65. In literacy, participating EU countries on average perform slightly worse than OECD countries as a whole but comparable to the US (see figure 10a). While in EU17, 9% of the population showed high levels of literacy skills (levels 4 and 5) the share for the OECD is almost one third higher (12%); in numeracy, the difference between the two is slightly lower. However, there are considerable differences in the distribution of skills across participating countries. At global level, Japan outperforms all other countries with its high share of performers at levels 3-5 and very few low performers. Big non-European economies like Canada and the US do not score very differently from many EU countries. For numeracy, the pattern of proficiency across countries is broadly the same, with few differences (see figure 10b). In EU17, the share of high performers (those scoring on levels 4 and 5) is at 10%, slightly lower than the overall OECD average. Japan stills outperforms all EU Member States with 63% of the working age population scoring on levels 3-5 (next comes FI with 58%), and other large economies are a little below (US) or above (Canada) EU average. Figure 10a: How proficient are adults in literacy? Share of the population 16-65 years old at each skills level per country

Figure 10b: How proficient are adults in numeracy? Share of the population 16-65 years old at each skills level per country Source: Survey of Adult Skills (PIAAC), ordered by the share of level 1 and below. Missing: did not take the test. Figure 11: Differences in literacy and numeracy proficiency across education levels (a) PIAAC Literacy Score (b) PIAAC Numeracy Score Source: Own calculations based on Survey of Adult Skills (PIAAC) (OECD, 2012) Note: Scores reflect weighted averages and are on a scale from 0-500. Research has shown that educational attainment levels are not always fully comparable across Member States. The Survey of Adult Skills (PIAAC) shows a strong variation in basic skills (in particular numeracy and literacy) levels across graduates from different Member States (Figure 11). Most notably among Member States participating in the survey, upper secondary education graduates from FI and NL have similar or higher literacy and numeracy scores on average than tertiary education graduates in ES, IE and IT. Not having attained a sufficient basic skills level has a clear effect on labour market participation and employment possibilities. Among the 64 million aged 25-64 not having attained secondary education in 2014: 23.3 million were inactive in the labour market (36.4% of all low-qualified Europeans). 40.7 million were active in the labour market (63.6% of all low-qualified Europeans) including: o6.6 million low-qualified Europeans were unemployed (16.3% of all active low-qualified Europeans); o34.1 million low-qualified Europeans were employed (53.2% of all active low-qualified Europeans). Initial education and training systems are the main providers of the development of the basic skills required for labour market participation. They face a number of challenges, such as early school leaving. In addition, not all those who complete secondary education achieve at least the minimum level of basic skills. An early indication is given by the OECD's PISA proficiency tests among 15 year old pupils. Figure 12a and 12b present average PISA numeracy and literacy scores of 15-year olds by country, and show how they changed over time. Figure 12a: Proficiency in numeracy as measured by PISA in 2006 and 2012 Source: OECD (2014) In international comparison, many EU Member States' average performance in numeracy is similar to that of Norway, and better than of the United States and Russia; but below the performance of high-performing Asian countries such as Japan and Korea and of Canada, again supporting the need for further improvement in the EU. However, there is broad variation between individual countries within the EU. Both for literacy and for numeracy, there are some EU Member States that have mean scores at par with Canada, which means they are among the best performing countries globally. In the domain of mathematics, these are the Netherlands, Estonia, and Finland; in the reading domain, these are Finland and Ireland. At the other end, some Member States are trailing behind significantly. In particular Bulgaria and Romania still have a long way to go to reach even the level of Norway, as they perform worse than the United States and Russia. The picture shows some signs of convergence, in the sense that the lowest performers (Bulgaria and Romania) made substantial improvements between 2006 and 2012; but also, on the other hand, that the scores of the best performers in 2006 (Finland, the Netherlands and Belgium) slightly deteriorated by 2012.

