STEPPING UP SKILLS For more jobs and higher productivity 55566 Copyright 2010 by the International Bank for Reconstruction and Development/THE WoRLD BANK 1818 H Street NW, Washington, D.C. 20433 USA All rights reserved Manufactured in the United States of America First printing June 2010 Editing, design, and production by Communications Development Incorporated, Washington, D.C. Acknowledgements The report was prepared by Arup Banerji, Wendy Cunningham, Ariel Fiszbein, Elizabeth King, Harry Patrinos, David Robalino, and Jee-Peng Tan. The authors wish to acknowledge contributions by Yoon Young Cho, Sebastian Martinez, Robert McGough, Victor Macias, Kevin Macdonald, Sophie Naudeau, Emilio Porta, Dena Ringold, Jamil Salmi, Maria Laura Sanchez, Santhosh Srinivasan, and Alexandria Valerio. Peer reviewers for the report were Gordon Betcherman, Amit Dar, and Jesko Hentschel. The report benefitted from the com- ments from Arvil Van Adams, Peter Darvas, Margaret Grosh, Robin Horn, Adriana Jaramillo, Emmanuel Jimenez, Bruno Laporte, Peter Materu, Mamta Murthi, Lynne Sherburne-Benz, Zafiris Tzanattos, and Ian Walker. Bruce Ross-Larson was the principal editor. Contents Step 1 Getting children off to the right start 4 Step 2 Ensuring that all students learn 8 Step 3 Building job-relevant skills 12 Step 4 Encouraging entrepreneurship and innovation 17 Step 5 Facilitating labor mobility and job matching 22 Preface Creating jobs and increasing productivity are at the top of This report presents a framework ­Skills Toward agenda for policymakers across the world. For developing Employment and Productivity (STEP)-- that provides countries that are seeking to grow in an inclusive way and a simple yet comprehensive way to look at skills reduce poverty, the challenge of expanding employment development. It brings together research evidence and and productivity is a sine qua non. practical experience from a range of areas--from research Skills, and skills development, are an essential on the determinants of early childhood development and component of all efforts in this challenging area. Too many learning outcomes, to policy experience with the reform workers are simply unprepared to meet the needs of firms, of vocational and technical education systems and labor particularly in more competitive economic environments. markets--and provides a set of powerful messages to Systems to provide training are often plagued by weak policymakers, researchers, and practitioners. The report's governance and poor incentives that make them unreliable emphasis on performance measurement and benchmarking, or ineffective. Weak incentives and support platforms for policy and program evaluation, and cross-sectoral innovation and entrepreneurship development can stifle approaches focusing on individuals throughout their creativity and change. lifecycle provides a solid platform for developing countries But the problem is often more complex. In many to start exploring reforms. The Human Development countries, education systems are not providing young people Network of the World Bank stands ready to support those with the basic skills (cognitive and behavioral) that make efforts. them "trainable." And serious handicaps are inflicted early in life when children are malnourished or insufficiently Tamar Manuelyan Atinc stimulated. Moreover, rigid labor markets in many countries Vice-President reduce mobility and make it difficult for workers to find Human Development Network jobs--and for firms to find the right workers. World Bank Stepping infrastructure. But low skill levels associated with low- up skills for income work are also responsible. As countries become richer and move up the more jobs value-added chain, the skills demanded will change. and higher Bottlenecks will become more evident, constraining productivity 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. Evidence from the United States shows that, as economies develop, The global imperative for more jobs, and more productive the demand for interactive and analytical skills in the jobs, is a major challenge for development. Global workplace increases steeply and continually, while that unemployment, estimated by the ILo at 212 million in for manual and routine cognitive skills falls. There is also 2009, is at an all-time high. Growth remains sluggish, with evidence that as middle-income countries become richer, output per worker either stagnant or declining in most more employers consider skills an important constraint on regions. Young people, particularly vulnerable, have the business development. hardest time finding new jobs, with unemployment rates In this context, it is indispensable to have three times higher than those of adults--and four times comprehensive and adaptive systems to build skills. higher in South-East Asia and the Middle East and North Africa. The STEP framework Skills are at the core of improving individuals' employment outcomes and increasing countries' A simple conceptual framework--Skills Toward productivity and growth. This is particularly relevant as Employment and Productivity (STEP)--can help today's developing and emerging countries seek higher policymakers, analysts, and researchers think through the sustained growth rates. Most of them face serious design of systems to impart skills that enhance productivity demographic challenges--from a "youth bulge" of new job- and growth (figure 1). Pulling together what is known seekers in Africa and the Middle East, to a demographic about the elements of a successful skills development transition of shrinking labor forces in Eastern Europe and strategy, it can guide the preparation of diagnostic work on Central and East Asia. skills, and subsequently the design of policies across sectors Making the most effective use of workers--using all to create productive employment and promote economic of them, and using them to their greatest productivity--is growth. The framework focuses on five interlinked steps: vital. And while insufficient demand for workers remains a Step 1. Getting children off to the right start--by problem in many parts of the developing world, persistently developing the technical, cognitive, and behavioral skills high unemployment rates are partly a function of skills conducive to high productivity and flexibility in the work mismatches, the result of workers inadequately equipped environment through early child development (ECD), for the demands of employers. This is sometimes because emphasizing nutrition, stimulation, and basic cognitive of insufficient education, but also because education skills. Research shows that the handicaps built early in life and training did not provide the skills that employers are difficult if not impossible to remedy later in life and that want. Low returns to work effort--from some forms effective ECD programs can have a very high payoff. of self-employment as well as wage work--may be due Step 2. Ensuring that all students learn--by building to inadequate demand for high-productivity work or stronger systems with clear learning standards, good insufficient complementary factors such as technology and teachers, adequate resources, and a proper regulatory Stepping up skills for more jobs and higher productivity 1 Figure 1. The STEP framework shows that skills needed for productivity and economic growth require a sequenced combination of education, training, and labor market activities Productivity & growth 1 2 3 4 5 Getting children Ensuring that Building Encouraging Facilitating labor off to the right all students learn job-relevant entrepreneurship mobility and start skills and innovation job matching environment. Lessons from research and ground experience Step 5. Matching the supply of skills with the demand-- indicate that key decisions about education systems involve by moving toward more flexible, efficient, and secure labor how much autonomy to allow and to whom, accountability markets. Avoiding rigid job protection regulations while from whom and for what, and how to assess performance strengthening income protection systems, complemented and results. by efforts to provide information and intermediation Step 3. Building job-relevant skills that employers services to workers and firms, is the final complementary demand--by developing the right incentive framework for step transforming skills into actual employment and both pre-employment and on-the-job training programs productivity. and institutions (including higher education). There is STEP is not a blueprint for reform or a fixed set of accumulating experience showing how public and private recommendations for countries to follow. It is a framework efforts can be combined to achieve more relevant and that can help countries understand the challenges responsive training systems. they face in building the skills needed for growth and Step 4. Encouraging entrepreneurship and innovation-- productivity and find the solutions that work in their own by creating an environment that encourages investments environments. It is also a call for a comprehensive approach in knowledge and creativity. Emerging evidence shows that resists the temptation of seeking single-minded this demands innovation-specific skills (which can solutions in the expectation that they will address the skill be built starting early in life) and investments to help development gaps. connecting people with ideas (say, through collaboration The value of each individual step is well known to between universities and private companies) as well as risk researchers and policymakers. The unique contribution management tools that facilitate innovation. of the STEP framework is to emphasize that building 2 STEPPING UP SKILLS effective skills for employment and productivity needs to in childhood. As a result, workers who have poor early harness the synergies among these steps by recognizing childhood environments or inadequate or insufficient three closely linked elements in building effective skills basic education will be less able to flexibly acquire the systems: behavioral skills, path dependence, and labor higher level skills employers need and are less likely to be market clearing. employable or fully productive. Behavioral skills Labor market clearing In many economies, employers are searching for workers Just having the right skills may not be enough--what also who possess behavioral skills such as teamwork, diligence, matters is having a labor market that fosters finding and creativity, and entrepreneurship, essential to thrive in using these skills. This may require reforms to the existing today's rapidly evolving, technologically driven globalized labor market regulations and operations--to better match economies. Thus, just improving workers' technical and job-seekers and employers and to allow workers to move to vocational skills will not always meet employers' needs-- higher productivity jobs. systems that build skills will also have to ensure that these added behavioral attributes are in place Using the STEP framework Path dependence The specific elements of any country's strategy will The efficacy of training later in life is heavily influenced depend on its situation, its ambitions, and its constraints by workers' early years. Behavioral skills needed for in choosing policies. The success of any strategy depends, higher productivity jobs, built through learning from however, on tying together the five steps of the skills families and schools, are difficult to impart later in life. agenda. These steps work across sectors (education, The ability to acquire higher cognitive skills such as training, labor, social protection, and broader economic creativity and entrepreneurship critically depends on the policy) and across generations (today's workers as well amount and quality of stimulation and education received as today's children and youth who could be tomorrow's Figure 2. Implementing STEP as an integrated set of programs across workers' life cycles Preschool age School age Youth Working age Facilitating Apprenticeships, Intermediation services, labor mobil- 5 skills certi cation, labor regulation, ity and job counseling social security portability matching Encouraging Fostering Universities, innovation clusters, basic entrepreneurship entrepren- 4 inquiry training, risk management systems eurship and innovation Basic vocational training, Vocational training, higher Firm-provided training, Building 3 behavioral skills education, apprenticeships, recerti cation, reskilling job-relevant targeted programs skills Ensuring Cognitive skills, Second chance education, that all 2 socialization, behavioral skills students behavioral skills learn Getting Nutrition, psychological School health and children off 1 and cognitive stimulation, remedial education to the right basic cognitive and social skills start Stepping up skills for more jobs and higher productivity 3 second-chance education for school dropouts and training skilled workers). And central to building a longer term and programs for unemployed youth--can ensure that country's sustainable system of skill production are policies targeted human resources are fully used. toward those held back by inadequate investments in skill What might the STEP framework mean in different formation earlier in their lives. contexts? Consider three: The STEP framework