Ariel Fiszbein, Chief Economist -- Human Development  The World Bank

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Skills and growth.

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Ariel Fiszbein, Chief Economist -- Human Development The World Bank

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1. Ariel Fiszbein, Chief Economist -- Human Development The World Bank

2. Skills and growth “Making it easier for workers to gain new skills will make America more competitive in the global economy.” — Mr. Barack Obama, President, USA “Investments in the health, knowledge, and skills of the people—human capital—are as important as investments in the more visible, physical capital of the country.” — The Growth Report: Strategies for Sustained Growth and Inclusive Development, Commission of Growth and Development, 2008 “Skills and knowledge are the driving forces of economic growth and social development in any country” — Dr. Manmohan Singh, Prime Minister, India "If jobs are created and youth are equipped with the required skill-sets, India's economic growth will accelerate.”— Mr. Dharmakirti Joshi, Chief Economist, Crisil India

3. Firms see skills as a constraint

4. Governments are scaling up training Skills for sustainable growth strategy, UK Multi-pronged strategy to improve labor force skills that includes expanding apprenticeship opportunities for young adults, investing in an innovation fund to support employer led initiatives, supporting SMEs in training low-skilled staff Funding for Skills Training, USA As part of the American Recovery and Reinvestment Act, US$ 4 billion was earmarked to expand existing job training programs Investment in Technical Training Centers, China Plan to build 1200 technical training centers in next 10 years, 400 by end of 2015 Train 3.5 million technical workers and 1 million senior technicians in next 10 years National Skills Development Corporation (NSDC) India A public private partnership initiative set up by GOI in 2008 to achieve the goal of developing skills of 150 million people by 2022 Work with industry associations such as Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI) to develop projects across the country National Skills Development Corporation (NSDC) India A public private partnership initiative set up by GOI in 2008 to achieve the goal of developing skills of 150 million people by 2022 Work with industry associations such as Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI) to develop projects across the country

5. Handle with care We have a skills problem!

6. Different types of skills Academic Academic skills – skills in subject areas such as math, literacy, English Generic (life) skills – traits, skills, behaviors, beliefs Ex: thinking and behavioral skills, computing, motivation, self-regulation, emotional intelligence, altruistic behavior Technical skills – skills associated with one’s profession Skills for innovation – creativity, entrepreneurship, team work, business skills Generic skills: Traits represent distinguishing characteristics of individuals or patterns of thought and action that are relatively stable over time. Skills represent the capacity to perform a specific task, whereas Behaviors indicate actual performance in response to stimulation. Beliefs represent the content of thought or habits of mind that guide skill formation and behavior. Academic skills – skills in subject areas such as math, literacy, English Generic (life) skills – traits, skills, behaviors, beliefs Ex: thinking and behavioral skills, computing, motivation, self-regulation, emotional intelligence, altruistic behavior Technical skills – skills associated with one’s profession Skills for innovation – creativity, entrepreneurship, team work, business skills Generic skills: Traits represent distinguishing characteristics of individuals or patterns of thought and action that are relatively stable over time. Skills represent the capacity to perform a specific task, whereas Behaviors indicate actual performance in response to stimulation. Beliefs represent the content of thought or habits of mind that guide skill formation and behavior.

7. As economies develop the type of skills demanded is likely to change 7

8. Costa Rica shows an impressive increase in the analytical skills in the last decade

9. Skills firms demand (Thailand)

10. Skills can be acquired in many ways

11. Vital abilities such as language learning and impulse control that are key for development of general skills occur between ages 0-5 years 11 Even though differences between children from less wealthy and rich households is small at age 3, this gap widens by the time children are aged 6 years. The main point in this graph is that poor or less wealthy households are a proxy for poor parenting behavior. Since poor parents are unable to provide the same kind of early childhood development activities to the children, the gap between rich and poor children widens as the age increases. They are unable to provide nutritious meals, unable to spend more time with the infants to help them develop language learning and impulse control abilities etc. This poor start is a big disadvantage to the kids from less wealthy households as they have lost the chance to develop vital skills required to help them be successful in the labor market later on in their lives. And many of these skills are hard to develop at later stages in life. Even though differences between children from less wealthy and rich households is small at age 3, this gap widens by the time children are aged 6 years. The main point in this graph is that poor or less wealthy households are a proxy for poor parenting behavior. Since poor parents are unable to provide the same kind of early childhood development activities to the children, the gap between rich and poor children widens as the age increases. They are unable to provide nutritious meals, unable to spend more time with the infants to help them develop language learning and impulse control abilities etc. This poor start is a big disadvantage to the kids from less wealthy households as they have lost the chance to develop vital skills required to help them be successful in the labor market later on in their lives. And many of these skills are hard to develop at later stages in life.

