Skills are at the core of improving individuals’ employment outcomes and increasing countries’ productivity and growth. This is particularly relevant as today’s developing and emerging countries seek higher sustained growth rates. Most of them face serious demographic challenges—from a “youth bulge” of new job-seekers in Africa and the Middle East, to a demographic transition of shrinking labor forces in Eastern Europe and Central and East Asia.

As countries become richer and move up the value-added chain, the skills demanded will change. Bottlenecks will become more evident, constraining growth. Increasingly, labor productivity will depend on high-level cognitive skills (such as analysis, problem solving, and communication) and behavioral skills (such as discipline and work effort). These higher productivity skills are what employers now demand.

The STEP framework
A simple conceptual framework—Skills Toward Employment and Productivity (STEP)—can help policymakers, analysts, and researchers think through the
design of systems to impart skills that enhance productivity and growth (figure 1). Pulling together what is known about the elements of a successful skills development strategy, it can guide the preparation of diagnostic work on
skills, and subsequently the design of policies across sectors to create productive employment and promote economic growth. The framework focuses on five interlinked steps:

Step 1. Getting children off to the right start—by developing the technical, cognitive, and behavioral skills conducive to high productivity and flexibility in the work
environment through early child development (ECD), emphasizing nutrition, stimulation, and basic cognitive skills. Research shows that the handicaps built early in life are difficult if not impossible to remedy later in life and that
effective ECD programs can have a very high payoff.

Step 2. Ensuring that all students learn—by building stronger systems with clear learning standards, good teachers, adequate resources, and a proper regulatory
environment. Lessons from research and ground experience indicate that key decisions about education systems involve how much autonomy to allow and to whom, accountability from whom and for what, and how to assess performance
and results.

Step 3. Building job-relevant skills that employers demand—by developing the right incentive framework for both pre-employment and on-the-job training programs
and institutions (including higher education). There is accumulating experience showing how public and private efforts can be combined to achieve more relevant and responsive training systems.

Step 4. Encouraging entrepreneurship and innovation— by creating an environment that encourages investments in knowledge and creativity. Emerging evidence shows
this demands innovation-specific skills (which can be built starting early in life) and investments to help connecting people with ideas (say, through collaboration
between universities and private companies) as well as risk management tools that facilitate innovation.

Step 5. Matching the supply of skills with the demand— by moving toward more flexible, efficient, and secure labor markets. Avoiding rigid job protection regulations while strengthening income protection systems, complemented
by efforts to provide information and intermediation services to workers and firms, is the final complementary step transforming skills into actual employment and
productivity.

More information here.