allows policymakers to design In one country even the basics are not in place. flexible, responsive, and comprehensive systems of skills Malnutrition is high, and early childhood development development that operate in two timeframes: programs are only being set up. The educational system is · In the short run, concentrate on steps 3 and 5, by poor, and many students are completing primary school re-skilling vulnerable workers who are unemployed without learning to read or do math. There, the biggest or underemployed, addressing bottlenecks through returns will be from steps 1 and 2. Steps 3 and 4 will still flexible training institutions and on the job-training-- be relevant, but commanding less in the way of budgets and and creating systems that facilitate job search as well other resources, working at the margins with training for as the search for and hiring of workers with different elites and relying more on external resources to fill gaps. skill profiles. Step 4 is also part of the mix, building Step 5 is not the most binding constraint. entrepreneurial skills and fostering creativity. But In another country steps 1 and 2 are well covered, elements of steps 1 and 2 are also important for except for the poor. But the training and innovation "second-chance" opportunities for those who may not systems are weak because of poor governance and financing. have received sufficient early childhood development or And labor markets, though less than ideal, are functioning. education. There, more can be done to extend early childhood and · In the medium and long runs, improve the entire school programs in poor areas. And more can be done on system producing skills--from the parents to the matching workers and jobs. But the big returns will come schools, universities, and training programs. For this, from steps 3 and 4, shaking up the training institutions and effective policies for early childhood development, dealing with the incentives for innovation. Again, step 5 education, training and innovation will need to be may be less binding as a constraint. coordinated with focused labor and social protection In a third country labor markets are simply not policies that facilitate labor participation, mobility, working--for youths, for a region, or even for the entire and the matching of skills and jobs. only then can the country (step 5). So, investments in steps 1­4 will have supply of skills adjust to continual changes in demand much lower returns than otherwise. There, more effort has and contribute to productivity, growth, and innovation. to go toward strengthening institutions, particularly those Several specific reforms and programs can be part of providing information, and the incentives for workers and a comprehensive agenda (figure 2). They can be targeted at employers to match skills offered with skills needed (step 5). a point in time to populations in different age groups. But Even where things are mostly right, they might not they should also form the basis for a longer term program be right much of the time. So if there's a backlog of kids that spans time and builds on the achievements of workers performing poorly, the message is "fix it." And if people have who have benefited from previous steps. And to remedy missed out in taking one of the steps, it should be a priority gaps and avoid leaving the disadvantaged behind, a range of to give them a second chance--by identifying their needs programs--from school health and remedial education to and targeting programs that help them take the next step. 4 STEPPING UP SKILLS Step 1 productive earnings, imposing significant costs for both individuals and societies. Studies from Brazil, Indonesia, Jamaica, Peru, the Philippines, and South Africa show that Getting inadequate nutrition between conception and age 2 leads children to serious cognitive delays among school-age children.1 And linguistic and cognitive delays can accumulate rapidly off to the if not addressed. For example, while differences in age- right start adjusted vocabulary among 3-year-old Ecuadorian children are generally small, by age 6 children in less wealthy or less educated households have fallen far behind their counterparts in wealthier or more educated households Problem: Failing to invest in (figure 3). Why? Because poor children tend to receive ECD is costly, if not impossible, less child directed speech, and because the speech they to compensate for later in life hear tends to have reduced lexical richness and sentence complexity.2 The skills developed in early childhood--from birth to Associations between poverty and cognitive, physical, primary school entry--form the basis of future learning and socio-emotional areas of child development were also and labor market success. Early childhood development recorded at as early as 6 months of age in Egypt, 10 months (ECD) enhances a child's ability to learn, to work with in India, 12 months in Brazil, and 18 months in Bangladesh.3 others, to be patient, and to develop a wide range of other The window of opportunity is small because these foundational skills for formal learning and interactions in foundational skills are best formed in the early years. the school years and beyond. Failing to invest in them is costly to compensate for later A failure to develop these skills can lead to long-term in life, if not impossible, as is the stunting from poor early and often irreversible effects on education, health, and nutrition or the excessive pruning of brain connections Figure 3. By age 6 Ecuadoran children in less wealthy or less educated households have fallen far behind their counterparts in wealthier or more educated households--permanently 110 100 Richest 25% 90 80 Median TVIP score 70 Poorest 25% 60 36 42 48 54 60 66 72 Age in months Source: Schady N., and Paxson C. (2005). Cognitive development among young children in Ecuador: the roles of health, wealth and parenting. World Bank Policy Research Working Paper 3605, May, 2005. Washington DC: World Bank. Note: TVIP stands for Test de Vocabulario en Imagenes Peabody. Getting children off to the right start 5 Figure 4. Early childhood interventions at different ages Domains Timing of intervention of child development In utero Birth to 6 months 7 months to 2 years 3 to 5 years Physical Mother's health and nutrition Immunization and regular health checkups Exclusive breastfeeding Adequate nutrition to Continued investments in prevent stunting and promote adequate nutrition healthy growth Cognitive Early stimulation by caregivers and/or ECD teachers Early stimulation by caregivers (i.e. manipulation of different objects and textures, and ECD teachers (exposure hide and seek self and objects, etc.). to simple concepts, shapes, numbers, colors, etc. through games and daily routines). Language Early stimulation by care givers and ECD teachers (exposure to language through talking, reading, singing, etc.). Socio- Positive caring practices by caregivers to promote healthy Interaction with peers (in emotional emotional development structured group settings) to promote positive social development from a lack of cognitive and socio-emotional stimulation. on the context, the longer the breastfeeding, the better And a weak set of skills and abilities reduces the returns to for the infant, though solid foods are expected to be investments later in life. introduced by the age of 6 months.4 How to prevent these unhappy outcomes? With a · With cognitive stimulation by caregivers or teachers, a range of early childhood development interventions. child benefits from exposure to shapes, numbers, and formal ideas starting at age 3. Defining ECD concepts and interventions · For linguistic stimulation, caregivers should talk to, ECD programs enhance the physical, cognitive, socio- read to, sing to, and verbally interact with children emotional, and linguistic development of children from starting at birth. conception to primary school entry. optimal investments · Healthy emotional development begins at birth in each area of ECD are required at each age: through the presence of and communication to the · Ensuring the health and nutrition of the pregnant child of a caring environment long before he or she can and lactating mother can ensure good physical express such emotions. Such practices include holding development of the fetus and good breast milk. This is and touching the child, making eye contact, and most important from conception to the first 6 months communicating a safe environment. of life. Interventions include prenatal care, vitamin · By age 3, children learn to interact and negotiate supplements, and counseling mothers in nutrition and with their peers. If these skills are not learned in breastfeeding. early childhood, they are difficult to learn later in · Immunizations and regular health checkups should life. start at birth and continue through age 6. Delivering the whole package is most efficient since · Breastfeeding for very young infants is desired because each domain supports the successful development of other of its nutritional and protective benefits. Depending domains. By age 6, the well-developed child should be 6 STEPPING UP SKILLS physically, cognitively, and socio-emotionally ready to enter and support by the parents who participated in the primary school. Any areas of deficiency are difficult, if not program, and an easier-than-expected transition to impossible, to remedy later in life. preschool by their children. ECD services can be delivered through various · Peer-to-peer learning. Also a form of counseling, channels, largely dependent on the dimension of the this intervention provides training to community package and the context. The most common channels are: members who share information about the various · Center-based. Preschools are perhaps the best forms of care with community groups. In Cambodia, understood delivery mechanism. Those focused on a new home-based ECD program in 450 communities child development work with children and their uses mother-to-mother communication to strengthen parents on all domains of ECD. Since centers offer the role of parents as prime educators and to peer interactions that are less available in the home, enhance early learning of children through parental it is strongly recommended that children aged 3­6 engagement at home. participate in preschools. For example, the preschool · Media campaigns. Through radio, television, and program in Mozambique enrolls vulnerable children posters, information about proper care and stimulation aged 3­5--those living amid high levels of poverty or of children can be shared with a broad and dispersed affected by HIV/AIDS--and provides them with a population. high-quality but low-cost and fiscally scalable center- These types of interventions may be offered by the based preschool education. Community volunteers, public or private sectors, be publicly or privately funded, including two teachers per classroom, focus on and be implemented by any social ministry. cognitive stimulation through games, art, and music, as well as on basic math, reading, and Portuguese The lifelong benefits of quality ECD to prepare the children for elementary school. The Strong evidence from around the world shows the impact of program also encourages good health, nutrition, and ECD throughout the lifetime. Children who participate in hygiene through parent and caregiver training. quality ECD programs have higher cognitive development · Public health centers. While these centers often and overall school readiness on primary school entry, lower focus on physical development, they also measure repetition and dropout rates in the early grades, greater development in other domains and counsel caregivers learning in school, and higher school completion rates. on linguistic and socio-emotional stimulation and Some examples: overall care. · In Bangladesh, children who received center-based · Counseling. This service may be center-based or preschool education outperformed their peers in the provided in the home. The social worker provides control group by 58% on a standardized test of school classes for parents, usually mothers, on the proper readiness.5 feeding of children, the importance and process for · In Colombia, children who received a comprehensive immunizations, the provision of socio-emotional community-based ECD intervention were 100% more stimulation, and cognitive development. This training likely to be enrolled in third grade, indicating lower can begin before the child is born. For example, dropout and repetition rates for program children than Mexico's Consejo Nacional para el Fomento Educativo for those in the control group.6 (CoNAFE) trains parents and caregivers of children · In Argentina, one year of preschool was estimated aged 0­4 to improve their skills and practices in caring to increase the average third-grade test score in for children. These classes take place in preschools mathematics and Spanish by 8%.7 and public spaces. The program mobilizes a network · In Turkey, children who benefited from a mother-child of volunteers to teach sessions, keeping annual costs education program that provided cognitive enrichment low. Preliminary evidence indicates greater attention to children and training and support for mothers were Getting children off to the right start 7 more likely to be in school during their teenage years than ECD interventions are among the most cost-effective those in the control group (86% compared with 67%).8 investments a country can make in its people. oECD · And in the United States children who received countries already spend, on average, 2.3% of GDP on high-quality, comprehensive ECD services were 50% services for families and children aged 0 to 6 years. It has more likely to finish secondary school than those been proposed that all countries should spend at least who did not.9 1% of GDP on ECD to ensure quality services. 