12. Through a cumulative process of acquiring more education, a weak foundation in early childhood and basic education adversely affects the effectiveness of higher levels of schooling and training. It also compromises the quality of higher education and entrepreneurship, and its ability to build on previous levels of basic and secondary education to support skills for innovation. East Asia is below where it should be in preprimary school enrollment. Through a cumulative process of acquiring more education, a weak foundation in early childhood and basic education adversely affects the effectiveness of higher levels of schooling and training. It also compromises the quality of higher education and entrepreneurship, and its ability to build on previous levels of basic and secondary education to support skills for innovation. East Asia is below where it should be in preprimary school enrollment.

13. Strong correlation between growth and test scores in school

14. 14

15. 15 The payoffs to training in job-relevant skills are high. In Britain, Mexico and Malaysia longitudinal surveys of firms have established a causal link between investing in training and firm productivity. Moreover firms in Malaysia and Mexico that trained their employees repeatedly enjoyed faster productivity growth than other firms that either did not train or invested in one off training. Pre-employment training: A common criticism of public institutions offering TVET is that they don’t regard market signals on types of skills required by firms. The curriculum of many such programs is narrowly geared towards jobs in the formal sector, while formal sector jobs are tiny in many low-income countries. There is however no ideal reform package to balance supply and demand of skills imparted through such training programs. The challenge is to provide the correct incentives for providers of training to respond to needs of labor market. It helps in international and intergenerational comparative analysis. On the job training: OJT tends to favor workers with higher levels of education generally and is offered more by larger firms. The bias puts countries in a paradox, with firms complaining about skills shortages while also being unwilling or unable to upgrade their own workers’ skills through OJT. This problem is particularly prevalent in South Asia MNA. Smaller firms are reluctant to offer OJT due to fear of losing trained workers as well as lack on credit and information on how to offer such training. An unfavorable business environment acts as a further impediment by weakening firm incentives to compete and innovate. Skills certification: One important aspect of a strategy to facilitate and promote the acquisition of job-relevant skills involves a framework for workers and firms to have clear information on those skills and on acceptable standards. Skills certification is an important quality assurance mechanism that recognizes and certifies an individual’s skills and competencies. Skills certification recognizes skills and competencies regardless of the way in which they were acquired. It allows employers to compare individuals’ skills across the labor market. It is a way to match the skills required through training with the skills required to perform a job. The payoffs to training in job-relevant skills are high. In Britain, Mexico and Malaysia longitudinal surveys of firms have established a causal link between investing in training and firm productivity. Moreover firms in Malaysia and Mexico that trained their employees repeatedly enjoyed faster productivity growth than other firms that either did not train or invested in one off training. Pre-employment training: A common criticism of public institutions offering TVET is that they don’t regard market signals on types of skills required by firms. The curriculum of many such programs is narrowly geared towards jobs in the formal sector, while formal sector jobs are tiny in many low-income countries. There is however no ideal reform package to balance supply and demand of skills imparted through such training programs. The challenge is to provide the correct incentives for providers of training to respond to needs of labor market. It helps in international and intergenerational comparative analysis. On the job training: OJT tends to favor workers with higher levels of education generally and is offered more by larger firms. The bias puts countries in a paradox, with firms complaining about skills shortages while also being unwilling or unable to upgrade their own workers’ skills through OJT. This problem is particularly prevalent in South Asia MNA. Smaller firms are reluctant to offer OJT due to fear of losing trained workers as well as lack on credit and information on how to offer such training. An unfavorable business environment acts as a further impediment by weakening firm incentives to compete and innovate. Skills certification: One important aspect of a strategy to facilitate and promote the acquisition of job-relevant skills involves a framework for workers and firms to have clear information on those skills and on acceptable standards. Skills certification is an important quality assurance mechanism that recognizes and certifies an individual’s skills and competencies. Skills certification recognizes skills and competencies regardless of the way in which they were acquired. It allows employers to compare individuals’ skills across the labor market. It is a way to match the skills required through training with the skills required to perform a job.

