Europe and Central Asia Face a Growing Challenge: Putting Workers’ Skills to Better Use

Having a skilled workforce is only part of the equation for economic success. The bigger challenge is ensuring that people can actually use their abilities in jobs where those skills are needed.

Across Europe and Central Asia (ECA), a significant mismatch exists between workers’ qualifications and the requirements of their jobs. Some employees have more education or skills than their positions demand, while employers in other sectors struggle to find people with the capabilities they need. The World Bank identifies this inefficient allocation of talent as an important obstacle to productivity and stronger economic growth.

When Skills and Jobs Do Not Match

A skills mismatch occurs when the abilities or educational background of a worker do not correspond well with the requirements of the position they hold.

One visible form is overqualification. A person may possess university-level education or advanced professional capabilities but work in a position that does not require them. At the same time, another company may be searching for precisely those capabilities.

This creates a paradox: an economy can have educated workers and businesses reporting skills shortages at the same time.

The World Bank’s analysis indicates that skill misallocation is particularly significant in several middle- and lower-income economies across the ECA region. Skilled workers are not always concentrated in larger, more productive companies, while some highly educated employees can remain in positions where their capabilities are underused.

Why Misallocation Matters for Productivity

When employees are unable to use their strongest skills, businesses may not receive the full benefit of their workforce.

A worker performing tasks below their capability may contribute less to productivity than someone whose abilities closely match the requirements of the position. Meanwhile, firms facing shortages of specialized skills can find it harder to adopt new technologies, expand operations or develop innovative products.

The World Bank’s TIDES of Change report identifies skills as one of five major areas requiring attention to improve productivity in Europe and Central Asia. Its analysis suggests that better allocation of human talent could help economies make more effective use of their existing workforce.

Education Alone Is Not Enough

The region has made considerable progress in educational attainment, but education systems do not always provide the precise capabilities employers require.

Vocational education and higher education face particular challenges in some countries. Limited opportunities for lifelong learning and professional retraining can also make it harder for workers to adapt when industries change.

The World Bank has reported that around two-thirds of innovative firms in ECA identify skills shortages as a constraint on their businesses, highlighting the gap between available talent and employer demand.

This means the policy objective cannot simply be to increase the number of people receiving degrees or certificates. Education and training must also remain connected to changing labor-market requirements.

Technology Is Changing the Skills Employers Need

Digitalization, automation and new production methods are reshaping workplaces throughout the region.

Companies increasingly need workers who can combine technical knowledge with problem-solving, communication, digital capabilities and adaptability. As technologies evolve, skills that were highly valuable a decade ago may become less relevant, while demand for new capabilities can grow rapidly.

This makes continuous learning increasingly important. Workers need opportunities to upgrade their skills throughout their careers rather than relying entirely on qualifications acquired early in life.

Better Connections Between Workers and Firms

Improving the labor market’s matching process could help address both sides of the problem.

Governments, educational institutions and employers can work together to identify which skills are in demand and adjust training accordingly. Better labor-market information can also help students, workers and job seekers understand where opportunities are emerging.

Companies, meanwhile, can improve recruitment and internal training systems so that employees are placed in roles where they can make better use of their capabilities.

The World Bank has previously emphasized the importance of improving information about both worker skills and employer requirements to strengthen the connection between skills supply and labor demand.

Stronger Firms Could Benefit From Better Talent Allocation

The issue is not simply about individual careers. It is also about how efficiently entire economies operate.

The World Bank’s research points to a weak relationship in parts of ECA between firm size and workforce skill levels. In more efficient markets, larger and more productive companies would generally be expected to attract a greater share of highly skilled workers. In some ECA economies, however, this pattern is much weaker.

Removing barriers that prevent talent from moving toward more productive businesses could therefore help firms grow and increase the economic return from existing skills.

What Governments Can Do

Several measures could improve the situation:

• Modernize vocational and higher education.
• Expand affordable lifelong-learning opportunities.
• Strengthen apprenticeships and workplace training.
• Improve labor-market data and career guidance.
• Encourage stronger cooperation between employers and educational institutions.
• Help workers transition into growing industries.
• Reduce barriers that prevent skilled people from moving between firms and sectors.
• Encourage businesses to invest in employee development.
• Improve foundational skills alongside specialized technical abilities.

These measures can help ensure that education translates into productive employment rather than simply producing more qualifications.

The Bigger Economic Opportunity

Europe and Central Asia already possess substantial human capital, but the region does not always convert that potential into productivity and high-quality employment.

The World Bank’s broader productivity analysis argues that stronger productivity could generate significant economic benefits. It estimates that a 10 percent increase in productivity could add nearly 2 million jobs across the region, illustrating how closely productivity and employment are connected.

Better skills matching can therefore become more than a labor-market reform. It can be part of a wider strategy for raising productivity, improving wages, supporting business growth and creating better employment opportunities.

From Having Skills to Using Skills

The central lesson is straightforward: a skilled worker creates the greatest economic value when the right skills meet the right opportunity.

For Europe and Central Asia, improving this connection could help businesses find the talent they need while allowing workers to use more of what they know. As technology and economic structures continue to evolve, making that connection more efficient could become increasingly important for the region’s long-term growth.