11 Some These positive outcomes reach far beyond childhood evidence suggests annual rates of return of 7­16%.12,13 Not and affect labor productivity. By age 27, children in the only do quality ECD investments have a high benefit-cost United States who took part in a center-based ECD ratio, they also have a higher rate of return for each dollar intervention, supplemented by parental training, were 20 invested than interventions directed at older children and percentage points more likely to be earning more than adults.14 So, ECD investments should be a top priority $2,000 a month than the control group. one-third of the for efforts to promote employment and productivity later program beneficiaries owned homes by age 27, more than in life in many countries--and for the poorest and most twice the 13% for children in the control group.10 disadvantaged groups in all countries. 8 STEPPING UP SKILLS Step 2 the ability to execute a specific task. But information on learning outcomes indicates that schools in many developing countries are failing to teach foundational Ensuring cognitive skills, much less the "expert thinking and complex that all communication" and occupational skills needed to function effectively in the modern labor market.15 Consider students the evidence that significant numbers of students do not learn achieve minimum levels of learning expected. Recent early grade reading tests reveal that shockingly low proportions of primary-graders in many low-income countries can read a simple sentence with ease and comprehension, making it Problem: Many more in school-- very difficult for these students to catch up in later grades.16 but not learning In early grade reading tests given to a few anglophone African countries, second-graders performed well below the Schools are expected to teach basic competencies that fifth percentile of U. S. norms.17 enable students to acquire the skills that would help them This is corroborated by evidence from other countries. make informed life choices and that would later be valued Despite having been in school for 2-5 years, a significant by employers and useful for self-employment. In fact, the percentage of school children in South Asia could not read seeds of these competencies should have been planted (only 25% after three years) or do basic arithmetic (only 32% from infancy, and schools should develop them. These could solve subtraction problems).18 Similarly, in many other competencies include (see box 1 in step 3 for definitions): low-income countries, fourth-graders perform only at about · Problem-solving skills. one-half of the minimum mastery level expected for similar · Learning skills. cognitive functions.19 And the picture is rather bleak even in · Communication skills. middle-income countries. only 4% of 15-year-old students · Personal skills. in lower middle-income countries and only 13% in upper · Social skills. middle-income countries are proficient enough in math In addition to these basic competencies, skills that are to succeed in further education and in work (figure 5). By more directly required for work can be developed through contrast, 32% of oECD students are proficient. schooling: With so many students not learning, higher · Cognitive skills as demonstrated by an intellectual enrollment rates will not necessarily translate into grasp of the subject matter of various academic subjects productivity gains for workers or economic growth. This such as language, mathematics, various pure and is a huge opportunity lost. Education remains one of the applied sciences, and the social sciences. most powerful instruments for improving lives, reducing · Psychomotor skills for the tasks to be performed in poverty and ultimately laying the foundation for economic an occupation, job or business (operating a lathe or a growth.20 For individuals, one additional year of schooling weaving loom, preparing architectural plans, installing raises earnings by 10­20% in low-income countries. 21 equipment) and the ability to apply the skills in practice. And better quality schooling raises earnings even more. 22 · Affective skills relating to a person's attitudes toward Improving the quality of education improves students' timeliness, accuracy, and general commitment to performance on tests in the short run23 and labor market quality and performance, and perception of the success in the medium run24 --and contributes to sustained meaning and value of work, concept of self and others. economic growth in the longer run.25 The lists illustrate the multiple dimensions of job- It would be too much to ask that most students in relevant skills that go beyond simple book learning and developing countries be at levels approaching the oECD's Ensuring that all students learn 9 Figure 5. Roughly half the students in middle-income countries lack the math skills to succeed in further education or work -- PISA 2006 De cient--Serious dif culty in Adequate--Able to use Pro cient--Able to use mathematical using mathematics effectively mathematics effectively skills for success in further education and labor market Lower middle-income Upper middle-income OECD average 4% 13% 32% 40% 42% 46% 56% 45% 22% Source: Programme for International Student Assessment. top benchmarks. But most systems should rapidly increase fees and scholarships, cash transfers to compensate for the the number of students capable of more than the least opportunity cost of school attendance, and vouchers that complex reading tasks, such as locating a single piece of give poor students the choice to use privately provided information, identifying the main theme of a text, or services, that can strengthen demand for education, thus making a simple connection with everyday knowledge, raising enrollments and reducing schooling inequalities. 28 and doing simple math. In fact, a young person needs Together, these measures account for notable increases in far more than these basic skills. Achieving only the most enrollment rates at the primary and secondary education basic knowledge and skills, youth may have difficulties in levels. Now countries need to ensure that "schooled" navigating life's challenges and performing well in the world youth leave school with useful, robust skills. Whether of work. This is the case even for youth who will remain from inadequate or misused educational investment, poor in farm work. Consider, for example, the skills required teaching, or ineffective systems, poor learning wastes both to participate successfully in recent initiatives to use cell public and private resources. It leads to higher repetition, phones to help smallholder farmers obtain on-demand, up- failure and dropout rates, and lower completion and to-date market, production, transport and meteorological transition rates. Ultimately, poor learning outcomes also data.26 These initiatives help small farmers by reducing limit a country's potential for economic growth. information costs which can represent upwards of 10% of their total costs and up to 70% of their transactional costs.27 What policies improve learning? Farmers who have higher skills are better able to process codified and complex information, and thus benefit more Traditional policies and programs that focus on inputs fully from innovative programs such as these. regardless of outcomes are likely to be wasteful and Developing countries have made great progress ineffective. In contrast, those that measure results, address in expanding supply and ensuring access to schools, systemic issues and support a long-term vision are likely to including for disadvantaged children. In addition, they succeed. The building blocks of an education system are have used interventions, such as the abolition of school learning standards, good teachers, adequate resources, and 10 STEPPING UP SKILLS a proper regulatory environment. But to enhance system Figure 6. Linking the 3As with incentives performance, these building blocks should be connected and consequences through an integrated system of incentives, rewards, and sanctions (figure 6). · Standards. By defining clearly the knowledge and skills Autonomy that students are expected to gain, they will better understand what is expected of them, schools will cater their programs accordingly, teachers will know what they will be held accountable for, and school managers Accountability Assessment will be challenged to seek the means to raise the level of teaching and learning. · Teachers. Most teacher-related investments focus on pre- and in-service training, but to improve the teaching force, policies must not only establish and enforce proper qualifications (through training and support services) but also provide teachers the pregnancy. Schools can provide some measure of protection incentives for good performance. by teaching students about hygiene, good eating habits, the · Resources. Without adequate resources for key inputs, dangers of substance abuse, and safe sex. Schools are also it is hard to achieve the standards and goals set for a a ready-made center for delivering child and adolescent school system. But also as important as spending levels nutrition and health services. For instance, research on the are the proper allocation of resources to different uses, impact of a deworming program in Kenya shows a drop in equitable distribution across schools, and management school absenteeism among the deworming treatment group that minimizes waste and leakage. by approximately one-quarter (or seven percentage points), · Regulatory environment. Managing the various inputs on average.30 Worm infections are particularly prevalent requires monitoring and control to ensure adequate among school-age children in many developing countries, provision. This demands a regulatory environment and addressing these infections is said to be one of the most that encourages good governance, has clear criteria for cost-effective ways of reducing student absenteeism. establishing schools, establishes mechanisms that allow How best to govern, manage and finance these building for choice and voice, and promotes equity in financing blocks present difficult challenges for decision-makers, and results. particularly when relevant information about systems and one building block that could be added to this list about program impact are unreliable, late or altogether is often forgotten--the physical and mental readiness absent. Lessons from research and ground experience of students to learn. For example, research shows that indicate that the key decisions about education systems can youth with disabilities are substantially less likely to start be grouped into three: how much autonomy to allow and to school, and in some countries have lower transition rates whom, accountability from whom and for what, and how to resulting in lower schooling attainment. This association is assess performance and results (the 3As).31 often larger than that with respect to characteristics such · Autonomy. Students and teachers perform best in as gender, rural residence, or even economic status, and a climate of high expectations supported by strong warrant policy attention.29 Investments in a child's early teacher-student relations so that students and their nutritional and health status make for a good start in life, teachers are ready to invest effort. Greater autonomy but children continue to face many health risks into their can give schools the flexibility to empower teachers and adolescence, including infectious diseases, hunger and parents, thus improving teacher morale. In countries malnutrition, violence, drug and alcohol abuse, and early that perform well, local authorities and schools have Ensuring that all students learn 11 substantial responsibility for educational content and and giving schools more autonomy. Lithuania increased resource use. But efforts to move more decision-making test scores by 34 points in mathematics and 55 points in to the local level need support from the center in science in the TIMSS between 1995 and 2007. During this matters of evaluation and assistance for weaker schools. period, it reformed its curriculum on the basis of national · Accountability. To improve learning, school autonomy standards, gave teachers more autonomy in the classroom, must be accompanied by an accountability framework and introduced a new system of financing education. that enhances community and parental interest.32 Likewise, Poland improved its PISA scores by 25 points in Accountability contributes to quality by involving the math and 28 points in reading between 2000 and 2006. Its stakeholders and by setting clear goals and standards 1999 reforms focused on improvements in the quality of for the system. If schools and students are responsible teaching, administration and