HUMAN DEVELOPMENT Essentials April 2012 Number 1 72314 Rev Job skills: Lessons from recent World Bank flagship studies Countries in all regions of the developing world are asking for advice and support on how to make their labor force more employable and productive. Skills development is part of the answer. Finding the right answer requires a clear identification of skills gaps and entry points to build them—from investments in foundational skills early in life to technical skills acquired on-the job. Labor market institutions and policies create incentives that influence both supply and demand for skills. Policies for skills development must consider carefully the right role for the state— one that responds both to market and government failures. Ariel Fiszbein, Human Development Network, Chief Economist reviews key messages emerging from recent World Bank flagship studies. Skills, and skills development, are increasingly recognized as critical to improving employment and productivity in low, middle and high income countries. The World Bank’s enterprise surveys show that between 20 percent and 40 percent of firms in most developing regions identify the lack of appropriate labor skills as a major constraint to development. Government leaders around the world agree: Indian Prime Minister Manmohan Singh called skills and knowledge “the driving forces of economic growth and social development in any country.�1 U.S. President Barack Obama linked America’s ability to be competitive in the global economy with its ability to ensure that workers have opportunities to gain new skills.2 Governments are doing more than just talking. They are matching their words with programs to train large numbers of people. For example, the National Skills Development Corporation in India was set up to achieve the goal of developing skills of 150 million people by 2022. China plans to build 1200 technical training centers and train 3.5 million technical workers and one million senior technicians in the next 10 years. Countries in all regions are asking for advice and support on how to make their labor force more employable and produc- tive. The ‘jobs’ agenda involves a range of issues, including how to improve the investment climate and other means of increasing the demand for labor more broadly. Skills development is often an important aspect of that agenda. A recent set of World Bank regional studies focus on this critical question and provide some valuable lessons. Lesson 1: Many skills, diverse gaps There are different types of skills that matter for employment and productivity: problem-solving skills or the capacity to think critically and analyze; learning ( foundational) skills or the ability to acquire new knowledge (“learning to learn�), distill lessons from experience and apply them in search of innovations; communication skills, including reading and writ- ing, collecting and using information to communicate with others, and using a foreign language and information and communication technologies (ICTs) as communication tools; personal skills for self-management, making sound judg- HUMAN DEVELOPMENT Essentials 1 ment, managing risks, etc.; and social skills to collaborate with and motivate others in a team, manage client relations, exercise leadership, resolve conflict, develop social networks, etc. These also provide the basis for developing and using specific technical and managerial skills. As countries become richer and move up the value-added chain, the types of skills demanded change, often with growing demands for high-level cognitive skills (such as analysis, problem solving and communication). Understanding the skills gaps experienced by different groups of countries, firms and individuals is key. „„In Latin America, the occupational pattern of job expansion has been biased toward traditional cognitive skills rather than the higher order, ‘new economy skills’ (see figure 1). The fact that those firms that tend to demand the new economy skills have difficulty in recruiting staff (as shown by enterprise surveys) suggests that the sup- ply of high order skills may be constrained in these countries in spite of the expansion in education coverage that they have achieved. „„In Africa basic and foundational skills typically acquired in school are low, almost across the board. Data from the PASEC test indicated that in several countries more than a third of Grade 5 test-takers perform at a level less than what would result from random guessing when answering questions (see Figure 2). „„In India3 employers hiring fresh engineering graduates indicate they are only somewhat satisfied with graduates’ specific knowledge and technical skills, behavioral skills (such as teamwork, reliability, leadership, and willing- ness to learn) as well as communication skills. „„In East Asia, data from recent employer and employee surveys show significant weaknesses in thinking and behavioral skills, in particular in the export-oriented sectors. „„In the Middle East and North Africa, while important progress has been made in increasing access to education, quality and relevant skills are still scarce. With the exception of Lebanon and Jordan, achievement