Figure 12b: Proficiency in literacy as measured by PISA in 2006 and 2012 Source: OECD (2014) Low-skilled adults face a number of challenges. Low-qualified adults are three times less likely to participate in learning compared to high-qualified adults. In real terms this means that in the EU28, in 2014 of all European aged 25-64: Only 2.8 million of low-qualified adults (or 4.3% of all those aged 25-64) whose highest educational attainment level is lower secondary participated in education and training (in last 4 weeks); Only 0.6 million low-qualified adults (or 1% of all those aged 25-64) whose highest educational attainment level is lower secondary participated in formal education, and; Only 2.2 million low-qualified adults (or 3.4% of all those 25-64) whose highest educational attainment level is lower secondary participated in non-formal education. 61.2 million of low-qualified adults (95.7%) did not participate in education and training. Not only do lower-qualified persons need more learning opportunities, they also require more learning hours to have a durable impact on their skills levels enabling them to acquire a qualification. However, in practice, highly qualified adults receive around 45% of all training hours, medium qualified people receive about 42% and low-qualified people receive only 13% of all hours. Adults’ limited engagement in further learning is due to structural and situational obstacles, which are closely interlinked. The main structural problems that hinder the participation of low-skilled adults in learning are: limited outreach and guidance, limited opportunities for skills audit and validation which would assess the skills they have and recognise any skills acquired informally and non-formally, limited individualised support and limited flexibility of adult education and training provision. In most Member States, guidance services focus largely on unemployed people, while adults who are in employment or who are economically inactive as well as being low-skilled risk falling outside the focus of the guidance services. Adults find it easier to take part in further education and training if the skills that they have acquired outside the formal education system (e.g. at work or in voluntary activities) can be validated and recognised. However, most countries still need to develop validation arrangements. Situational obstacles relate to the specific context of the individuals concerned and include family responsibility, conflicting time schedule, costs, lack of employer support, proximity concerns etc. Among these, the first two appear to be the most frequently cited obstacles in the Adult Education Survey. Lack of motivation is another significant obstacle. Research also shows that those with weak basic skills are often unable or unwilling to recognise their weaknesses and, because of this, see no need to improve skills. The lack of engagement of the low-skilled adults in training is possibly influenced also by poor experience of schooling or 'low skills-poor jobs trap' (50% of adults that did not participate in education and training were not motivated to do so because it was not immediately needed for the job ). To address the above challenges and to tackle low skills in Europe, the European Commission is proposing a Council recommendation to establish a Skills Guarantee initiative. The evidence underpinning this proposal is further elaborated in Annex 1 of this Staff Working Document. 2.2.2. Transversal skills and other key competences New ways of working, such as the collaborative economy, increased independent and contract-based work, and more frequent job changes (by necessity or opportunity) call for a broader set of skills. According to one survey of companies, 40% of employers in the EU report difficulties in finding candidates with the right skills, many of them stressing a lack of transversal skills among job applicants. These can be defined as skills that are learned in one context in daily life, study or work and can be transferred to another context in daily life, study or work. Many Member States have adapted and embedded at least some of the key competences defined in the 2006 Key Competences Recommendation in curricula for school education. Eight competences were identified: communication in the mother tongue; communication in foreign languages; mathematical competence; basic competences in science and technology; digital competence; learning to learn; social and civic competences; sense of initiative and entrepreneurship; cultural awareness and expression. The Key Competences framework marked a shift towards a learning outcomes approach, away from measuring educational achievement based on length or setting of study. Each competence was defined in terms of knowledge, skills and attitudes appropriate to the context. While this framework has proven its value reinforcing the shift to a learning outcomes approach, its implementation also showed some drawbacks . Surveys and studies identified as areas for improvement: (i) embedding transversal skills into curricula; (ii) addressing all levels as insufficient emphasis on key competences were found in VET and adult education and as informal and non-formal learning were ignored, (iii) addressing all kind of learners as disadvantaged groups did not benefit fully; (iv) using innovative pedagogical approaches; and (v) effective design of useful assessment tools. Many young people still lack a sufficient range and level of transversal skills (critical thinking, creativity, communication). Furthermore, there are on-going challenges with implementing high quality approaches to developing the key competences in young people, which include understanding the nature and benefits of the competences, ensuring a progression of skills development (including classroom approaches and assessment), mechanisms for monitoring and evaluating local and national initiatives, and validating key competences acquired through informal and non-formal learning.

