Skill Development for Employment in Latin America and the Caribbean

1. Skill Development for Employment in Latin America and the Caribbean Education and Labor Market Divisions Graciana Rucci London Conference on Employer Engagement in Education and Training 21 and 22 July 2016

2. Road Map • Overview of the region: education for employment and the labor market • Applied research at IDB for employer engagement in Education and Training • Going forward

3. I. Overview of the region Education for employment and labor markets

4. Significant efforts to improve human capital in LAC, substantial gains in access… Years Edad Percent of the population Early education Primary education Higher education Secondary education

5. But still many challenges .. Low enrollment rates in upper secondary and tertiary lagged (with respect to OECD) and large heterogeneity within the region Student learning is low and disconnected from labor market needs

6. Low enrollment rates in upper secondary(last 3 years of compulsory education) NET ENROLLMENT RATE (upper secondary education level, 2013) Source: CIMA, División de Educación, BID 2016 usingHouseholdSurveys

7. Enrollment in tertiary education has improved but lagged with respect to OECD. Large heterogeneity within the region Source: Arias Ortiz, Gonzalez-Velosa and Elacqua 2016. Data from World Bank -EDSTATS for USA, OECD. Own calculations using HH for all LAC countries.

8. Enrollment in technical degrees in line with the richest countries, but large heterogeneity within the region

9. Main challenge: Student learning is low Latin American Countries are among the lowestperformingcountries in the PISA assessment

10. Large heterogeneity within the region Percentage of students that do not achieve level 2 in Mathematics, PISA 2012 Source: Bos, Ganimian and Vegas 2013. Cálculos basedon data from OCDE/PISA 2012

11. Quality explains why improvements in education have not translated into productivity…

12. In contrast with other countries…

13. It is not only about quantity… • It is the quality of education, reflected in acquired cognitive skills, what affect economic growth (Hanusheck and Woesmann 2008, 2010, 2012a, 2012b). • More than years of education, it is having a large set of skills and competences what improve individuals’ welfare and countries’ economic development (IDB, 2012).

14. Skills are essential for development and inclusive growth Recent evidence (using PISA scores) shows that skills explain about 50% - 66% of the total variation of per capita growth. • More skills is also related to: • Better wages • Higher chances of being employed • More labor stability

15. Is there a skills gap? • According to IDB, 2012: • 90% of employers in Argentina, Brazil and Chile do not find the needed skills in workers to be competitive; • Socioemotional skills are key for labor market outcomes. • According to the World Bank, 2010: • Skills gap is the main obstacle for the productive development and technology innovation of firms in LAC.

16. Learning is not only low, it is disconnected from labor markets needs Source: Bassi, Busso, Urzúa, y Vargas, 2012

17. Institutional factors explaining these results • Poor training of labor force /low coverage and impact on employability and productivity • Initiatives isolated and growth/development strategies are not aligned to national human capital strategies; • Poor institutional setting, budget and coordination between public and private sectors and training providers; weak monitoring and evaluation mechanisms.

18. In addition, LAC is characterized by weak labor market conditions • Low productivity; • Relatively low unemployment but high informality; • High incidence of micro and small-size firms (mainly family-run); • Heterogeneous labor ‘behavior’ of males\females, youth\adults; • Among others.

19. II. IDB for employer engagement in Education and Training

20. Our work at IDB • Provide financial resources and technical assistance(lending and technical cooperation) to support policies and programs that: • prepare students for work and providing them with adequate skills to successfully transition from the classroom to workplace • consolidate a skills system focused on productivity and employability including skills needs forecasts, workers’ skills assessment, labor intermediation and insertion on quality jobs

21. 2. Innovative programs and solutions tailored to the region’s needs innovation in education PPP to promoteinnovativestrategies and effectivepolicies to increaseeducationquality in LAC CIMA: Better data to improvedecisionmaking Online coursesEDx: Leaders in Education, Pensions in LatinAmerica and the Caribbean