16. Path Dependence in skills acquisition

17. A simple economic model of skills development Individuals (and firms) invest time and resources in accumulating skills Two types of potential problems: Under-investment given rates of return Market distortions depress rates of return Why would individuals or firms under-invest in skills if the returns are high? Credit constraints is an obvious reason –which may affect more so low income households (all the way from poor nutrition) and smaller firms. There is good research showing that individuals under-estimate the returns to education and some evidence that the same may happen with firms. Risk (and lack of proper insurance) can make individuals (e.g. self-employed) reluctant to invest in skills as they don’t know whether the returns will materialize When parents make decisions for their children, they may balance their own interests. Gender adds a further dimension. There are a number of possible externalities. The most obvious one affecting firms is the danger of poaching. A number of labor market features may actually reduce expected returns to skills. Unemployment is a good example. Barriers to mobility (sometimes due to regulations). Why would individuals or firms under-invest in skills if the returns are high? Credit constraints is an obvious reason –which may affect more so low income households (all the way from poor nutrition) and smaller firms. There is good research showing that individuals under-estimate the returns to education and some evidence that the same may happen with firms. Risk (and lack of proper insurance) can make individuals (e.g. self-employed) reluctant to invest in skills as they don’t know whether the returns will materialize When parents make decisions for their children, they may balance their own interests. Gender adds a further dimension. There are a number of possible externalities. The most obvious one affecting firms is the danger of poaching. A number of labor market features may actually reduce expected returns to skills. Unemployment is a good example. Barriers to mobility (sometimes due to regulations).

18. Lack of labor mobility could hinder firm production 18 Even if individuals have the right skills to be productive and creative, employment and productivity can be hampered if labor markets do not function well. Employers need the flexibility to manage their human resources. Workers need to move freely between jobs and regions. When workers can’t move freely, both output and productivity growth are reduced. There is growing evidence that suggests that lower turnover across firms is associated with lower productivity growth. Firms facing high labor adjustment costs have fewer incentives to innovate and adopt new technologies. In US the social value of information that allows workers to find the right job for their skills has been estimated to be between 6% to 9% of GDP.Even if individuals have the right skills to be productive and creative, employment and productivity can be hampered if labor markets do not function well. Employers need the flexibility to manage their human resources. Workers need to move freely between jobs and regions. When workers can’t move freely, both output and productivity growth are reduced. There is growing evidence that suggests that lower turnover across firms is associated with lower productivity growth. Firms facing high labor adjustment costs have fewer incentives to innovate and adopt new technologies. In US the social value of information that allows workers to find the right job for their skills has been estimated to be between 6% to 9% of GDP.

19. Inefficient job search: How workers (don’t) find jobs in Lebanon 19 The combination of rigid job protection regulations and weak income protection systems can be detrimental to labor mobility as seen in Chile, Colombia, Brazil and India. Rigid hiring and dismissal procedures reduce turnover and employment. At the same time, lack of appropriate income protection systems in developing countries, as well as limited benefit probability of social insurance benefits can reduce the incentives for workers to transition between jobs. Employment services that provide intermediation (providing lists of vacancies) and counseling (providing practical help to job-seekers preparing CVs, providing guidance) can be fairly low-cost mechanism to help individuals find better jobs. In Lebanon, 55% of young workers who found a job in 2009 used personal contacts, only 2% used employment services. International experience shows the following to be successful design for employment services: Providing incentives for job-seekers and employers to join Integrating employment services with training and competency assessment programs Decentralizing management and expanding role of the private sector with clear targets Exploiting information technologies The combination of rigid job protection regulations and weak income protection systems can be detrimental to labor mobility as seen in Chile, Colombia, Brazil and India. Rigid hiring and dismissal procedures reduce turnover and employment. At the same time, lack of appropriate income protection systems in developing countries, as well as limited benefit probability of social insurance benefits can reduce the incentives for workers to transition between jobs. Employment services that provide intermediation (providing lists of vacancies) and counseling (providing practical help to job-seekers preparing CVs, providing guidance) can be fairly low-cost mechanism to help individuals find better jobs. In Lebanon, 55% of young workers who found a job in 2009 used personal contacts, only 2% used employment services. International experience shows the following to be successful design for employment services: Providing incentives for job-seekers and employers to join Integrating employment services with training and competency assessment programs Decentralizing management and expanding role of the private sector with clear targets Exploiting information technologies