While implementing the Key Competences framework most Member States focussed on at least some basic skills in primary and secondary school education (literacy, numeracy and/or Maths, Science and Technology) but the majority of Member States pay less attention to transversal skills (see Figure 13). Furthermore the demand for certain transversal skills by employers and industry has increased considerably . This raised the question whether the eight key competences identified in the 2006 EU Recommendation are up to date. With this in mind, the Commission is proposing to review the Key Competences for Lifelong Learning and the accompanying European Reference Frameworks in early 2017. The need to rethink the core skills to be taught and learned is not only visible in Europe but a worldwide concern. International players such as OECD (through PISA and PIAAC), Assessment of 21st Century Skills partnership (ACTS21 -worldwide), UNESCO, and BEAR in the US and Australia have started to broaden the scope of traditional school subjects (mother tongue, foreign languages, mathematics and science) and are introducing transversal skills. This international work, using the transversal skills below, is a starting point for further work: Chart 1: Transversal Skills Ways of thinking: -Creativity and innovation -Critical thinking, problem solving, decision making -Learning to learn, metacognition Ways of working -Communication -Collaboration (teamwork) Tools for Working -Information literacy -Digital literacy Living in the World -Citizenship (local and global) -Life and career -Personal and social responsibility (incl. cultural awareness) Overall these competences are defined as soft, transversal, or generic skills, covering skills, attitudes and knowledge and have been widely recognised as central to the jobs and qualifications for this century.

Figure 13: Extent to which key competences are taken into account in Member States' education systems 2.2.3. Focus on digital skills Research finds that 23% of the EU28 population has low digital skills, and an additional 21% does not use the internet (Figure 14). Amongst the labour force the figures are 24% and 13%, respectively (Figure 15). This is problematic, as increasingly employability, use of public services and participation in society more generally relies on the use of ICT and online services. Again, these figures do hide substantial variation among Member States. Figure 14: Digital skills of the EU population and NO, MK and TR (% individuals with above basic, basic and low digital skills and no internet use) Source: Digital scoreboard, 2015 (Commission services based on Eurostat data) Figure 15: Digital skills of the labour force (% labour force with above basic, basic and low digital skills and no internet use) Source: Digital scoreboard 2015 (Commission services based on Eurostat data) Digital skills are lacking in Europe at all levels: basic user, advanced user and ICT professional skills. The Commission's Digital Skills Indicator (published together with the Digital Economy and Society Index - DESI) for 2015 shows that 45% of the EU population lack a sufficient level of basic digital skills and around half has none at all. Only around 32% of the EU population has more than basic user skills. These are the skills that every citizen needs for working, living and learning in the knowledge society. Digital skills can now be considered as basic due to their role in providing basic functional literacy in today's world. While it is true that digital skills is treated in many curricula as a subject in its own right, the fact that they can be transferred from one area to another means that they can also be considered transversal. At European level, the Commission has been addressing digital skills gaps through a number of initiatives including in particular its "Opening-up Education" initiative to modernise education for the digital age, the "e-Skills for jobs" awareness raising campaign on ICT professional jobs, "EU code week" and the "Grand Coalition for Digital Jobs". The Digital Skills Indicator is based on the European Digital Competence Framework for Citizens (DigComp), which identifies, defines and describes the digital skills needed by all citizens as part of the key competences for lifelong learning. DigComp has also been included in Europass as a self-assessment tool for job-seekers to self-evaluate their digital competence and have it described in their CV. At national and regional level, DigComp is being used as the reference for self-assessment tools for employability (Basque Country and Andalusia in Spain), for the development of strategic policies (Italy, Malta, Navarra in Spain, Poland and the United Kingdom), for the assessment of education and training content and student performance (Estonia, Flanders in Belgium, Region Emilia Romagna in Italy and Slovenia) as well as for teachers professional development (Croatia, Estremadura in Spain, Lithuania and Spain). The lack of digital skills also affects citizens as consumers. Skilled consumers can compare and contrast information collected through digital channels, thus digital skills are enablers of better consumer decisions at the moment of choosing goods and services both online and offline. For this reason, the Commission is developing a framework based on the DigComp targeted to consumer skills (DigCompConsumers), which is expected to be completed by summer 2016. In addition, the education materials and e-learning modules on the Consumer Classroom and Consumer Champion