supervision, and on curricular for results, they will ensure that homework is done, reform and independent assessment and examination.33 that students and teachers are in class, that pedagogy Lower-income countries with lower enrollment rates is appropriate, and that administrators acquire the and achievement levels have also made progress by focusing appropriate school inputs. on their goals for both enrollments and learning. They · Assessment. If greater autonomy and accountability have adopted national and international benchmarking as are to lead to policies for quality, measures of learning a way to monitor results. For example, in India the school outcomes are essential. High-performing countries report cards developed by the District Information System use information to constantly focus on improvements for Education summarize school information in an easy to over time. Good examples are Korea and Singapore, read format, allowing parents and stakeholders access to where sustained, smart reforms and systematic use of information not previously available to hold schools and outcome data have propelled significant achievements. authorities to account. The data from the report cards are To assess system performance, countries usually rely available on the Web, a potentially powerful tool for local on national standardized tests, and for cross-country accountability.34 Ghana witnessed a 34-point increase in its comparisons, on regional or international achievement TIMSS score between 2003 and 2007. This large increase tests (e.g. PIRLS, PISA, TIMSS)--although many was accompanied by a 35% increase in the enrollment of developing countries still do not use these instruments eighth graders.35 Jordan increased science scores by 30-points to assess them school system. Such tests complement in the TIMSS between 1999 and 2007, at the same time that the easier-to-measure enrollment, repetition, dropout, net enrollment in primary education increased by 9% and and completion rates. But measurement is only half the the transition rate to secondary increased by 25%. It achieved battle. Countries should also strengthen their capacity both quantity and quality improvements through a cluster to analyze and understand results, engage in policy of reforms that included international benchmarking, along debate using those results, and feed the results back as with national testing, curricular reform, teacher training, information into policymaking. and regular feedback between research and policy. Focusing on the 3As will help improve the quality If effective, schools lay the foundational skills for of education and increase learning, making other policy youth to be productive and creative workers, securing for actions more effective. them opportunities to live well and contribute to their communities. These skills are broader than those that are Promoting learning: A currently being measured in developing countries because few cases of success they include also teamwork, communication, and the ability to innovate and solve problems. But countries' There is no magic bullet for achieving system-wide success, efforts today to measure reading comprehension levels, but several countries have achieved significant gains by arithmetic acumen, and science understanding are a step in using student assessments, implementing curricular change, the right direction. 12 STEPPING UP SKILLS Step 3 In low-income countries--where agriculture and the informal economy dominate the economic landscape--skill constraints are one reason for persistent low productivity Building and earnings.39 The situation is especially dire in Sub- job-relevant Saharan Africa as rapid population growth pushes farmers into less productive lands and accelerates migration to the skills cities, where new arrivals outpace new jobs. In agriculture, Ethiopia, Kenya, Uganda, and Rwanda are trying to raise productivity through higher value exports, such as cut flowers, horticultural produce, processed fish, and specialized coffees. But inadequacies in a range of skills-- Problem: Skills bottlenecks technical, scientific, managerial, and entrepreneurial-- strangle productivity impede progress up the value chain and reduce the potential for pursuing newer and more lucrative opportunities (such as Enterprise surveys by the World Bank since 2000 in some biofuels, medicinal plants, green technology). 90 countries--several covered by repeated surveys-- In urban areas, the majority of people in low-income suggest that skills constraints impede firm performance, countries and sizable shares in lower middle-income particularly in more dynamic environments. The share of countries, particularly in the Middle East, make a living firms worried about inadequate worker education and skills in low-skilled and low-paid jobs, if they have one.40 Many averages about 25% in the organization for Economic of them find themselves in precarious situations, with few Cooperation and Development and in Europe and Central opportunities to upgrade or expand their competencies. Asia, 40% in Sub-Saharan Africa, and 50% in East Asia Their skill deficit adds to other constraints that keep and the Pacific. Even in Europe and Central Asia, where the productivity low and incomes low and unpredictable. countries have enjoyed a legacy of high skill endowments, the great majority of firms surveyed in 2008 considered The payoffs to training in job-relevant skills deficits in education and skills to be a major or severe Addressing skills bottlenecks can raise firm productivity constraint.36 and workers' wages. In Britain, Mexico, and Malaysia Skills bottlenecks are likely to worsen in the coming longitudinal surveys of firms have established a causal years. According to the enterprise surveys, employer link between investing in training and firm productivity. complaints about skills are more often voiced by firms that Moreover, firms in Malaysia and Mexico that trained their are newer, faster-growing, more outwardly oriented, and more employees repeatedly enjoyed faster productivity growth eager to move up the technology ladder. In Turkey, employers than firms that either did not train or invested only in in small and medium enterprises--even in the more labor- one-off training, particularly when the firms also invested intensive sectors such as furniture, food processing, textiles, in new technology.41 Evidence from cross-sectional data and clothing--cite the inadequacy of skills at all levels as a for a larger set of countries is consistent with these findings key constraint on their capacity to acquire and use new and (table 1), though the estimates are less robust because the more advanced technology.37 In Vietnam a sustained shift better firms are also more likely to train, which makes it in employment from agriculture to manufacturing, coupled difficult to isolate the impact of training. with capital accumulation and skills-biased technological Evidence of the impact of training on individuals' change, fueled a strong demand for workers with higher employability and productivity is also encouraging, if skills--those produced through a university education--and somewhat tentative because of data limitations. Even so, data raised the return to tertiary education to 10% in 2004, far from various labor force surveys reveal that the returns to above that at all other levels of education.38 training can be positive and statistically significant, averaging Building job-relevant skills 13 Table 1. Impact of in-service training on firm Table 1. Impact of in-service training Box 1. What are job-relevant skills? on firm productivity in selected countries productivity in selected countries Job-relevant skills refer to a set of competencies valued by em- (% increase in value added) ployers and useful for self-employment. They include skills rel- (% increase in value added) China (2001) 32 evant to the specific job of the worker as well as other skills32 China (2001) that Guatemala (1999) 49 enhance his or her productivity. These other skills include: Guatemala (1999) 49 India (2000) 27 India (2000) 27 India (2004) 16 · Problem-solving skills or the capacity to think critically India (2004) 16 Malaysia (1994) 28 and analyze. Malaysia (1994) 28 Mexico (1992) 44 · Learning skills or the ability to acquire new knowledge Mexico (1992) 44 Morocco (2002) 29 ("learning to and Morocco (2002) learn"), distill lessons from experience,29 Nicaragua (2000) 56 apply them in Nicaragua (2000) search of innovations. 56 Pakistan (2004) 67 · Communication skills, including reading and writing, Pakistan (2004) 67 Russia (2005) 22 collecting Russia (2005) and using information to communicate 22 Sri Lanka (2002) 36 with others, Sri Lanka (2002) and using a foreign language and 36 information and communication technologies (ICTs) as Source: Data for China, Guatemala, Malaysia, Mexico, Morocco, and Nicaragua from Tan 2006; for Russia from Tan and others 2007; and for Pakistan, India, and Sri Lanka communication tools. from Riboud 2007. · Personal skills for self-management, making sound judgments, and managing risks. about 8% in India (2004) and Pakistan (2004), 17% in Sri · Social skills to collaborate with and motivate others in a Lanka (2002), 10­13% in Singapore (1998), about 12.5% team, manage client relations, exercise leadership, resolve in Rwanda (1999­2001), and 8­14% in Tanzania (1997­ conflicts, and develop social networks. 2000).42 A 2005 survey in India demonstrates that being fluent in English, a business language, increased men's hourly wages by 34% relative to those who speak no English, as high underinvestments in training. The instruments typically as the return to completing secondary school and half the involve the governance of training provision, the public return to completing an undergraduate degree. Being able to financing of training, and the way information about training speak a little English raised wages by 13%.43 services and their outcomes is generated and packaged to Elsewhere, youth training and employment programs inform trainees, employers, and other key stakeholders. These are being launched in several African countries, among aspects of policy design influence the incentives of individuals them the Uganda Youth opportunities Program. Groups of and firms to invest in skills and shape those of training 15­30 youths were selected through a random process with providers to deliver effective and responsive services. input from community leaders and given grants for each There are basically two junctures when the training group to purchase vocational training and equipment to occurs: before employment and on-the-job. The training operate in their chosen trade. The early results suggest that includes instruction in classrooms, laboratories, workshops, the approach has, among other positive outcomes, led to a apprenticeship arrangements, and internships. Country 150% increase in the probability of working in the trade, a conditions and the occupation influence the choice of these 135% increase in hours worked, and an 18% increase in last options, but the contribution of both pre-employment week's and last month's income. and on-the-job training can be improved to promote job-relevant skills and align them more closely to demand Challenges in building job-relevant signals from the labor market. skills through training Pre-employment skills development. Perhaps the most Market failures in skill formation are common, and frequent complaint, especially about public institutions that many governments intervene to minimize the risk of offer TVET, is that the system produces the same graduates 14 STEPPING UP SKILLS Box 2. The diverse field of technical and other agreed results, but grants it substantial autonomy vocational education and training under guidance from a board of governors, whose members Technical and vocational education and training (TVET) include business leaders. This governance arrangement programs are highly diverse in the competencies they impart. has prompted ITE to use business-like practices to ensure Their entry requirements also vary greatly, from the fairly efficient services and effective pedagogical approaches, modest (courses on simple welding jobs), to the moderately de- forge and sustain productive ties with industry, routinely manding (courses for tool and die makers, aerospace-certified report on graduates' and employers' satisfaction with its welders, air traffic controllers, high voltage technicians), to the services through surveys, and "brand" ITE skills through a highly demanding (courses for engineers, designers, scientists, neurosurgeons). The diversity implies that training occurs in a certification system that employers trust and use. correspondingly wide variety of settings: in schools that offer In some countries, the reforms may be more recent or TVET courses and in post-secondary institutions such as com- less comprehensive, but the headway is no less impressive. munity colleges, polytechnics, universities and other special- Botswana, Lesotho, and Vietnam have allowed new ized institutes (and indeed in overseas institutions in esoteric tertiary level institutions under public-private partnerships fields). to emerge in response to the demand for high-quality The courses offered at universities are generally viewed as professional training rather