20. Reasons for Not Investing in OJT in Central America

21. A simple economic model of skills development Individuals (and firms) invest time and resources in accumulating skills Two types of potential problems: Under-investment given rates of return Market distortions depress rates of return Why would individuals or firms under-invest in skills if the returns are high? Credit constraints is an obvious reason –which may affect more so low income households (all the way from poor nutrition) and smaller firms. There is good research showing that individuals under-estimate the returns to education and some evidence that the same may happen with firms. Risk (and lack of proper insurance) can make individuals (e.g. self-employed) reluctant to invest in skills as they don’t know whether the returns will materialize When parents make decisions for their children, they may balance their own interests. Gender adds a further dimension. There are a number of possible externalities. The most obvious one affecting firms is the danger of poaching. A number of labor market features may actually reduce expected returns to skills. Unemployment is a good example. Barriers to mobility (sometimes due to regulations). Government financing is not necessarily the solution in all cases. Provision of information, improved credit/insurance markets, changed regulations may be more appropriate. Why would individuals or firms under-invest in skills if the returns are high? Credit constraints is an obvious reason –which may affect more so low income households (all the way from poor nutrition) and smaller firms. There is good research showing that individuals under-estimate the returns to education and some evidence that the same may happen with firms. Risk (and lack of proper insurance) can make individuals (e.g. self-employed) reluctant to invest in skills as they don’t know whether the returns will materialize When parents make decisions for their children, they may balance their own interests. Gender adds a further dimension. There are a number of possible externalities. The most obvious one affecting firms is the danger of poaching. A number of labor market features may actually reduce expected returns to skills. Unemployment is a good example. Barriers to mobility (sometimes due to regulations). Government financing is not necessarily the solution in all cases. Provision of information, improved credit/insurance markets, changed regulations may be more appropriate.

22. World Bank STEP Framework

23. Implementing STEP as an integrated set of programs across workers’ life cycles

24. Prioritizing the Steps – Different solutions in different contexts 24

25. STEP in action 25 Benchmarking and analytical diagnostics —to identify the main gaps across the various steps.  Benchmarking and analytical diagnostics This step includes the use of analytical instruments to measure the distribution of skills in the labor force and identify structural mismatches. These results need to be benchmarked against other countries to locate both the present situation and aspirations, accompanied by institutional analysis that explains the observed patterns. In recent years, important progress has been in the development of measurement instruments in several areas of the STEP framework. Benchmarking and analytical diagnostics This step includes the use of analytical instruments to measure the distribution of skills in the labor force and identify structural mismatches. These results need to be benchmarked against other countries to locate both the present situation and aspirations, accompanied by institutional analysis that explains the observed patterns. In recent years, important progress has been in the development of measurement instruments in several areas of the STEP framework.

26. STEP Skills Measurement Objectives: Create instruments to measure the level and distribution of skills in the labor force and identify policy interventions to address skills-gaps Instruments harmonized to collect internationally comparable data on skills in low and middle-income countries Instruments: Skills measurement survey Cognitive, social literacy, skills used at work Employer survey Skills used by the current workforce, skills sought when hiring new workers Training, compensation and promotion Constraints faced and methods used in hiring workers Objectives: Create instruments to measure the level and distribution of skills in the labor force and identify policy interventions to address skills-gaps Instruments harmonized to collect internationally comparable data on skills in low and middle-income countries Instruments: Skills measurement survey Cognitive, social literacy, skills used at work Employer survey Skills used by the current workforce, skills sought when hiring new workers Training, compensation and promotion Constraints faced and methods used in hiring workers

27. STEP in action 27 Benchmarking and analytical diagnostics —to identify the main gaps across the various steps.  Evidence-based policy analysis and program design —to respond to each country’s existing systems and constraints in institutional capacity and fiscal space. Evidence-based policy analysis and program design Program design can be informed by other country experiences, adapted to local conditions. Growing evidence from a range of evaluations provides a platform to learn and identify approaches appropriate to local conditions. But finding the right approach is often a learning process of refining and adapting policies and building strong monitoring and evaluation modules. Evidence-based policy analysis and program design Program design can be informed by other country experiences, adapted to local conditions. Growing evidence from a range of evaluations provides a platform to learn and identify approaches appropriate to local conditions. But finding the right approach is often a learning process of refining and adapting policies and building strong monitoring and evaluation modules.

