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Many applied studies have shown that effective structural labor market reforms will have positive implications for productivity and participation rates, eventually boosting the economic growth and sustainability of the labor market in the long term.

The main purpose of such reforms is to overcome and mitigate the unintended consequences of structural distortions in the labor market. Additionally, the government can intervene from time to time in the short term to respond to new and fast disruptions in the labor market, such as technological disruptions, and adapt such interventions to reforms in the labor market.

In the past, it might have been less challenging to coordinate the long-term objectives of labor market reforms and interventions since disruptions and trends in the labor market used to take more time to take place, and give policymakers adequate time to react and align their interventions with the situations.

However, these challenges have become overwhelming for policymakers and business leaders in recent years due to the rapid occurrence of trends and technological disruptions, such as automation, artificial intelligence, and robotics.

In addition, the pandemic has seriously affected the labor market by causing the disappearance of some traditional jobs and the creation of new roles. Furthermore, this trend has continued even after the economic recovery from the pandemic, which has made the situation more complicated.

The new structure needs to be creative and broad enough to change the mindset of the supply side of the labor market from being one long-term career path with certain skills to a dynamic mentality that adopts the agility and accumulation of diverse skills and experiences.

Dr. Hussain Abusaaq

According to a McKinsey & Company report, “Closing the future-skills gap,” published in 2019, “25 percent of the global workforce will either need to find new professional activities by 2020 or significantly broaden their technological skills as well as their digital citizenship and classic skills, including cross-disciplinary skills. These skills include programming, agile working, and adaptability. Even elementary school students need to get ready for the change — by 2030, 85 percent of them will work in professions that do not yet exist.”

One of the main labor market challenges in the region is that many structural labor market reforms and national employment programs concentrate more on closing the current skills gap between supply and demand in the labor market. These initiatives intend to increase the national participation rate and decrease the national unemployment rate.

In this regard, two points need special attention. First, closing the current skills gap might create some distortion in the labor market. Second, focusing on the current skills gap without considering the future skills gaps is neither an optimal nor a sustainable solution since a more extensive skills gap will be created in the future, demanding different sets of skills.

It is better to have a holistic picture of the dynamic changes in demand and supply in the labor market. In some cases, part of the current skills gap need not be closed since, eventually, it will go away by default due to the disappearance of the demand for that specific skill in the short term. Therefore, the optimal solution is to focus more on advanced skills gaps that will appear and sustain in the future.

The dynamic of labor market could lead to a major shift in how policymakers and business leaders may construct more flexible and agile labor market structural reforms in the future that can deal well with the new dynamics of the labor market.

The new structure needs to be creative and broad enough to change the mindset of the supply side of the labor market from being one long-term career path with certain skills to a dynamic mentality that adopts the agility and accumulation of diverse skills and experiences.

Gradually, the workforce will adapt and adjust very quickly to technological disruptions in the labor market, resulting in the development of the skills needed for the demand side. Therefore, for those individuals who adapt promptly to such disruptions, the skills gaps will become an opportunity to grow and add value.

According to a Brookings article, “The labor market doesn’t have a ‘skills gap’ — it has an opportunity gap,” published in September 2020: “Instead of focusing on the skills gap, we argue that it’s time to focus on closing the opportunity gap — not only for the benefit of individuals who have been shut out of the labor market, but for society as a whole. Cultivating and investing in diverse talent can unleash regional innovation, economic growth and community well-being.”

Continuous episodes of rapid changes in labor market skills gap may impose some restrictions on the way labor policies are derived to close the skills gap. One of these restrictions is the implicit and explicit costs of implementing labor market reforms to close the skills gap.

To reduce such costs, traditional education needs to catch up quickly with the base of skills gap changes. Furthermore, the quality and efficiency of the outcome of traditional education needs to be upgraded to meet the needed skills. The education system must prepare young students for the future workplace and equip them with the minimum digital skills that ensure that they meet their employers’ needs.

Unfortunately, many educational systems struggle to keep up with the fast-changing workplace environment, which eventually diverges the gap between employers’ needs and education outcomes.

One approach that can possibly complement traditional education efforts and reduce costs is to provide extensive applied training to current and entry-level employees to accumulate and adapt new skills to fulfill the basic requirements of their jobs. This could generate a major change in the recruitment process, retention of employees, and effectiveness of cost-reduction measures.

A final crucial point to keep in mind when designing articulate labor market policies to close the gap and mismatch in skill level is to comprehensively analyze the implications of skill-based technological disruptions and their impact on the labor market polarization and wage inequality.

• Dr. Hussain Abusaaq is an economic expert.