than TVET; the training of teach- employment-oriented training. To expand training ers (and sometimes that of health workers, including doctors) opportunities for those working in the informal economy, is treated likewise. The term TVET is thus often used tacitly Benin, Tunisia, Egypt, and Morocco have set up modern to refer to the training of other workers, with vocational train- apprenticeship schemes and achieved some progress, albeit ing typically assumed to be geared to trainees expecting jobs as not yet on a systemwide scale.45 skilled workers at the lower to mid-level, and technical train- A notable innovation in Latin America is the ing mostly directed at those aiming for skilled jobs at higher levels of responsibility. spread of demand-driven training models. Chile's Joven program, which started in 1992 based on youth training experiences in Great Britain and the United States, has year after year with little regard to labor market signals and been particularly influential. It inspired similar programs the skills listed in box 1. In addition, costs are high, public in at least eight other countries in the region, many of them support is weak for what is considered a poor route to jobs, mainstreamed into national training systems. The Joven's and the curriculum is often narrowly geared toward jobs in three defining features are targeting disadvantaged youth, the formal sector, which in most low-income countries is enhancing participants' social skills to prepare them for tiny and not growing fast enough to offer many new jobs. jobs, including a requirement for participating providers to Because country conditions differ, there is no ideal arrange for work internships, and relying on a competitive reform package to balance the supply of skills imparted process to select training providers. through pre-employment training programs and the On-the-job training. oJT contributes much to the stock employer demand for skills. The challenge is creating the of human capital, with estimates ranging from a quarter to environment for providers of training to have the incentives half of all human capital formation in the United States.46 to respond to the needs of the labor market. It tends to favor workers with higher levels of educational In Singapore, sustained effort over the years has shaped attainment and occurs more frequently in larger firms a well-functioning system of pre-employment training and in more dynamic, export-oriented sectors. The bias adapted to the country's needs.44 The Institute of Technical often puts countries in a paradox, with firms complaining Education (ITE), established in 1992 as a statutory board about skill shortages while also being unwilling or unable under the Ministry of Education, caters to 25% of each to upgrade their own workers' skills through oJT. The cohort of 10th-grade completers with weaker academic problem is particularly prevalent in South Asia and the abilities (about 25,000 students in 2007). The ministry Middle East and North Africa, and to a lesser extent in holds ITE accountable for graduates' employment, among Sub-Saharan Africa. Building job-relevant skills 15 Box 3. Tertiary education, a critical part of a skills can foster oJT. In low-income settings or for the informal building system sector, traditional apprenticeships can be an option. In Tertiary education helps countries become more globally com- Benin, Kenya, Ghana, and other countries in Africa, they petitive by developing a skilled, productive, and flexible labor are a significant source of skills for employment in both the force and by creating, applying, and spreading new ideas and formal and informal sectors. technologies. Yet in many low- and middle-income countries, To ensure oJT in smaller firms, Brazil, Chile, Malaysia, tertiary education systems intended to bring about these ben- Mexico, and Singapore collect payroll levies and use the efits are often dysfunctional, inequitable, and inefficient, gen- funds to encourage small and medium-sized enterprises erating low-quality learning outcomes. Public expenditure on tertiary education relative to other to invest in worker training. A common design challenge levels of education remains disproportionately high, with is to avoid subsidizing oJT that enterprises would have about 20­30% of the education budget. While tertiary educa- conducted without the financial incentives and to ensure tion is generally more costly to produce, the expenditure is still that oJT investments are cost-effective in producing the largely inefficient and regressive. Enrollments are often low and desired training outcomes. Mexico's Integral Quality and in most countries largely confined to individuals of higher so- Modernization (CIMo) Program, established in 1988, has cioeconomic status. Completion rates are low too, with only a fraction of entrants completing their program of studies, mak- been particularly successful. By 2000 it was helping 80,000 ing for inefficient and wasteful systems. Quality, measured by enterprises each year with a package of training and industrial research output and by international rankings of universities, extension services and training 200,000 employees. And more also tends to be low relative to industrial countries. In many than 300 business associations were participating in CIMo, countries, the private sector is emerging rapidly to absorb de- up from 72 when it started. Evaluations found that companies mand, but such growth often occurs with too little check on that received CIMo services invested more than others in the quality and relevance of outcomes. Problems of poor management abound. Many tertiary training their workers, used their production capacity more education institutions are autonomous on paper. But they lack fully, adopted quality control practices more frequently, the range of management capacities to behave autonomously-- and raised their productivity and profitability. CIMo had a incapable of modifying their institutional practices to improve particularly large impact among very small firms.47 results and accountability to stakeholders. Inappropriate gov- For most large and well-established firms, oJT is often ernance and financing mechanisms are pervasive in tertiary ed- so productive that they invest in it with little government ucation worldwide, preventing institutions and systems from being agile enough to respond rapidly and appropriately to intervention. Examples of such initiatives can be found in stakeholder needs or to reform practices for greater efficiency, India's leading companies. Infosys, a software technology equity, and quality. giant, completed a new 300-faculty Global Education Reforming the higher education system, a critical part of Center in 2009 with a training capacity of 14,000 seats, efforts to improve the production of job-relevant skills, typi- dedicated to enhancing the competency of its staff.48 cally involves actions on many fronts, including changes in fi- In Malaysia, the Penang Skills Development Center is nancing and governance and closer coordination with other parts of the education system. a partnership of several enterprises coming together to benefit from industry-specified training services financed through membership subscriptions, fees, and a government Smaller firms in most countries are reluctant to provide subsidy. Its 17-year success has inspired the setting up of training on the job, for fear of losing trained workers to the Chittagong Skills Development Center in Bangladesh. other firms and for lack of access to credit and information The Ghana Industrial Skills Development Center, yet about training. An unfavorable business environment another industry-led training example, was formed through acts as a further impediment by weakening firm incentives a partnership of private firms, government, and donors to to compete, innovate, and train workers. But even under support the country's budding manufacturing sector. more favorable environments, firms and workers may still Skills certification systems. one important aspect of a underinvest in skills. In such cases, financial incentives strategy to facilitate and promote the acquisition of job- 16 STEPPING UP SKILLS relevant skills involves a framework for workers and firms transparency and eases recognition of qualifications by to have clear information on those skills and on acceptable labor market participants. standards. Skills certification has become important to An example of an integrated approach to skills employers as a quality assurance mechanism that recognizes certification is Chile's Califica, which helped build a flexible and certifies an individual's skills and competencies. and dynamic system of lifelong learning and training, one Skills certification is often referred to as competency- that meets industry needs and also serves disadvantaged based certification. As modes and pathways of learning groups. Today the system, regulated under the Chilean become more diverse, skills certification fulfills many Quality Assurance Standard, boasts a catalogue of some objectives. First, it recognizes skills and competencies 1,000 competencies for 315 occupational profiles in 12 regardless of the way in which they were acquired or of sectors of the economy, as defined by the relevant industry the job-seekers' educational background. Second, it allows players. Since 2003, more than 29,000 workers have been employers to compare individuals' skills across the labor certified according to these competency standards. The market. Third, it is a way to match the skills acquired through National System for Certification of Labor Competences training or other means with the skills required to perform was established in 2008, creating an institutional umbrella a job. Fourth, its less immediate objectives are to increase for the different types of education (academic, vocational, occupational mobility, promote lifelong learning, and enable technical) and training modes (formal, informal, non- international and intergenerational comparative analysis. formal, pre-employment, enterprise-based). Through a often, skills certification can be organized in a second-chance program under Chile Califica, 145,000 national qualification framework, which defines a single set individuals have been served, with 92,000 completing their of criteria for specified levels of learning and thus increases basic or secondary education. Building job-relevant skills 17 Step 4 Chile's GNI per capita increased from $590 to $4,330 during 1960­2003. It had modest growth before 1990, largely due to physical capital and labor, but in 1990­2003, Encouraging when knowledge and innovation started to boom, Chile's entrepre- growth took off. What did Korea do over those 40 years that Ghana did neurship and not do? And what caused Chile's boom in the 1990s? The innovation Korean success is largely thanks to an aggressive, multi- pronged strategy comprising a rapid increase in primary and secondary education, public support to develop a research base through an emphasis on science and technology, and Problem: Traditional mindsets a knowledge-driven industrial policy.50 In Chile, labor stifle creativity and risk-taking and capital played an equal role in 1960­73, but the jump in average educational attainment from 6 to 10 years was In 1955, Ghana and the Republic of Korea both had a largely responsible for the growth in 1974­89. The rapid GDP per capita near $300. By 1990, Ghana's real GDP growth of the 1990s, by contrast, was due to knowledge per capita was the same, but Korea's had increased to and innovation spurred by even higher levels of education, $7,500. A third of Korea's growth can be attributed to the a new generation with an "entrepreneurial spirit," and rapid increase in educational attainment and capital. The competition between firms.51 remaining two-thirds came from greater productivity in Knowledge produces growth. "Grey matter is a the stock of labor and capital and innovations in the uses country's main resource," and knowledge has become and types of capital.49 a key driver of competitiveness.52 And as the world Figure 7. Knowledge makes the difference between poverty and wealth 14 Republic of Korea Difference 12 attributed to knowledge 11 10 8 6 Difference due to physical 4 and human capital 2 Ghana 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 Thousands of 1995 US dollars Source: Adapted from World Bank. 1999. World Development Report. Washington, DC. 18 STEPPING UP SKILLS Figure 8. Chile's recent growth rates came from existing ones. Together with institutions and policies higher education and innovation that affect their behavior and performance, they create new products, processes, and forms of organization. TFP Labor Capital Innovation is not only about scientists in laboratories, 6% theoretical science, or new discoveries. It is about building the capacity to find solutions to practical everyday 5% development problems. So an innovative economy is 4% marked both by Nobel Prize-winning scientists, and 3% by small-scale entrepreneurs who develop ideas for new 2% products or new ways of doing things and transform them 1% into profitable products or activities. 