23. 3. Applied original research related to skill development issues in the Region • Have gains in access resulted in higher returns for tertiary graduates in the region? Returns to Higher Education in Chile and Colombia(González-Velosa et al. 2015) • What is the level of education mismatch in the region? When supply fails to meet demand: Quantifying the skill mismatch in Mexico 2012-2013 (Arias Ortiz and Ñopo, 2015) • Does training improve on labor market outcomes? Training Vouchers and Labor Market Outcomes in Chile (Kaplan et al. 2014)

24. Have gains in access resulted in higher returns for tertiary graduates in the region? Returns to Higher Education in Chile and Colombia (González-Velosa et al. 2015) • In the last decades, countries in Latin America and the Caribbean have experienced a dramatic increase in the levels of higher education enrollment. Using administrative data from Chile and Colombia, we find that this phenomenon is not always associated with higher private individual returns. • In both countries, there is a significant dispersion in the net returns to higher education and a significant proportion of graduates could be facing negative returns. This means that, for many higher education graduates, net earnings might have been higher if they had not earned a higher education degree. We hypothesize that while there have been major policy efforts to increase coverage, institutional arrangements that encourage quality and relevance has been insufficient. • Corrective measures in this direction are urgent. Sustainable growth requires a labor force with relevant skills and capabilities. In light of our results, it is not clear that the higher education systems in these countries are delivering these outcomes.

25. Many students are experiencing low or negative returns Share of Higher Education Graduates with Positive/Negative Returns Source: González-Velosa et al. 2015

26. What is the level of education mismatch in the region? When supply fails to meet demand: Quantifying the skill mismatch in Mexico 2012-2013 (Arias Ortiz and Ñopo, 2015) • To what extent do Mexicans work at positions that would require less (or more) schooling than what they actually have? To what extent are the fields of study of Mexican workers misaligned with respect to the needs of the labor markets? Both types of mismatches are pervasive as they imply suboptimal or inefficient allocation of resources. • In this paper we quantify the incidence of both types of skill mismatch between education and employment, and their implications in terms of earnings.

27. Two measures for mismatches • Realized matchesin the Mexican labor market (RM-MX): The required level of education is defined as the modal level of education of individuals working in that specific occupation in Mexico. • Workers assessment in the US labor market (WA-US): The required level of education in this case is defined by the level of education that a majority of workers in that occupation in the US reported as “necessary for someone to be hired for that position today” in the 2011 survey from the Occupational Information Network (O*NET)

28. Measuring the mismatch penalty

29. Qualification mismatch in Mexico in 2012 and 2013 (as a % of total employment)

30. Mismatch in Mexico: Main findings • Job mismatches higher in Mexico than in developed countries: 31% of workers mismatched in terms of qualifications (vs. 23% in developed countries) and 60% of workers mismatched in terms of field of study (vs. 45%) • Women and younger workers are more likely to be mismatched in terms of qualifications, but not in terms of field of study. • Over-schooling is associated with a positive premium, and under-schooling with a penalty (in line with results for developed countries)

31. What is the effect of training vouchers on labor market outcomes? Training Vouchers and Labor Market Outcomes in Chile (Kaplan et al. 2014) • This paper evaluates the impact of a training voucher programme in Chile called Bono TrabajadorActivo on two labor market outcomes: monthly earnings and employment probabilities. • Using detailed administrative datasets of the National Employment Service and the Unemployment Insurance System, we combine matching and difference-in-difference estimators to measure these effects three years after the application to the program. • Our main results indicate that the voucher has an overall positive impact on earnings and no significant impact on employment. We find that the programme particularly improves earnings of less educated workers.

32. Training has an overall positive impact on earnings of 1.5%

33. III. Going forward

34. The region will benefit from partnerships in the following areas: • Identifying employer skill requirements • Development of relevant curricula for technical education and training • Mechanisms to finance human capital development (apprentices, job training, etc.) • Articulation with private sector for job intermediation • Providing organizational basis for employers to engage collectively in the skill development system

35. THANK YOU!