platforms can be used by consumer associations and other intermediaries working with vulnerable consumers to help develop further consumer education materials in light of the changes brought by digitalisation. This is the case for instance in the energy sector as Consumer Champion materials already exist to support consumers with collective supplier switching which has been greatly facilitated by the digital revolution. The Grand Coalition is a cross-European multi-stakeholder partnership aimed at reducing digital skills gaps and making the most of the job opportunities offered by digitalisation in Europe. So far, the initiative has attracted around 80 stakeholder pledges, largely from ICT companies, offering training, apprenticeships, and placements and/or carrying out awareness raising activities to encourage young people to study and pursue careers in ICT. It has also raised political awareness and support for these issues. In 13 Member States, national coalitions on digital skills have been set up and more are planned. Initiatives by these coalitions have led to the training of many thousands of Europeans, in the workforce at large, unemployed, teachers, and young people in digital skills, including coding. Some Member States have also produced digital skills strategies and a small number have moved to introduced computing (including coding) into the school curricula. In December 2015, a first informal Ministerial level debate on digital skills took place. These activities on digital skills have made a valuable contribution to reducing digital skills gaps in Europe. However, they have largely relied on the voluntary active involvement of a group or groups of dedicated stakeholders. A more active engagement of Member States, including adequate funding, would be essential to modernise education and training systems and provide their citizens with the skills needed for a thriving digital economy. 2.2.4. Focus on entrepreneurial skills Among the competences identified as transversal by the Recommendation on the Key Competences for Lifelong Learning, Sense of initiative and Entrepreneurship has been under the spotlight for the past few years. The 2012 results from the annual Global Entrepreneurship Monitor show that only in a handful of the Member States do more than half of the adult population believe they have the required skills and knowledge to start a business. Furthermore, the 2012 Flash Eurobarometer (354) Entrepreneurship in the EU and beyond shows that only half of the EU population aged 15 years and above agree that their school education helped them to develop a sense of initiative and a sort of entrepreneurial attitude, with 22% totally agreeing and 28% tending to agree. Advocated by the Small Business Act for Europe, the Communication on Rethinking Education and the Entrepreneurship Action Plan 2020, the need to promote entrepreneurship education and entrepreneurial learning has led to a wealth of initiatives across Europe . In 2014/15, 29 of 38 countries/regions surveyed in the Eurydice 'Entrepreneurship Education at School' Report have either specific or broader strategies that include specific links to entrepreneurship education. Beyond the 11 countries/regions with a specific strategy, there are 18 with a broader strategy related to entrepreneurship education. Only nine countries/regions (eight Member States) do not have relevant strategies (Croatia, Italy, Cyprus, Luxembourg, the Netherlands, Malta, Portugal, the United Kingdom (England) and Iceland). While entrepreneurship education is increasingly recognised in primary education, it remains most common in upper secondary education. At upper secondary level, approaches are varied: it can be seen either as a separate subject or as an integral part of other subjects. There is growing evidence of the benefits that higher levels of entrepreneurial attitudes and skills can bring. A mapping exercise of research on the impact of entrepreneurial education, commissioned in 2013 by the Commission shows that entrepreneurship education is successful in fostering the entrepreneurial skills of young people, bringing benefits not only to the individual, but also to the economy and to society at large. This is because the likelihood that graduates having had entrepreneurship education will participate in a business start-up is substantially higher, the frequency with which they set up businesses seems to be higher and they become self-employed earlier in their careers. In addition, the enterprises run by these individuals are perceived as more innovative and the expectations regarding employment growth and turnover growth are higher . Entrepreneurial skills have also a more general impact on the employability of young people, contributing to higher employment rates. Despite the focus on the promotion of entrepreneurial skills, there is no consensus on what its distinctive constituents are, how it should be learnt and taught and in what learning context. This is reflected in a very fragmented entrepreneurship education landscape in Europe. Across Member States no common definition of entrepreneurship competence is adopted, nor is the same priority given to the definition of learning outcomes for entrepreneurial learning. To improve the situation, the Commission is fostering a common understanding of what entrepreneurial skills are and what the relative learning outcomes are as it has previously done for digital ones , gathering evidence on good practice projects and helping relevant actors to exchange knowledge.