0% Innovations can come in various forms. They -1% encompass the products, processes, and services that meet -2% market needs. They may be developed and marketed in 1960­73 1974­89 1990­2000 the manufacturing sector, but they may also apply to new Source: Fuentes, Larrain, and Schmidt 2004. ways of doing things in all sectors, including commerce Note: TFP is total factor productivity. and service delivery. And the innovative idea needs to be widely tested and applied by those who have the skills and becomes more globalized, more reliant on technology, financing to bring it to scale. This calls for engaging those and more service oriented, a country's knowledge with marketing and managerial skills and venture capital. base will determine its growth path. Korea and Chile Research is important--but not always central--to illustrate the need to simultaneously develop human innovation, which may also be realized through less capital, innovation systems, ICT infrastructure, technical experimentation and discovery. The use of cell and institutional regimes. This relationship between phones to provide banking services across India and Africa human development and private sector development is is an example both of developing cheap handsets and symbiotic, because one key aspect of innovation is not communication networks and adapting the technology to just developing new products and processes but also the nontraditional use. At a macro level, Italy's rapid growth ability of individuals to be entrepreneurial in bringing was almost solely due to process innovations and not to them to good use. R&D, and Spain's rapid convergence to oECD average For countries to make the next big move--from growth rates was almost solely due to adopting and developing the right skills demanded by the market to adapting existing ideas.53 dynamically improving the quality and quantity of that demand--developing an innovation system is critical. The Unlocking entrepreneurship and innovation key role of "grey matter" in this points to the importance Innovation--and thus growth--can be encouraged by three of steps 1­3 and the need to think about those processes human development­related factors, and the accompanying in the context of developing knowledge for growth while policies that facilitate them. First, individuals need a implementing additional reforms to transform existing range of skills--those developed in steps 1, 2, and 3, but learning into growth-inducing innovations. also other innovation-specific skills. Second, these skills and the ideas flowing from them have to be connected to Innovation as an input to growth others. Third, productivity increases when innovative small Innovation is a process whereby people or groups of business owners can grow with the aid of risk management people with an entrepreneurial mindset (organizations, tools (step 4) or as innovative skilled workers enter the labor enterprises) develop new ideas or absorb and adapt market (step 5). Encouraging entrepreneurship and innovation 19 Box 4. The face of an entrepreneur Figure 9. Thailand: Top three skills that professionals lack the most in doing A young Indian from a poor family leaves for his low-wage job their job (manufacturing) daily, bids his mother farewell as she sits on the floor, crouched over the silk-yarn winding loom. The work is tedious and labor 70 intensive. The young man has the idea to mechanize part of the Percentage of firms citing a skill weaving process, potentially increasing his mother's productiv- 60 ity and earnings. With earnings from his job, he begins to ex- periment with new loom designs, until he successfully develops 50 a model that eases his mother's task. The partially modernized loom is adopted by other small-scale weavers. 40 A young man with a university degree in textile engi- 30 neering travels to Rwanda to close a silk factory after the 1994 genocide. on arriving in Rwanda, he instead makes a deal with 20 the factory owners to give him a chance to revive the factory. Drawing on his academic and business contacts, he resumes 10 production, refines the quality of the silk, and begins design- ing his own products. Today the factory earns high profits in 0 its export of fine silk products around the world. English IT Creativity Leadership Time management Communication Numerical Problem solving Social skills Adaptability Teamwork Technical Source: www.worldbank.org/education/sti; http://saward.nif. org.in/awardprofile-all.php Source: World Bank Investment Climate Survey for Thailand. This three-part process is relevant to all individuals despite their starting points. A young Indian entrepreneur who improved on his mother's loom to increase her Entrepreneurial skills range from managerial skills in productivity and the older Indian Ph.D. in silk production running a business to motivation. These are the skills to who turned around a silk factory in Rwanda both benefit sort out good ideas from bad ones, find the resources and from general skills, creativity, entrepreneurial abilities, a means to create a prototype, and take the idea through connecting environment, and risk management tools (box 4). its growth phases. Education and training systems can teach individuals to be cognitively developed, creative, Skills to be an inventor, an innovator, a creator and entrepreneurial--as illustrated by the owners of small Three types of skills are necessary to unlock creative firms in Ghana who, as a result of training in management potential and take it to market.54 First, the general techniques, saw their sales revenue grow and their skills in steps 1, 2, and 3 are necessary to adapt existing gross profits equal the effects of 10 years of educational technologies, compete in an innovation-driven economy, attainment.57 These skills--attitudinal and behavioral, as and manage the increasingly networked innovation process. well as pedagogical--are best learned through everyday These skills include basic literacy and numeracy, problem- practice to question, analyze, experiment, and interact with solving, and social and interpersonal skills. the world.58 Creativity produces new ideas. Innovative thinkers are Both creativity and entrepreneurial skills can be curious and persevering and have "divergent thinking,"-- incorporated into teaching methodologies at all points of imagining several responses to a single problem rather than the skill formation process. And education systems can converging to a single, right answer.55 Surveys of employers encourage innovation-related specialties, such as math, or the self-employed in India, Malaysia, Thailand, and a science, and business and managerial skills. But these range of other countries note that these innovation skills strategies will be successful only if education systems are sorely lacking today (figure 9).56 improve the quality of the basic math and science skills for 20 STEPPING UP SKILLS the majority of students. Without such a basis, efforts to financial incentives for collaborative research between instill risk-taking and entrepreneurial skills will be wasted. public education and private firms, facilitates internships In India, the government is implementing a program for Ph.D. candidates in firms, and supports centers of to increase the relevance of undergraduate education in excellence for thinkers and others who develop their science and technology by supporting the improvement of ideas to work together. Such collaborative research can learning facilities and the development of relevant curricula also occur without government interventions. In Beijing, as well as establishing reforms to promote academic nearly 25% of university research is co-sponsored excellence and school accreditation. Early results show that by private partners.61 In Thailand, an agro-business the project has improved the quality of education, and a conglomerate and a local university joined forces to second phase aims to scale-up several existing Masters and develop DNA diagnostic probes to help reduce the Ph.D. programs with concomitant research programs, both shrimp crop losses through diseases. The marriage of the to develop the country's innovation base and to address knowledge with the business led to the development of faculty shortages that threaten to limit opportunities for new shrimp DNA and to Thailand's capturing 30% of tomorrow's students. world shrimp exports. Connecting people and ideas Innovation cannot realize its full potential if innovators Box 5. Enhancing public-private research cooperation are isolated.The innovator needs other creative and skilled individuals to share ideas with and bring those ideas to The Mexican government provided financial support and market, capital to finance the realization of the idea, and an technical assistance to assist the formation of knowledge partnerships among private firms, universities, and research enabling environment that accepts new ideas. People can be institutions. Public science and technology institutes sought brought together through: to enhance client orientation in support of industry, while · Migration policies that geographically concentrate joint industry-academia projects were encouraged in applied innovative thinking. In the fast-growing countries in research, product and process design, and technology adapta- East Asia, governments fund scholarships for math, tion and diffusion. science, and business students to earn degrees in In Nigeria, grants of up to $800,000 were awarded to partnerships between two or more science and technology edu- external research programs and bring the knowledge cation institutions and industry. In Uganda, private sector co- home, while slower-growing Latin American countries operation was strengthened by creating technology platforms invest less to connect their students to knowledge for firms and researchers to define collaborative agendas for centers.59 solving problems of direct interest to the industrial sector. · Innovation spaces. In developing countries, innovation Public financing and policy support to a Malian univer- primarily occurs in public universities.60 Across sity created a virtual knowledge network of universities and researchers, who joined forces to develop and test malaria the world, governments fund competitive research vacciness. grants to encourage universities to finance spaces for Similarly, the government of Chile supported groups of innovation (box 5). The successful Millennium Science researchers from universities, government laboratories, and Initiative in Chile established a Competitive Fund for private industry to undertake collaborative research in areas Scientific Excellence, which financed Science Institutes of importance to industry in various regions of the country. It and Nuclei. Similarly, the government of Nigeria is also awarded scholarships to doctoral students who would un- dertake a substantial part of their thesis work in industry. The providing a small number of promising institutions initiative is widely recognized for its contribution to a culture with the resources to emerge as centers of excellence. of innovation in private enterprises and to Chile's greater ac- · Publicly funded incentives for greater collaboration cess to international knowledge networks. between universities and the private sector. Chile provides Encouraging entrepreneurship and innovation 21 Risk management tools innovator. The poorest innovators need social safety nets Innovation is risky. In developed countries only 5% of to ensure that their families survive if the innovations fail. venture capital firms survive. And these are firms that cherry- Since the greatest cost to these innovators is the time they pick the best ideas. New ideas need time and experimentation spend on developing an innovation, general social safety to develop, and if the idea fails, the individual has a negative nets insure against this income loss. return on his or her investment. So, in societies with few Those farther from the poverty line may need incentives safety nets, innovation may be constrained. to invest in innovation rather than more secure income- Policy can give a push to individual innovators generation activities. Innovation funds that provide grants by providing fall-back options. Risk management to individuals to develop creative ideas are becoming more instruments, for example, can provide security to common. innovators so that they may expend resources on their And for innovators across the poverty spectrum, new activities. An increase in the value of unemployment policies that ensure a monopoly of returns from marketable insurance in (credit-constrained) Brazil propelled the innovations--patents, copyright laws--lower the income transition from unemployment to small-firm creation as risk associated with developing non-rival ideas. While such opposed to wage-employment. 62 legislation is outside the human development arena, its fair These instruments can vary, depending on the implementation and monitoring is crucial as individuals complexity of the innovation and the income of the move through the process of implementing their ideas. 