in math- ematics of 8th graders in MENA countries is lower than in most participating countries with similar levels of development as measured by GDP per capita. For some countries, the performance in the international math and science study TIMSS even worsened between 2003 and 2006. „„In Europe and Central Asia, a region that has long been characterized by high rates of schooling, a significant share of young people fails to acquire even the most basic skills. The PISA 2009 data indicates that in several countries a majority of 15 year olds perform at level 1 or below in reading (which means they will not have the reading skills to acquire other skills) and in most countries more than 20% of the students perform at that level (see Figure 3). There are strong indications that while education systems in these countries may be adept at imparting basic skills at the primary level, they may be failing at imparting higher order skills. Defining policies and designing programs for skills development without good information on these gaps is, for all practical purposes, acting blindly. Measurement of existing skills—or their absence—is an essential part of successfully promoting productivity and growth. To support this important agenda, the World Bank has launched the STEP Skills Measurement project, a multi-country research effort that seeks to document the skills education and labor market history of the working-age population in comparable ways and to deepen the understanding of skills mismatches and linkages between skills and labor market outcomes. The project is the first-ever systematic attempt to fill the knowledge gaps regarding the supply of and demand for cognitive, behavioral (often also called non-cognitive) and technical skills through household and employer surveys. The household-based survey collects general information on household characteristics and detailed information on paths to skills accumulation, skills proficiency and labor market trajectory for one randomly selected member of the household. 2 HUMAN DEVELOPMENT Essentials Figure 1: Comparing skills distributions in Brazil, Costa Rica and Nicaragua with the US A unique feature of the household survey is the inclusion of a test of reading literacy that is on the same scale as the Program for the International Assessment of Adult Competencies (PIAAC) sponsored by the OECD. This will allow for direct measurement of reading literacy in the working age population and comparability with PIAAC/OECD results. Equally important, the survey measures behavioral skills in a robust and systematic way allowing for cross-country comparisons. The employer survey gathers information on hiring, compensation and termination practices, training approaches and enterprise productivity and provides a stronger basis for the analysis of skills than traditional enterprise surveys. Lesson 2: Multiple entry points Source: Skills for the 21st Century Skills can be acquired in different ways. Schools play an essential role by providing quality education that Figure 2: Percent of PASEC Grade 5 test-takers who perform at a sets the bases for not only cognitive but the whole level less than random guessing range of skills that matter for employment and pro- ductivity later in life. Formal training, either through higher education institutions or through a variety of training programs, constitutes an important avenue through which adults (young and otherwise) can en- hance their skills and often complement skills acqui- sition on the job. But the efficacy of schooling and training is heavily influenced by individuals’ early years. Behavioral skills needed for higher productiv- ity jobs, built through learning from families and schools, are difficult to impart later in life. The ability to acquire skills such as creativity and entrepreneur- ship critically depends on the amount and quality of stimulation and education received in childhood. As a result, workers who have poor early childhood en- Source: COMFEMEN “Synthese des Resultats PASEC VII, VIII et IX� • http://www.confemen.org/IMG/pdf/Synthese_PASEC_VII-VIII-IX_final.pdf vironments or inadequate or insufficient basic educa- tion will be less able to flexibly acquire the higher level skills employers need and are less likely to be employ- Figure 3: Share of students scoring Level 1 or below on reading able or fully productive. (PISA 2009) Understanding the performance of the various mecha- nisms through which individuals acquire skills (and the bottlenecks experienced by the relevant institu- tions) is another key aspect of the findings of the stud- ies. For example: „„ In South Asia weaknesses in the quantity and quality of investments in human capital early in life may be having dramatic negative effects Source: Skills, not just diplomas HUMAN DEVELOPMENT Essentials 3 on productivity of adults. Just to name the most extreme example, South Asia has the worst child malnutri- tion indicators among all regions (see Figure 4). As a result, a large share of children in South Asia start school with significantly impaired cognitive development. It is highly unlikely that such impairments can be repaired easily through schooling or training