2.2.5. Relevance of higher level education More advanced, complex skills are developed primarily in higher education systems. During the past decade, enrolment and attainment grew steadily, while higher education graduates continued to enjoy persistent advantages in both finding employment (Figure 16) and earning income . Despite these successes, European higher education systems face a number of key challenges in responding to increasing and changing demand for high-level skills. The results of the recent public consultation on the modernisation of higher education (see Annex II for a full analysis) highlight, among other key issues, the following: 1.There is a need for higher education and research performing institutions to prepare students and researchers for a rapidly changing labour market, where established occupations are constantly evolving. In such a context, the ability to adapt to change, think critically and solve problems independently, as well as other transferable skills such as high-level digital literacy, are more crucial than ever, which means it is all the more important for to implement student-centred higher education curricula and research programmes that help individuals acquire the skills sets they need. 2.Higher education also needs to respond to short to medium-term skills needs in regional and national labour markets. Demand for higher education graduates from particular fields of study varies between regions and national contexts. For example, although there is not generalised undersupply of Science, Technology, Engineering and Maths (STEM) graduates in the EU, shortages of specific STEM skills affect particular regions. Here, good guidance for prospective students and understanding of relevant skills needs within institutions are particularly important. 3.The changing labour market and high skills requirements are increasing demand for lifelong learning and continuous professional development, as people seek to up-skill over their careers. However, provision of lifelong learning options in existing higher education institutions is often limited. 4.To respond effectively to high-level education and training needs, higher education systems need to provide an adequate diversity of study options, including good quality professional programmes, good work-based learning opportunities and flexible courses accessible for those already in work. In this respect, the potential of online and blended learning is only starting to be tapped into. 5.Building effective higher education systems requires sustainable funding, which makes it possible to design and deliver high-quality, relevant programmes. As mentioned in the introduction, a public consultation has recently taken place to have a wide range of stakeholder's views on the modernisation of higher education. A detailed analysis of the results of the consultation is presented in ANNEX II of this SWD. Figure 16: Employment rates by level of education Source: Eurostat. 1=below upper secondary education (Isced: 0-2); 2=upper secondary (3-4); 3=tertiary (5-8) In doctoral education as in other levels, exposure to industry and transferable skills training is increasingly encouraged. Today, certain institutions in Europe have started training doctoral candidates not only for an academic career. However, as many PhD will go on to work outside academia, they increasingly require the ability to adapt to another environment and to develop new essential skills. Essential skills such as people management, leadership, intellectual property rights and entrepreneurship, remain less common forms of ‘structured’ training for PhDs: around one out of ten reports receiving such training. When looking at intersectoral mobility (>3 months) during the PhD, 23% of researchers have had a non-academic research experience (in public, non-for-profit or private industry); a subgroup of only 4% have experience with private industry. This would suggest that more attention might be given to skills development during PhD training and continuous professional development. ‘Transferable’ skills and experience outside academia are, for example, embedded in the existing Principles for Innovative Doctoral Training . Globally speaking the role of Science Education is becoming a crucial element that provides overall necessary curiosity, skills and knowledge to all citizens. Modern Science Education will help the youth to become participative citizens that are able to make right choices for themselves and for the society, and make it easier for them to stay employed or increase their employability and adaptability to the ever faster technological development and innovation process in a global economy. This calls for enhancing the provision of both 'core' skills and transversal skills for researchers, innovators and entrepreneurs, notably for linking science to society. Hence, the components of the EU's Responsible Research and Innovation programme (more specifically science education, gender, ethics) should be taken into account in the curriculum development in order to provide very societally relevant and high quality science education and training to the young, independently of whether they choose a career in academia or the private sector. Equipping researchers already at a very early stage with the 'right' skills has become a basic requirement of the ever faster evolving culture Europe belongs to. To provide for such opportunities, the 2005 'European Charter for researchers and the Code of Conduct for the recruitment of researchers' (Charter and Code) set out the rights and obligations for researchers with respect to their career. Being top priority on the political agenda, appropriate skills, in particular e-skills, literacy, data management skills etc. need to be provided for to all researchers (and even already during curricula) to allow even early stage researchers to work in an Open Science environment, irrespective their career choice.