22 STEPPING UP SKILLS Step 5 United States for 1968­2000 show that without mobile labor, the output of goods and services would have been cut by more than half (figure 10). There is also growing Facilitating evidence that lower turnover across firms is associated labor with lower productivity growth--firms facing high labor adjustment costs have fewer incentives to innovate and mobility and adopt new technologies.63 job matching Estimates of the costs associated with workers finding jobs that do not match their skills are more difficult to come by, but they are likely to be large. Again in the United States, the social value of information that Problem: None of the first four allows workers to find the "right" job for their skills has steps matter if people can't find been estimated to be between 6% and 9% of GDP. 64 In jobs that match their skills low and middle-income countries, the costs could be even higher because data suggest that personal networks are Even if individuals have the "right" skills to be productive the most common mechanism to search for jobs or to and creative, employment and productivity can be hire workers. hampered if labor markets do not function well. Employers In Lebanon, 55% of young workers who found a job need the flexibility to manage their human resources. in 2009 used personal contacts; only 2% used employment Workers need to move freely between jobs and regions. And services (figure 11). This is inefficient since individuals see employers have to find the skills they need, and workers the only a small part of the jobs offered. While some might jobs that put their skills to best use. have the "right contacts," those with weak social networks When workers cannot move freely, both output and can be severely constrained in their choices. There is productivity growth are reduced. Some calculations for the some evidence that job-skills mismatches are common. Figure 10. Without mobile workers, U.S. production of goods and services would have been cut by more than half Observed No labor mobility 16 14 12 Output of goods and services 10 8 6 4 2 0 1969­1974 1974­1979 1979­1984 1984­1989 1989­1994 1994­1999 Source: Based on Lee and Wolpin 2006. Facilitating labor mobility and job matching 23 Figure 11. How workers (don't) find jobs in Lebanon Personal and family relations Advertisement (internet or other) Participate in competition Education or training institution Family establishment Other National employment office Private employment office 0% 10% 20% 30% 40% 50% 60% Source: Kasparian 2009. In Tunisia, more than 50% of university graduates are in Facilitating labor mobility jobs that do not use the skills they acquired in university The combination of rigid job protection regulations and (figure 12). weak income protection systems can be detrimental to labor Youths entering the labor market for the first time, mobility. Evidence from Chile, Colombia, Brazil, and India and thus lacking work experience and professional shows that rigid regulations on hiring and dismissal procedures references, are likely to face more difficulties signaling reduce turnover and employment.66 At the same time, the lack their skills to potential employers. This problem can of appropriate income protection systems in most developing be amplified when there is no proper certification or countries, as well as the limited benefit portability of social accreditation for different training centers or universities. insurance benefits, can also reduce the incentives for workers to Indeed, there is some evidence that the transition to transition between jobs.67 stable formal jobs involves a period where young workers Several countries are moving toward labor laws that give alternate between short-term/low productivity jobs in the employers more flexibility in managing human resources, such informal sector. 65 The problem is likely to be even more as more flexible regulation of hiring and dismissal procedures. severe for informal sector workers lacking university or In many Latin American countries the termination of training diplomas. redundant workers is now legal, and few require the approval Governments can facilitate labor mobility and job of a third party. Azerbaijan, Belarus, Kyrgyz Republic, FYR searches through various interventions, including a better Macedonia, Mauritius, and Montenegro have eliminated combination of job and income protection policies and requirements relating to redundancy over the last couple more proactive approaches to employment services and of years. Burkina Faso, Egypt, Lebanon, Mozambique, and skills certification. Slovenia have also eased restrictions on fixed-term contracts. 24 STEPPING UP SKILLS Figure 12. Mismatches are rampant for Tunisian university graduates employed in 2007 Agriculture and agro industry Other technicians Other specialties Crafts Telecommunications Construction Chemicals Mechanics and electricity IT Health services Commerce Law and languages Management Accounting and finance Sports 0% 10% 20% 30% 40% 50% 60% 70% 80% Percentage of mismatches Source: Robalino and others 2007. And Argentina, Mauritius, Mozambique, and Peru have benefits after the individual's savings have been depleted. reduced dismissal costs. In Chile, such a solidarity fund is financed by employer The other side of the coin in efforts to enhance labor and employee contributions and government transfers mobility involves expanding coverage of social protection (figure 13). systems to protect workers' incomes in the face of job loss. Similarly, several countries in Latin America and In many cases, innovations in income protection systems Eastern Europe have rationalized defined-benefit pension can provide an alternative to expensive severance pay systems, moving to defined-contribution arrangements systems--thus better protecting workers while facilitating (including nonfinancial defined-contribution systems) mobility. For example, Colombia, Brazil, and Chile have that make pension rights more portable and thus have the introduced unemployment benefit systems based on potential to enhance labor mobility and income security. savings. Relative to traditional unemployment insurance, these systems provide better incentives to search for and Improving the matching of skills and jobs keep jobs and demand less control and administrative To address the problems of poor information and to make capacity.68 They also have the potential to be extended to it easier for workers to find jobs that match their skills and the informal sector. To protect low-income individuals with qualifications (and for firms to identify workers with the limited savings capacity some of these systems also provide relevant skills), both developed and developing countries access to a solidarity fund that finances unemployment often seek to establish employment services. By combining Facilitating labor mobility and job matching 25 Figure 13. Chile's unemployment benefit system An important incentive for workers is to provide unemployment benefits. And to attract employers Sources of funding (% wage bill) employment agencies can offer such services as managing Worker 0.6% Individual Any vacancies and helping to screen candidates. In the United Account reason for separation States, the JobsLink program in Alexandria, Virginia, has shown that it can outperform big employers in finding 1.6% Employer candidates with a given set of skills. It does this by having 0.8% Solidarity "Continuing systems that assess job-seeker qualifications and their Fund Eligibility" conditions suitability for various jobs. Having access to training State $ 8.8 mil programs (outsourced to private providers) also helps unskilled workers and those changing sectors or occupations. Decentralized management allows regional and local intermediation (such as providing lists of job vacancies offices to tailor programs to the local job-seeking and and doing preliminary screening of eligible candidates or employer communities, while the central administration suitable jobs) and counseling (such as giving practical help retains responsibility for budgeting and funding, setting to job-seekers preparing curriculum vitas, guiding workers' policy, and evaluations. In many cases, services can be careers) the services can be a fairly low-cost mechanism to outsourced to private employment agencies.73 In all cases, help individuals find better jobs.69 it is important that contracts (with public or private offices) In Brazil, for instance, employment services seem include specific placement targets and incentives to achieve to increase workers' probability of finding formal jobs.70 them. Similarly in Mexico, employment services are found to help Recent advances in information technology can unemployed men find jobs more quickly, with better pay substantially reduce the costs of job intermediation, and conditions.71 There are also some encouraging results enabling employment ministries in Argentina, Brazil, about the effect of these programs on youth. An example Bolivia, Chile, Colombia, Mexico, Peru, Uruguay, and is the U.K.'s Restart, which offers job search assistance for Venezuela to make information more readily available to youth and reduces unemployment for male participants. job-seekers and employers. This information covers a wide This program, as well as most like it in oECD countries, range of topics including workers' rights, employment includes such sanctions as denying welfare benefits for regulations, training programs, vacancies at home or not complying with program rules. overall, employment overseas, as well as information targeted to vulnerable services seem to work better when linked to unemployment groups (young people, women, disabled workers). benefits, training, and competency assessment programs in Among high-income countries, Korea's employment "one-stop shops." services integrate job-search assistance with unemployment In fact, employment services are being revamped in benefits, training, and job creation.74 Implemented in several middle-income countries. International experience72 1995, they cover all companies regardless of their size, and shows what's important for the successful design of these both part-time and hourly workers can participate. The programs: Bureau of Employment Policy in the Ministry of Labor · Providing incentives for job-seekers and employers to makes policy and regulates the system, and hundreds of join. public and private local centers implement it. The system · Integrating employment services with training and costs around 0.36% of GDP and in normal times has competency assessment programs. displayed a fairly high placement rate. At a one-stop shop · Decentralizing management and expanding the role of job-seekers approaching any of the local offices have access the private sector with clear targets. to a variety of services. Beyond access to information about · Exploiting information technologies. jobs and job counseling, the system provides employment 26 STEPPING UP SKILLS promotion benefits. on top of unemployment benefits, and support with official administrative procedures related these provide incentives for job-search or training--when to preparing and registering labor contracts. jobs are found, individuals can keep the balance. There are one special feature of Pro Empleo is its focus on also grants to facilitate job-search in distant areas and a vulnerable low-income youth, low-skilled workers, and mobility premium if workers find jobs that require moving the disabled. The cost of the program is estimated at or changing residence. 0.4% of GDP. Although it has not been subject to formal In middle-income countries, an example of a well-run evaluations, implementation reports suggest that Pro employment service program is Peru's Red CIL Pro Empleo. Empleo is achieving most of its targets.75 In 2006, its Created in 1996 and managed by the Ministry of Labor placement rate was estimated at 28% of job-seekers, or 68% and Employment Promotion, it operates through a network of the demands placed by employers. of labor information centers managed by the private Job-search can also be facilitated through skills sector--including NGos and churches. And it provides certification frameworks to recognize individual skills advisory services to job-seekers as well as employers. Job- and competencies (see step 3). While the impact of these seekers receive information about job openings but can also programs has not been evaluated, they have the potential to request advisory services (counseling) for career choices and fulfill a valuable role, particularly as modes and pathways to support in preparing CVs and getting ready for interviews. developing skills and competencies become more diverse.76 If appropriate, job-seekers can also be referred to alternative Skills certification often needs to be complemented by training programs to improve their employability. efforts to certify or rate universities and training centers to Employers get access to a database of job-seekers and receive provide better information to employers about the value of services including the prescreening of potential candidates different diplomas and specializations. Facilitating labor mobility and job matching 27 Implement- approaches appropriate to local conditions. But ing the STEP finding the right approach is often a learning process of refining and adapting policies and building strong framework monitoring and evaluation modules. · Coordination and priority setting--to allow for the phased implementation across sectors. Most policies implicit in the STEP framework require actions by several public agencies. In many cases active involvement of nonstate actors (for and not for profit) is