followed by labor availability and the quality of formal education and training related to the production of relevant skills (World Bank, 2019a). From the firm perspective, skill deficits related mainly to new labor market entrants who were primarily jobless youth (World Bank, 2019a).

Skill constraints affected all hiring firms, across type of occupation and across sector. Depending on the specific position to fill, between 59 percent and 77 percent of hiring firms encountered problems because of applicants’ lack of skills or experience (Figure 5). Skill constraints affected all hiring firms but had a stronger effect on large, dynamic and innovative firms.<sup>9</sup> Therefore, the firms that are more likely to be competitive and productive are also the ones facing the largest skill constraints on recruitment.

Among Western Balkan countries, Kosovo stands out when it comes to skill gaps (Figure 5). A majority of firms in Albania and Serbia also experienced skill-related problems in recruiting workers for higher skill occupations, but the share of firms affected in Kosovo is even higher.

The low level of skills is related to the poor quality of the education system. Although enrollment in secondary education is high in Kosovo, a large majority of students have not acquired basic cognitive skills: 70 to 80 percent of students are not proficient in math, science and reading according to PISA tests.<sup>10</sup> In 2014, Kosovar children completed an average of 12.8 years of school by age 18. Once the quality of learning is taken into account, however, this is equivalent to just 7.7 years.<sup>11</sup> On the employer side, between 40 and 50 percent of firms report that general education does not adequately prepare students for the workplace – either in terms of up-to-date knowledge or soft skills (World Bank, 2019a). Consequently, education credentials are not thought to accurately reflect skills during recruitment.<sup>12</sup> Our analysis in this paper provides additional insights into the skills required by firms, which are likely to be the bottleneck for recruitment. We use a detailed taxonomy of skills, so we can precisely identify and communicate over the skills in demand, by sector or industry.

Figure 5: Share of hiring firms that experienced difficulties in hiring due to lack of experience or lack of skills, by type of occupation to fill (%).

> 9 More precisely, firms in the Business Services sector face recruiting constraints due to skills gaps more frequently than in other sectors. This is also true for large firms compared to smaller ones, for firms that invested in R&D and for foreignowned firms compared to other firms. See World Bank (2019a).

> 10 Results from PISA 2015.

> 11 Learning adjusted expected years of schooling, Human Capital Project data set (World Bank), based on 2014 data.

> 12 Qualitative evidence from employers and stakeholders’ consultation confirmed that. Some hiring firms are setting their own entry tests and others are setting up their own training programs to compensate for the deficiencies in the public system. Others are setting up their own training programs to compensate for the deficiencies in the public system.

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