later in life. Weaknesses in mechanisms supporting early child nutrition and development —many of them informal and operating through families and communities—may be a key bottleneck for skills development in this context. „„Adult training programs remain very poorly de- veloped in most countries in Europe and Central Asia. Data from Business Environment and Figure 4: Percentage of children under five with malnutrition by Enterprise Performance Surveys show that in region and country many countries, only a small fraction of firms of- fer training opportunities to workers. Moreover, in countries in which a larger share of firms offers such opportunities, relatively few workers partici- pate and they do so for few hours. „„In East Asia there is a disconnect between the skills supplied by higher education and labor Source: More and Better Jobs in South Asia market demands. For example, low enrollment rates in science, technology, engineering and math (the so-called STEM fields) have been Figure 5: Skills toward employment and productivity. identified as bottlenecks for manufacturing in countries like Cambodia and Mongolia. Weak incentives for public universities to respond to market demands may explain the observed disconnects. „„In the Middle East and North Africa, relevant and quality skills continue to be scarce. The re- gion has the highest percentage in the world of firms reporting that inadequate labor force skills are an obstacle to growth. At the same time, firms offer little training to their workers, probably be- cause their low exposure to competition provides Source: Stepping up skills few incentives to do so. With limited demand, http://go.worldbank.org/LSCAAIJ890 and voice, from the private sector, and a long his- tory of state-led industrialization, the main focus of the education system continues to be the pro- duction of future employees for the public sector. The multiplicity of means by which skills are acquired, and the links between them, requires a comprehensive review of how well different institutions and mechanisms operate throughout the life time of an individual. This recognition lies at the basis of Skills Toward Employment and Productivity (STEP), a conceptual framework the Bank developed to help policymakers and researchers design systems to boost skills to enhance productivity and growth (See Figure 5). 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. 4 HUMAN DEVELOPMENT Essentials Thinking comprehensively (by looking at the various steps), and acting strategically (by focusing on the areas of poor performance) constitute a pragmatic approach to addressing skills development challenges. Benchmarking country per- formance, through international comparisons, provides powerful means to identify the areas in more need of change. The Systems Approach for Better Education Results (SABER) initiative is a powerful means to generate comparable assessments of quality of policies in key areas (from early childhood development to workforce development and higher education) of relevance for skills development. Lesson 3: Labor markets and skills development Figure 6: Africa: The share of labor force in private wage How labor markets work, and the regulations that jobs in 10 years affect them, can influence greatly the incentives and motivation for individuals and firms to invest in the right skills. So can social protection policies. Employers need the flexibility to manage their hu- man resources. Workers need to move freely between jobs and regions. Entrepreneurs (including the large number of self-employed workers in many developing countries) need some form of managing the risks as- sociated with innovation. And employers have to find the skills they need, and workers the jobs that put their skills to best use. In all these regards, policies and institutions influencing job mobility and income protection can be important factors influencing both the demand for skills and the transformation of skills into actual employment and productivity. Source: Household Enterprise in Sub-Saharan Africa Understanding the labor market and the effects on the demand for skills is an important aspect in several of the studies. For example: „ In Africa, family farms and the informal sector represent over 80% of total employment in most countries. Projections under various growth hypotheses indicate this will remain the pattern for years to come (see Figure 6). Even such a simple consideration of labor market trends suggests that a traditional focus on TVET, for ex- ample, or fiscal incentives for on-the-job training cannot be the principal response to improving the productiv- ity of labor in Africa. „„In Latin America, an analysis of labor market trends during the 2000s indicates that the overall reduction in wage skill premiums was predominantly the result of a slowing down in the demand for skilled labor in the con- text of an expanding supply. This trend reversed a previous environment in which skills shortages drove returns to higher education up, constraining profitability and growth. Improvements in real minimum wages in several countries contributed to the reduction in skills premiums at the secondary