also essential. Moreover, given limited resources, choices often have to be made about allocating STEP is not a blueprint for reform or a fixed set of resources to reforms that have a short-term payoff or recommendations for countries to follow. It is a framework those that invest in the future (active labor market that can help countries work through the challenges in programs for today's unemployed and early childhood building skills for growth and productivity and find the development programs for tomorrow's workers). solutions that work in their own environments. It is also a Both factors emphasize establishing institutional call for a comprehensive approach that resists the temptation mechanisms for leadership at a senior policy level, of seeking single-minded solutions in the expectation that with the interconnections among policies coordinated they will address the skill development gaps. and shepherded by multisector steering committees, Implementing the STEP framework involves three key including nonstate participation. phases: Each country's approach will depend on the context, · Benchmarking and analytical diagnostics--to identify but for all countries the starting point is benchmarking--to the main gaps across the various steps, including the use see where it stands on each of the steps in relation to of analytical instruments to measure the distribution other countries. That will reveal the steps in most need of of skills in the labor force and identify structural attention. Next is conducting policy analysis and designing mismatches. These results need to be benchmarked programs. That will take into account the available against other countries to locate both the present capacities and resources. Then the policies and programs situation and aspirations, accompanied by institutional are gradually implemented in phases, with careful attention analysis that explains the observed patterns. Important to sequencing and cross-sectoral coordination. That will progress has been made in recent years in developing point to steps offering the greatest returns, working toward of measurement instruments in several of the key building all five steps in the system. dimensions of the STEP framework--from early The STEP framework provides a reminder that the childhood development to a variety of skills among challenge of building effective skills for employment and working adults--to facilitate the application of productivity is multifaceted. Efforts to enhance the supply diagnostic exercises in developing countries. But further of skills at various levels must recognize these key elements efforts are necessary to develop these instruments and of this framework. the capacity to implement them systematically. · Behavioral skills--teamwork, diligence, creativity and · Policy analysis and program design--to respond to each entrepreneurship are essential country's existing systems and to the constraints in · Path dependence--early investments make later efforts institutional capacity and fiscal space. Program design more productive can be informed by other country experiences, adapted · Labor market clearing--just having the right skills to local conditions. Growing evidence from a range of may not be enough, and labor markets must make it evaluations provides a platform to learn and identify possible to find and use those skills. 28 STEPPING UP SKILLS Notes 17 USAID. "Early Grade Reading Assessment (EGRA)." https:/www. eddataglobal.org. 18 Pratham. 2006. Annual Status of Education Report. 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"Mexico: Making Education Future: Education and Training for Economic Development in More Effective by Compensating for Disadvantages, Introducing Singapore since 1965. Washington, DC: World Bank and the School-Based Management, and Enhancing Accountability: A Policy Singapore National Institute of Education. Note" (Report No. 35650-MX). Washington, DC. 45 Walther, R., with E. Filipiak. 2007. Vocational Training for the 32 World Bank. 2003. Lifelong Learning in the Global Knowledge Informal Sector, Agence Francaise de Developpment; Fluitman. Economy: Challenges for Developing Countries. Washington, DC; op. cit. Barrera, F., T. Fasih, and H.A. Patrinos. 2009. Decentralized 46 Heckman, J., L. Lochner, and J. Taber. 1998. "Explaining Decision-Making in Schools: The Theory and Evidence on School- Rising Wage Inequality: Explorations with a Dynamic General Based Management. Washington, DC: World Bank. Equilibrium Model of Earnings with Heterogenous Agents," 33 Jakubowski and others. op. cit. Review of Economic Dynamics 1 (1): 1­58. 34 The site (www.schoolreportcards.in) won the National Award for 47 Tan, H., G. Lopez-Acevedo, M. Sanchez, and M. Tinajero. 2004. e-governance in 2010. Evaluating SME Programs in Mexico Using Panel Firm Data. 35 White, H. 2004. Books, buildings, and learning outcomes. Washington, DC: World Bank Institute, World Bank. Washington, DC: World Bank. 48 Wadhwa, V., U.K. de Vitton. and G. Gereffi. 2008. How the 36 Mitra, P., M. Selowsky, and J. Zalduendo. 2009. Turmoil at Twenty. Disciple Became the Guru: Is it time for the U.S. to learn workforce Recession, Recovery and Reform in Central and Eastern Europe and development from former disciple India? Kansas City, Missouri: the former Soviet Union. Washington, DC: World Bank. Kauffman Foundation. Similar company-based training programs are run by such firms as Wipro (5,000 spaces), TCS (with a 1,600 37 World Bank. 2009. Turkey National Innovation and Technology seat center in Kerela, and plans to centers throughout the country System. Recent Progress and Ongoing Challenges. Washington, DC: for a total training capacity of 30,000). Latest data on Infosys are Financial and Private Sector Development Department. Europe from http://www.infosys.com/newsroom/press-releases/Pages/ and Central Asia Region. global-education-center-II.aspx (accessed on June 9, 2010). 38 World Bank. 2008. Vietnam: Higher Education and Skills for 49 World Bank. 1999. Knowledge for Development. Washington, DC. Growth. Washington, DC: Human Development Department, East Asia and Pacific Region. 50 World Bank. 2007. Building Knowledge Economies: Advanced Strategies for Development. Washington, DC. 39 See, for example, World Bank. 2007. Cultivating Knowledge and Skills to Grow African Agriculture. Washington, DC.: World 51 Montero, C. 1990. "La Evolucion del empesariado Chileno: Surge Bank; Fox, L., and M.S. Gaal. 2008. Working Out of Poverty. un Nuevo Actor?" Coleccion Estudio Cieplan 30: 91. Washington, DC: World Bank. 52 World Bank. 2007. op.cit 40 See, for example, F. Fluitman. 2009. Skills Development for the 53 Maloney, W. 2009. "Benchmarking Innovation in LAC." In Informal Economy: Issues and Options in Vocational Education process. Washington, DC: World Bank; Bussolati C., and G. Dosi. and Training in the Southern Partner Countries of the European 1995. "Innovation, public policies and competitiveness of the Neighborhood Policy. HTSP Limited. Italian industries." LIUC Papers in Economics 17. Castellanza, 41 As summarized in H. Tan, Y. Savchenko, V. Gimpelson, R. Italy: Cattaneo University. Kapelyushnikov, and A. Lukyanova. 2007. "Skills Shortages and 54 See chapter 6 in World Bank. 2010. "Fostering Innovation Training in Russian Enterprises." Institute for the Study of Labor through Education and Training." Innovation Policy: A Guide for (IZA) Discussion Paper 2751. Bonn. Developing Countries. Washington, DC. 42 For India, Pakistan and Sri Lanka, the estimates are reported 55 Csikszentmihalyi, M. 2003. Creativity: flow and psychology of in M. Riboud, Y. Savchenko, and H. Tan. 2007. The Knowledge discovery and invention. New York: Harper Collins Publishers. Economy and Education and Training in South Asia. Washington, 56 Blom A., and C. Hobbs. 2008. School and Work in the Eastern DC: Human Development Unit, South Asia Region, World Bank; Caribbean: Does the Education System Adequately Prepare Youth for Singapore, the source is C. Salkeriou. 2003. "Rates of Return for the Global Economy? Washington, DC: World Bank; World to Investment in Formal and Technical/Vocational Education Bank. 2010. "Higher Education, Skills and Innovation." Draft in Singapore." Education Economics 11 (1): 73­87; for Rwanda, Report. Washington, DC; Saeki, H., and A. Blom (forthcoming) it is G. Lassibille, and J.P. Tan. 2005. "The Returns to Education "Employability and Skill set of Newly Graduated Engineers in in Rwanda." Journal of African Economies 14 (1): 92­116; and for India." Washington, DC: World Bank. Tanzania, it is G. Kahyarara and F. Teal. 2008. "The Returns to 30 STEPPING UP SKILLS 57 Sonobe, T., Y. Mano, J. Akoten, and K. otsuka. 2010. "Assessing 67 Forteza, A. 2008. "The Portability of Pension Rights: General the Impact of Management Skill Training in Ghana and Kenya." Principles and the Caribbean Case." Social Protection Discussion In process. Washington, DC: World Bank. Paper. Washington, DC: World Bank. 58 Lucas, Robert E., Jr. 1988. "on the Mechanics of Economic 68 See D. Robalino, M. Vodopivec, and A. Bodor. 2009. "Savings for Development." Journal of Monetary Economics 22: 3­42. Unemployment in Good and Bad Times: options for Developing Countries." IZA Discussion paper; Gonzalo, R.H., M. Vodopivec, 59 Maloney, W. 2009. op. cit.; De Ferranti, D., G. Perry, I. Gill, J.L. and J.C. Van ours. 2009. "Incentive Effects of Unemployment Guasch, and W. Maloney. 2003. Closing the Gap in Education and Insurance Savings Accounts." Paper presented at the 2010 IZA Technology. Washington, DC: World Bank. conference on Employment and Development. Cape Town, South 60 World Bank. 2009. op. cit. Africa. 61 http://samaa.tv/afpheadlinedetails.aspx?loc=AFP-English-Shared- 69 Betcherman, G., K. olivas, and A. Dar. 2004. "Impacts of Active health-newsmlmmd.a6a7a815f688d732a98a04708839fb85.01. Labor Market Programs: New Evidence from Evaluations with Cunningham. 1997. Particular Attention to Developing and Transition Countries." 62 Cunningham, W. 1997. "The Role of Unemployment Insurance in Social Protection Discussion Paper Series No. 0402. Washington, Segmented Labor Markets." Prepared as a background paper for D. DC: World Bank. de Ferranti and G. Perry. 1997. Securing our Future. Washington, 70 Ramos, C.A. 2002. "Las políticas del mercado de trabajo y DC: World Bank. Processed. su evaluación en Brasil." CEPAL. Serie Macroeconomía del 63 Hopenhayn, H., and R. Rogerson. 1993. "Job Turnover and Policy Desarrollo 16, Santiago. Evaluation: A General Equilibrium Analysis." Journal of Political 71 Flores Lima, R. 2006. "Innovaciones en Materia de Evaluación de Economy. 101 (5); Capelli, P. 2000. "Examining the Incidence of Servicios de Empleo." Powerpoint presentation. Washington, DC: Downsizing and Its Effects on Establishment Performance." in Inter-American Development Bank. D.Neumark (ed.), On the Job, New York : Russell Sage Foundation; 72 For a review see Sanchez and Robalino. op. cit. and Hobjin, B., and B. Jovanovic. 2001. "The Information Technology Revolution and the Stock Market: Evidence." 73 Scarpetta, S., C. Pages, and G. Pierre. 2008. "Job creation in American Economic Review, forthcoming; Scarpetta, S., and T. Latin America and the Caribbean." Washington, DC: World Tressel. 2004. Boosting Productivity via Innovation and Adoption of Bank. New Technologies: Any Role for Labor Market Institutions. World 74 Kim, S.T. 2008. "Private Employment Services (Search Firms, Bank Policy Research Working Paper 3273. Washington, DC. Free Job Placement Agencies, overseas Job Placement Agencies) in 64 Jovanovic, B., and R. Moffitt. 1990. "An Estimate of a Sectoral Korea." e-Labor News no. 79; Kwan, C.P. 2000. "Unemployment- Model of Labor Mobility." Journal of Political Economy 98 (4) Related Benefit Systems in South Korea." Seoul: Research and (August 1990): 827­852. Library Services Division, Legislative Council Secretariat, Government of Korea. 65 See chapter 5 in Perry, G. E., W. Maloney, o. S. Arias, P. Fajnzylber, A.D. Mason, and J. Saavedra-Chanduvi. 2007. 75 See Ministerio del Trabajo y Promocion del Empleo. Lima: "Informality: Exit and Exclusion." World Bank Latin American Government of Peru. and Caribbean Studies. Washington, DC: World Bank. 76 Bouder, A., F. Dauty, J.L. Kirsch, and P. Lemistre. 2008. 66 For a review, see chapter 5 in Sanchez, M.L., and D. Robalino. "Readbility of qualifications: a question as old as Europe." 2010. In H. Ribe, D. Robalino, and I. Walker: "Right To Reality: Modernising Vocational Education and Training, Volume How Latin America and the Caribbean can achieve universal social 2. Fourth report on vocational training research in Europe: protection by improving redistribution and adapting programs to background report. Cedefop (ed). Luxembourg: EUR-oP. labor markets." Washington, DC: World Bank. Notes 31 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 demo- graphic 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. 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. 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. Step 5 Facilitating labor mobility and job matching Step 4 Encouraging entrepreneurship and innovation Step 3 Building job-relevant skills Step 2 Ensuring that all students learn Step 1 Getting children off to the right start www.worldbank.org/humandevelopment/skillsforjobs