2.2.6. School to work transitions Transition from school to work is a critical step for many young persons. Lacking work experience, but unable to obtain that experience without a job, throws young people into a vicious circle. Young people that do not manage to get their first work experience risk being permanently excluded from the labour market. The European Union Labour Force Survey results show that “among medium-level VET programmes, the transition to work is 14% faster for work-based programmes than for school-based programmes.” Medium level VET graduates are also more likely to have a permanent first job, and are less likely to find a first job with a qualification mismatch. It must be born in mind, however, that general education programmes tend to orient their graduates towards further education rather than direct entry into the labour market. There are significant differences between countries. The transitions are faster in countries where school and work-based learning are closely connected. Furthermore, as VET graduates tend to be employed in occupations which are closely related to their studies, the likelihood of under-qualification is lower for them than for graduates from general education Evidence also shows that young adults who finish initial VET programmes are better placed to access jobs compared to those young adults, who complete initial general education programmes and do not continue into further education. The employment rate of young VET graduates is 73.3 %, whereas that of young general secondary education graduates who did not go on to a higher level of education is 59.7 %. These are average trends, to which only CY, EL, PT and UK are exceptions. In May 2012, the European Council agreed on a European benchmark on the share of employed graduates from education and training. The aim of this benchmark is to help to identify education and training policies which improve the transition between education and training and work. It was agreed that by 2020, the share of employed graduates (20-34 year olds) having left education and training no more than three years before the reference year should be at least 82% (as compared to 76.5 % in 2010). The current state of this indicator overall is 76.1 %, which shows that there has not been improvement in this area. The employment rate of recent higher education graduates is 80.5 %. Figure 17: Employment rates by orientation of education qualification Source: Eurostat (LFS, 2014), based on a May 2015 extraction. Note: The indicator captures the employment rate of 20 to 34 year-old persons with ISCED 3 or ISCED 4 education attainment and no longer in formal or non-formal education or training. Countries are ranked in ascending order by the total employment rate (ISCED 3 and ISCED 4). From Education and Training monitor 2015 Several measures have been taken at European level to contribute to reaching the employability benchmark. One of them is the Council Recommendation for Youth Guarantee (a report/communication foreseen later in 2016). Other initiatives are the European Alliance for Apprenticeships (see below) and the Quality Framework for Traineeships, which was also launched as part of the youth employment initiative. The business-led initiative European Pact for Youth is also active in the field (see also below). 2.2.7. Role of work-based learning and business-education partnerships Work-based learning and apprenticeships facilitate transitions to the labour market, thus improving employability; studies show that around two out of three apprentices are hired directly after their training. They benefit also the training companies because, in addition to creating a 'training culture' in an enterprise, they can provide a supply of people trained to meet the company's specific needs. Apprenticeships and work-based learning in general also enhance the competitiveness of enterprises and help adapting employees’ skills. Work-based learning actually provides a valuable alternative, non-academic pathway to build quality employment and careers. In 2025, about 40% of jobs will require medium-level skills, typically acquired through vocational education and training. However, currently only one in four initial VET students are in work-based programmes (see Figure 18) , which is in part due to the lack of attractiveness of apprenticeships and knowledge about employment prospects, but also the lack of companies, in particular SMEs, providing work-based learning for young people. Large companies, with over 250 employees, are most likely to offer apprenticeships (44%), compared to 31% of medium-sized companies (50-249 employees) and only 22% of small enterprises (10 to 49 employees). Figure 18 Initial VET students in combined work- and school-based training