education level by driving up wages at the lower end of the distribution. This is in contrast to the trend in wage premia observed in South Asia where the premia are increasing at higher levels of education, suggesting the increases in demand at these levels have been outpacing the increases in workers with upper secondary and/or tertiary education. „„In the Middle East and North Africa, labor market intermediation systems are underdeveloped, with large shares of workers finding jobs through personal connections rather than through market-based processes. This HUMAN DEVELOPMENT Essentials 5 is consistent with the behavior of a dual private sector, where well established firms operate in a limited competi- tion regime and small and micro firms strive to survive. The first do not face market incentives to hire accord- ing to productivity, the latter hardly the scale to attract top talent. At the same time, the public sector offers a desirable employment package, and therefore it continues to be the employer of choice for the large majority of young people. As a result, skills formation is also distorted and students have incentives to choose degrees that are not necessarily responsive to labor market needs but that instead secure a diploma. In some countries the nature of labor market institutions and policies could have overwhelming effects on the ability of even well designed and generously funded education Figure 7: MENA: Distribution of university students by field of study and training programs to be effective, turning well intentioned efforts futile. Combining skills analysis with labor market analysis can help in avoiding such mistakes. Such analyses may show that, in some cases, labor market policies, such as regulations, and programs, such as the provision of information and other labor market intermedia- tion initiatives, may be the more relevant than tra- ditional training programs as a way of promoting skills development. Lesson 4: State roles in skills development Source: Edstats http://go.worldbank.org/ITABCOGIV1 The well known presence of market failures (e.g. credit market imperfections, externalities of differ- ent types) provides an ex-ante case for government intervention in the area of skills development. But, very often, skills development systems are plagued by government failures as well: inefficiencies, rent-seeking, corruption. Regardless of the source of the problem, low quality government provision of education and training services—and few options to choose among providers—depresses demand for such services, and contributes to the observed low levels of skills. Governance reforms (understood as changes in incentives to providers and strengthening of accountability mechanisms) are often a priority to improve the effectiveness of public policies for skills development, including those enabling a role for the private sector. For example: „„In Europe and Central Asia, the legacy of highly centralized management makes it difficult to improve the perfor- mance of education systems. A focus on ‘norm compliance’ instead of ‘performance monitoring’ may be creating the wrong incentives. This often manifests itself in large variations in spending across local governments, unrelated to student performance. A combination of school autonomy/accountability and performance-based financing may, in this context, provide a stronger environment for the performance of education systems. „„In East Asia, improving the performance of universities as providers of skills needed for innovation and growth will require a combination of more autonomy (so that higher education institutions have the flexibility to adjust programs, for example) and stronger accountability for results. 6 HUMAN DEVELOPMENT Essentials „„In South Asia, developing a better system for skills development at the tertiary education Box 1: A Role for Civil Society and pre-employment training level will require Nongovernmental organizations in Romania worked to- a set of governance reforms including strength- gether to monitor public universities and assess and establish ening quality assurance and accreditation, guidelines for academic integrity (good governance). Their increasing the role of private sector and em- report, issued in 2009, had three major findings that pointed ployers, increasing autonomy of institutions to problems in governance, accountability and transpar- and strengthening financial incentives for im- ency: 1) Increased tolerance for plagiarism 2) Evidence of proved performance. extended nepotism and 3) Lack of transparency in decision „„In the Middle East and North Africa, the chal- making and the academic process. In response, the govern- lenge of expanding job creation will require ment introduced a new law on education in 2011, which governance reforms in a number of areas, restricted the administrative, financial, and staffing au- primarily focused on creating a level playing tonomy of universities. The law also included measures field for firms to grow through increased com- to strengthen accountability for performance. petition. To produce the skills set necessary “Skills, Not Just Diplomas, Managing Education for Results in