28. Ongoing Impact Evaluations of Youth Training and Entrepreneurship Chile Chile: Lifelong Learning and Training Project Colombia Youth and ICT in classrooms Dominican Republic Juventud y Empleo Honduras Mi Primer Empleo Kenya Kenya School to Work Transition Liberia Economic Empowerment of Adolescent Girls Malawi Apprenticeship Training Program and Entrepreneurial Support for Vulnerable Youth in Malawi Philippines Youth and ICT in classrooms Rwanda Adolescent Girls Initiative South Africa A Youth Wage Subsidy Experiment for South Africa Sri Lanka Wage Subsidies for Microenterprises Tanzania Promotion of Women’s Entrepreneurship: Tanzania Virtual Business Incubator Tunisia Turning Theses into Enterprises Turkey Evaluation of ISKUR Training Programs Uganda Northern Uganda Social Action Fund Chile Chile: Lifelong Learning and Training Project Colombia Youth and ICT in classrooms Dominican Republic Juventud y Empleo Honduras Mi Primer Empleo Kenya Kenya School to Work Transition Liberia Economic Empowerment of Adolescent Girls Malawi Apprenticeship Training Program and Entrepreneurial Support for Vulnerable Youth in Malawi Philippines Youth and ICT in classrooms Rwanda Adolescent Girls Initiative South Africa A Youth Wage Subsidy Experiment for South Africa Sri Lanka Wage Subsidies for Microenterprises Tanzania Promotion of Women’s Entrepreneurship: Tanzania Virtual Business Incubator Tunisia Turning Theses into Enterprises Turkey Evaluation of ISKUR Training Programs Uganda Northern Uganda Social Action Fund

29. STEP in action 29 Benchmarking and analytical diagnostics —to identify the main gaps across the various steps.  Evidence-based policy analysis and program design —to respond to each country’s existing systems and constraints in institutional capacity and fiscal space. Phased implementation across sectors—accompanied by M&E of early programs, and exchanges of experience with other countries. Benchmarking and analytical diagnostics This step includes the use of analytical instruments to measure the distribution of skills in the labor force and identify structural mismatches. These results need to be benchmarked against other countries to locate both the present situation and aspirations, accompanied by institutional analysis that explains the observed patterns. In recent years, important progress has been in the development of measurement instruments in several areas of the STEP framework. Evidence-based policy analysis and program design Program design can be informed by other country experiences, adapted to local conditions. Growing evidence from a range of evaluations provides a platform to learn and identify approaches appropriate to local conditions. But finding the right approach is often a learning process of refining and adapting policies and building strong monitoring and evaluation modules. Phased implementation across sectors Most policies implicit in the STEP framework require action by several public agencies. In the context of limited resources, choices often have to be made about allocating resources to reforms that have short-term payoff or those that invest in future. Benchmarking and analytical diagnostics This step includes the use of analytical instruments to measure the distribution of skills in the labor force and identify structural mismatches. These results need to be benchmarked against other countries to locate both the present situation and aspirations, accompanied by institutional analysis that explains the observed patterns. In recent years, important progress has been in the development of measurement instruments in several areas of the STEP framework. Evidence-based policy analysis and program design Program design can be informed by other country experiences, adapted to local conditions. Growing evidence from a range of evaluations provides a platform to learn and identify approaches appropriate to local conditions. But finding the right approach is often a learning process of refining and adapting policies and building strong monitoring and evaluation modules. Phased implementation across sectors Most policies implicit in the STEP framework require action by several public agencies. In the context of limited resources, choices often have to be made about allocating resources to reforms that have short-term payoff or those that invest in future.

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