The evidence shows that work-based learning is an effective way to prepare a smooth transition from education to work, which is an insight that governments, social partners and VET providers can use to design effective policies. A working group of experts under the framework for European cooperation in education and training (ET2020) reflected upon the ways to maximise the potential of work-based learning. In addition to giving real-life examples of how apprenticeship schemes can be put into practice, the final document "High-performance apprenticeships & work-based learning: 20 guiding principles" focusses on four areas that need to be tackled when introducing and improving work-based learning schemes; national governance and social partners' involvement; support for companies, in particular SMEs, offering apprenticeships, attractiveness of apprenticeships and improved career guidance; and quality assurance in work-based learning. These are key areas for successful apprenticeships, but also areas where more support is needed. Constructive cooperation between all apprenticeship partners is key to good quality apprenticeships. Companies' participation is crucial as it is them who provide the practical training part in apprenticeship schemes, which is why education-training partnerships are duly gaining more attention in vocational training. Strong partnerships with social partners and other relevant stakeholders such as chambers of commerce and various competent institutions were highlighted as one of the transversal priorities in the Riga conclusions on Vocational education and training priorities up to 2020. Cedefop has undertaken apprenticeship reviews of Malta and Lithuania, and they are ongoing for Italy, Greece and Slovenia, whilst the ILO is carrying out similar work in Latvia, Spain and Portugal. The purpose of these reviews is to help the targeted countries to identify action to improve apprenticeship supply. Since 2013, the Commission has promoted apprenticeships through the European Alliance for Apprenticeships, a multi-stakeholder initiative. The Alliance aims at improving the quality, the quantity and the image of apprenticeships. To date, 26 Member States, 5 EFTA and EU Candidate Countries, as well as around 100 organisations, including companies, have made commitments and pledges to take concrete actions. A study has been launched to monitor progress and to reflect the future priorities for the Alliance with the results expected in early 2017. But cooperation between the world of education and companies should take a comprehensive approach above and beyond apprenticeships. A European study by McKinsey showed that while 74 % of education providers believed their graduates were prepared for work, only 38 % of youth and 35 % of employers agreed. Similar results were found in the public consultation on the modernisation of higher education (see Annex II). Moreover, whilst close cooperation between the education sector and business improves the relevance of education and training needed for the world of work at all levels, they are not yet the norm, not even in the area of VET, let alone at other levels of education. Within the European Pact for Youth aimed at improving youth employability and social inclusion, launched on 17 November 2014 by CSR Europe and supported by the Commission, companies committed themselves to creating 10,000 quality business-education partnerships and 100,000 learning opportunities for young people by 2017. Implementation of this joint engagement of EU and business leaders will be monitored through the Group of Leaders co-chaired by the Commissioner Marianne Thyssen and Viscount Etienne Davignon. Partnerships can also be made on other issues, such as research, regional innovation or entrepreneurship. Guest lecturers from business in schools, job shadowing for teachers, and student visits in the workplace are other ways to cooperate, to mention but a few. In particular, SMEs with limited administrative resources may benefit from continuous cooperation with companies as well as support provided through business-education partnerships at the local level. 2.2.8. The role of mobility Young people who study, train or volunteer abroad not only gain confidence and knowledge in other cultures and languages, but also strengthen key transversal skills which are highly valued by employers. Studies show that graduates with international experience fare much better on the job market. However, the number of young people benefitting from such an international experience is still limited. Only around 10% of higher education students in Europe go abroad for at least 3 months during their studies, which is still far from the EU target of 20% by 2020. Mobility for apprentices and IVET learners is still underdeveloped compared to mobility for students in higher education within the Erasmus+ programme and beyond. Within Erasmus+, the resources allocated to VET mobility allowed to fund about half of the eligible applications (in 2014, 53%, compared to 71% in higher education), and while most VET mobility experiences are short, individual participants were less than one third the number of mobile higher education students . However, there is also a lack of reliable data IVET mobility outside of the Erasmus+ programme is difficult to measure. There is also a need to improve the quality of VET mobility, in order to increase mobility flows and to contribute to reaching the VET mobility benchmark of 6 %. The benchmark was agreed by the Council of the European Union in May 2012. While setting the target, the Council also requested the Commission to establish a regular data monitoring systems for all mobility targets, including I-VET mobility. The Commission has initiated a data development exercise and, as part of this exercise, a pilot data collection has been implemented by Eurostat. The average I-VET learning mobility, based on the 16 countries that participated in the exercise and defined as formulated in the benchmark, was 3.1% (weighted average of those sixteen countries). A Mobility Scoreboard should make the quality of the organisation of mobility and overall numbers more visible. Cedefop has produced a report demonstrating that collecting data and developing an IVET Mobility Scoreboard is feasible and that the scoreboard can be produced on a yearly basis. 