Simulating the Lisbon skills targets in WorldScan

This paper explains the theoretical background, the analytical methods, calibrations, assumptions and computations of the skill inputs for the WorldScan analysis on the skills targets of the Lisbon agenda. The Lisbon skills targets are implemented in WorldScan using most recent theoretical and empirical research in human capital theory. In particular, a satellite model for WorldScan is developed which disaggregates high skilled labour in S&E and non-S&E workers, and low skilled labour in workers with primary education (or less), lower secondary education, and higher secondary levels of education. In addition, workers can acquire skills through on-the-job training. The quality of the workforce may also increase by a higher quality of initial education. Finally, a stylised cohort model is developed to capture the time-lag between changes in policies and the eventual impact on the labour force. In implementing the skills targets we take heterogeneity between various EU countries into account with respect to the following skill variables: initial average levels of education, the returns to education, graduation rates in upper-secondary education, participation in on-the-job training, and the graduation shares in S&E education.