The report pays particular attention to the functional skills that workers need to

be equipped with to be employable and support firms competitiveness and

productivity, and to the role of the education and training system in providing them.
Skills can be broadly disaggregated into three main categories: - Academic skills:
associated with subject areas (math, literacy, English) and generally measured
through standardized scores - Generic (or life) skills: broader set of skills
transferable across jobs generally including thinking (critical and creative thinking,
problem solving, etc), behavioral (typically communication, organization, teamwork,
and leadership skills) and computing skills - Job-specific (or technical) skills: skills
associated with ones profession, which are generally a mix of specific knowledge
and skills to perform jobs Skills acquisition is a complex process. While the report
focuses on education and training, it is important to acknowledge that skills are
produced in many different ways involving pre-employment education and training
(formal and informal), on-the-job training (formal and informal), work and life
experience, and learning from peers at school and work. Skill acquisition is
fundamentally a cumulative dynamic process starting at birth with parental
education and continuing through school education, training and experience. While
skills can grow over time, they can however also decay if possibilities for life-long
learning are not well developed. Additionally, a share of the population can be
excluded from effective skills acquisition if alternative secondchance skill
development pathways do not exist for vulnerable youth. Roadmap of the report.
Part I of the report investigates trends in demand for skills in the country -overall
and by sectors-, explores its possible determinants, and attempts to identify
emerging skill gaps. Part II turns to the analysis of the supply of skills in the country
with a focus on the ability of education and training to provide highly skilled labor,
keeping workers skills updated, and providing skill development opportunities for
the unskilled. It explores employers perceptions on the quality of institutions and
provides detailed analysis of main characteristics, outcomes and challenges in four
key (or growing) sub-sectors of the provision of skills in the country: higher
education; postsecondary technical-vocational education; non formal secondary
education; and postemployment training. It concludes with a summary of policy
recommendations.

Trends and Drivers of Demand for Skills Skill demand has been growing and
changing in the Philippines related to changes in output and employment structure
(across and within sectors), openness to new technology and pressures of
international competition. An overall storyline comes out from this report. The
Philippines workforce has become increasingly educated over these last 20 years,
while at the same time demand for education has been overall growing as
illustrated by an increase in the wage education premium (Figure 2) - and changing
with focus on the service sector. To the extent that education can be taken as an
indirect measure of intermediate and advanced skills (academic, generic and

technical), this evidence suggests that skill demand has been growing and
changing. When comparing Philippines to the rest of East Asia, its demand for skills
is one of the most dynamic.1 Finally, there is also evidence that demand for skills is
positively related to technology and export intensity.

Demand for skills is growing driven by the service sector. Education upgrading is
less evident and focused on less highly skilled workers in manufacturing. The
increasing trend in demand for skills hides significant differences across sectors,
with continuous and still unfulfilled demand in most services sub-sectors, fulfilled or
even decreasing demand in most manufacturing sub-sectors, and some rising
demand for higher level skills in the agriculture sector. Higher demand for skills in
the service sector is apparent from analyses of education wage premiums and the
education profile of new hires2 , calculated from a firm survey undertaken on a
representative sample of firms in the manufacturing and service sector (Figures 3
and 4). Education skill premiums increase while also educational attainment in the
service sector increases, and education upgrading with focus on higher education
- is strong compared to the increased educational attainment of the workforce, both
of these trends indicating increased demand. Most dynamic sectors are: trade,
tourism, transport and communication and insurance/real estate/business. On the
other hand, while rates of return also tend to decline, education upgrading is less
evident and focused on less highly skilled workers (secondary and post-secondary)
in the manufacturing sector graduates are more likely to provide. It also possibly
reflects however some level of education inflation whereby in a context where
educational attainment has been increasing and college graduates can hardly be
considered at the level of higher education graduates3 hiring university graduates is
also used as screening device, without necessarily implying that this high level of
skills is needed (as a matter of fact, there would be potential for larger use of good
post-secondary graduates). As the service sector continues to develop and
modernize and grow in terms of both overall GDP and employment, we can expect
demand for skills to continue changing and growing in the country. This is clearly
the trend under-way, as indicated by the increasing share of services in GDP (from
about 40% in 1985 to 50% in 2007) and employment (from 38% in 1988 to 49% in
2007), with particular focus on transport and communications, trade and finance
and business services. While continuing to absorb TVET workers, a decreasing wage
premium on secondary and more education in manufacturing, accompanied by a
decreasing share of manufacturing in GDP and employment4 , do not make, overall,
this sector a promising driver for demand for skills at this stage. Other significant
determinants of demand for skills are export orientation and access to technology.
While the service sector is therefore at this point the main driver of demand for
skills, other significant determinants include export orientation in both
manufacturing and services and access to technology. This is indicated by an
analysis of the determinants of demand for skills5 and, consistently in the report, by

more highly skilled workforce and higher skill needs (in terms of both indirect and
direct measures of skills) of the exporting sector (Figure 5 illustrates the higher
requirements of the exporting sector in terms of education levels) -also controlling
for size- and the more technologically advanced manufacturing sub-sectors.
Technology adoption and innovation is in particular associated with higher level
skills, while export intensity is associated with higher level skills in the service
sector (to a large part reflecting the high academic requirements of the BOPs) and
intermediate level skills in the manufacturing sector.