2.2.9. Supporting transitions of adults As working careers are changing and jobs are no longer for life, individuals have to update, increase or change their skills, hence continuing training and upskilling is a constant need. Work transitions, within the organisation, into a different one, or in a new sector, are the reality for an increasing number of people. Adults in employment, who do not engage in substantive upskilling or reskilling for five or more years, run the risk of being locked into particular ways of working. The actual knowledge base requires substantial updating, achieved partly through work, partly through career development activities outside work. Good jobs are needed to develop good skills. Skill-intensive jobs with opportunities to acquire skills continuously are a pre-requisite so that individuals have incentives to engage in continuous learning as part of their jobs. Around 26% of EU adult employees have significant skill deficits, leaving scope to improve skills and productivity. The underqualified, however, though lacking qualifications needed for their jobs, are likely to possess a large stock of (non-formal or informal) skills to perform their jobs, thus indicating the need for validation or certification of their acquired, yet unrecognised, skills for the purposes of enabling their continued mobility and career progression in the labour market. Adult education helps to improve economic growth and society. Adult education can reduce social inequality, increase inclusion, cohesion and active citizenship. Erasmus+ supports capacity building of adult education organisations and the improvement of teaching and learning provisions. The programme fosters the inclusion and employability of specific adult target groups with poor basic skills by supporting provisions for enhancing their basic skills and key competences. The formation of skills through non-formal and informal learning is an investment by firms, in many respects akin to other forms of investments. Small and medium-sized enterprises (SMEs) provide less continuing vocational training to their staff relative to larger-sized organisations, which partly reflects the skewed distribution of occupations in the latter and the more limited scope for vertical mobility within the organisation; for example, a greater share of professionals are employed in larger-sized firms while SMEs rely more on service and market sales workers. Nevertheless, there is evidence that, after taking into account their differential occupational/sectoral distribution, individuals in SMEs require a higher level and spectrum of skills to do their jobs compared to comparable workers in large establishments. Workplace support is key to career development and transitions. Decisive factors are motivation (personal and work-related), whether time away from work is granted, or whether further training is financially possible. Successful learning in the workplace schemes is based on an initial assessment of participants’ skills and motivation, validation of prior learning, individual training plans and tailored learning to help develop both key competences and job-specific skills. But individual commitment to learning also needs to be supported and matched by workplace innovation practices. These are also important for the mutual learning between employees and transfer of knowledge within the company. European Commission's European Workplace Innovation Network (EUWIN) project gathered important evidence and best practises in this regard. Building on EUWIN's experience, more practices of this kind should be promoted in European companies, especially SMEs, start-ups and innovation villages. 2.3. Making skills visible and comparable

2.3.1. Transparency and recognition of skills and qualifications: main issues The lack of relevant skills is not the only cause for low employability and skills mismatches. In many cases, skills exist in the labour market but are not identified, exploited or rewarded. This leads to under-utilisation of the skills available in the economy. It also has implications for mobility of individuals between countries. Skills and qualifications acquired in a given country and in a specific economic sector might not be recognised or even properly understood by prospective employers of other countries and sectors. Skills acquired on the job or through other relevant experiences such as non-formal and informal learning are not necessarily recorded in a qualification or documented. According to a 2014 Eurobarometer, 6% of EU citizens have tried to work or study in another EU Member State but were not able to do so. This was partly due to a lack of recognition of their qualifications and related support and information. Considering that 3.3% of the total labour force in 2013 was mobile, it is evident that there is potential for gre