Technical education and professional training in LAC: the challenge of productivity

Technical education and professional training in LAC: the challenge of productivity Ángel Melguizo Head, Latin American and Caribbean Unit OECD Development Centre CAF and Inter-American Dialogue Washington DC January 28, 2015

Perspectivas económicas de América Latina Education, skills and productivity in Latin America 1 Macroeconomic outlook: the productivity challenge 2 Shifting wealth and skills in Latin America 3 Vocational education and training: open questions

Slowdown in the short-term GDP growth in Latin America and the Caribbean and the OECD (annual %) OECD Latin American and the Caribbean 8 6 4 2 0-2 -4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3 Source: OECD-ECLAC-CAF (2015), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development

Persistent middle income trap Middle Income Trap in Latin America vs. selected OECD economies (per capita GDP; 1990 USD) 2013 1980 1950 25 000 20 000 HI 15 000 10 000 UMI 5 000 LMI - Chile Uruguay ArgentinaVenezuela C. Rica Mexico Colombia Brazil Peru Dom. Rep. S. Korea Ireland Spain LI 4 Source: OECD-ECLAC-CAF (2015), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development

Productivity in the long-run is almost everything (P.Krugman) Total factor productivity relative to the US 5 Source: IDB (2014) Rethinking productive development. Development in the Americas 2014

Shifting La contribución Wealth: de Gradual la región increase al proceso in global de reequilibrio pool of skills de la riqueza es relativamente modesta 1200000 China complete tertiary incomplete tertiary complete secondary incomplete secondary complete primary incomplete primary no training Population by level of education (millions; 1980-2010) 900000 India complete tertiary incomplete tertiary complete secondary incomplete secondary complete primary incomplete primary no training 1000000 800000 700000 800000 600000 600000 500000 400000 400000 300000 200000 200000 100000 0 1980 1985 1990 1995 2000 2005 2010 0 1980 1985 1990 1995 2000 2005 2010 Source: OECD-ECLAC-CAF (2015), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development

La Shifting contribución Wealth: de Mixed la región impact al proceso on skills de demand reequilibrio de la riqueza es relativamente modesta Globally Technological change favours skill demand (skill-biased technical change) Trade and financial liberalization fosters the role of skills as the source of economic competitiveness In Latin America For countries with natural resource endowments, shifting Wealth intensifies their role as commodity exporters Greater difficulty to develop comparative advantages in a wide range of manufacturing industries

Latin America is characterized by a large skill gap Proportion of firms that consider the lack of labour force with the adequate skills a significant restriction to growth (% formal firms; circa 2010) Source: OECD-ECLAC-CAF 9 (2015), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development

with significant variation among countries Proportion of firms in Latin America that consider the lack of labour force with the adequate skills a significant restriction to growth (% formal firms; circa 2010) 80 70 60 50 40 30 20 10 0 BRA ARG PRY COL CRI BOL DOM ALC ECU GTM MEX SLV PER HND BLZ VEN NIC JAM PAN OCDE 10 Source: OECD-ECLAC-CAF (2015), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development

Employment and occupations in LAC tend to be low-skilled Low skills (education and task) 11 Source: OECD-ECLAC-CAF (2015), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development

in stark contrast to OECD countries High skills (education and task) 12 Source: OECD-ECLAC-CAF (2015), Latin American Economic Outlook 2015. Education, Skills and Innovation for Development

Large skill gaps but falling returns to education: wrong supply? Secundaria/primaria Terciaria/secundaria Relative wages 2.1 2 1.9 1.8 1.7 1.6 1.5 1.4 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 13 Source: De la Torre, A., E. Levy Yeyati and S. Pienknagura (2013), Latin America and the Caribbean as Tailwinds Recede: In Search of Higher Growth, LAC Semiannual report, World Bank, Washington, DC,

Ingredientes para sistemas de formación para el trabajo pertinentes y de calidad: algunos casos exitosos. Vocational education and training: some OECD good practices South Korea Chile Skills within a productive development policy: targets in sectors and occupations Public subsidies, more for SMEs in selected sectors Skills framework in strategic industries (e.g. mining) to match demand with supply Germany and UK Dual systems with apprenticeship programmes Public-private co-funding

Capacitación en el puesto de trabajo en LAC: últimos avances Vocational education and training in Latin America: what do we know? Some evidence for the formal sector in Bahamas, Colombia, Honduras, Panama and Uruguay: Limited on-the-job training (30%-50%; less in SMEs), too job-specific Training benefits mostly high-skilled workers Limited use of available public financing (especially SMEs) Positive impact on productivity among big firms (+1 p.p. workers under training raises productivity by almost 1%). No impact on SMEs Source: Flores, R., C. González-Velosa and D. Rosas (2014), On-the-job training in Latin America and the Caribbean: Recent evidence, Determinants of Firm Performance in Latin America and the Caribbean: What Does the Micro Evidence Tell Us?, IDB

Vocational education and training: open questions Quality of data How big is the skill gap? Informal sector Which skills are needed? Policy How to reach informal workers and firms? How to involve the private sector? How to finance these policies (labour taxes vs. other)? Evaluation Duration, contents Wages and employment + competitiveness and productivity

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