Eastern to sustain this new dynamic economy, educa- Europe and Central Asia� (World Bank Publications) http://siteresources. tion and training systems will need to increas- worldbank.org/ECAEXT/Resources/101411_FullReport.pdf ingly focus on quality and relevance of skills, through better and more systematic measure- ment of results and increased involvement of the relevant stakeholder, including parents and Box 2: The Evidence the private sector. Two impact evaluations recently showcased in the Bank’s As is often the case, governance reforms are highly po- Evidence to Policy series, provide good examples of the new litical. The changes that are needed may hurt vested evidence on effective programs to promote skills development. interests: un-accountable bureaucracies, special inter- 1. Offering vouchers to young adults to cover the costs of ests, etc. As a result, it is important to acknowledge vocational training programs can result in an increase in that in this field, the drivers of change may sometimes uptake for vocational training programs. An initial eval- reside outside the public sector. Business, professional uation of a program in Kenya showed that vouchers— organizations, civil society are potentially important especially when private sector schools are included—can actors both in initiating and implementing reforms tive way to give job seekers employable skills. be an effec­ (see Box 1 for an example). Strategic engagement with those actors can help strengthen their ability to influ- “Vocational Education Voucher Delivery and Labor Market Returns: A Randomized Evalu­ ation Among Kenyan Youth,� by Joan Hamory ence policy making. In the face of dysfunctional gov- Hicks, Michael Kremer, Isaac Mbiti and Edward Miguel. ernment institutions, an indirect approach to build- ing demand for change may be the right approach. 2. Giving young men and women cash grants to start new businesses or get training can be effective. Based on mid- Generating evidence on program effectiveness, for term results two years into the evaluation, a program in example through impact evaluations, is an impor- Uganda made significant impacts: Beneficia­ ries reported tant way in which debate and discussions at the large increases in skilled employment and in­ comes. In the country level can be fostered. The World Bank is constrained credit markets of many developing countries, investing heavily in generating such evidence, as il- this impact evaluation shows that in certain circumstanc- lustrated in Box 2. Increased transparency, through es, unsupervised cash grants may be used successfully with the systematic disclosure of system and institutional poor entrepreneurs. performance metrics (graduation rates, academic “Employment Generation in Rural Africa: Mid-term Results from performance, labor market outcomes, etc) is another an Experimental Evaluation of the Youth Opportunities Program way in which demand for change can be built. in Northern Uganda.� Christopher Blattman, Nathan Fiala, and Sebastian Martinez. HUMAN DEVELOPMENT Essentials 7 Conclusions The answer to the challenge of preparing the labor force to be employable and productive will vary across countries: there is no ‘one-size-fits-all’ response. The analytical and measurement tools to diagnose gaps and problems exist. There is a growing body of evidence on effective approaches to skills development that can help inform policy—with the necessary adapta- tion to local conditions. Information on skills gaps and program performance can play a transformative role supporting evidence-based policy innovation—as well as creating awareness and demand for change. References Blom, Andreas, and Saeki, Hiroshi. 2011. “Employability and Skill Set of Newly Graduated Engineers in India� Policy Research Working Paper, World Bank, Washington DC. Fox, Andreas, and Sohnesen, Thomas Pave. 2012. “Household Enterprise in Sub-Saharan Africa – Why they matter for growth, jobs and poverty reduction� Draft Paper, World Bank, Washington DC. Gottret, Pablo and Nayar, Reema. 2011. “Overview: More and Better Jobs in South Asia� South Asia Development Matters, World Bank, Washington, DC. Aedo, Cristian and Walker, Ian. 2011. “Skills for the 21st Century in LCR� Directions in Development, Human Development, World Bank, Washington, DC. World Bank. 2012. “Putting Higher Education to Work: Skills and Research for Growth in East Asia� World Bank East Asia and Pacific Regional Report, World Bank, Washington, DC. ———. 2011. “Youth Employment in Africa: A Concept Note for a Flagship Report� Unpublished Manuscript, World Bank, Washington, DC. ———. 2011. “Research and Knowledge in the Middle East and North Africa Region: A Progress Report� Unpublished Manu- script, World Bank, Washington, DC. ———. 2012 (forthcoming). “Bread, Freedom, and Dignity; Jobs in the Middle East and North Africa� World Bank Flagship Report, World Bank, Washington DC. 1 http://indiacurrentaffairs.org/skills-and-knowledge-driving-forces-for-economic-growth-and-social-development-dr-manmohan-singh/ 2 http://www.whitehouse.gov/the-press-office/2011/06/08/president-obama-and-skills-americas-future-partners-announce-initiatives 3 Blom and Saeki (2011)