In this paper, we aim to tackle the following three questions: How do different skills acquired in vocational education and training (VET) affect employment and wages? Which skills do firms demand most? What is the value of the skills acquired in VET for workers and firms?
In this paper, we aim to tackle the following three questions: How do different skills acquired in vocational education and training (VET) affect employment and wages? Which skills do firms demand most? What is the value of the skills acquired in VET for workers and firms?
We investigate the relationship between job complexity and the skills development of adult workers in Europe. The results suggest that challenging workplaces, workplaces in which jobs are designed to include complex tasks, and which place high demands on workers’ skills, also stimulate workers’ skills development. Increasing the degree of job complexity has positive and robust effects on the degree of skill development, and so does an increase in work experience (tenure). The analysis stresses the importance of on-the-job learning and contextual workplace characteristics for adult workers’ skills development.
Evidence suggests that productivity would be much higher and unemployment much lower if the supply of and demand for skills were better matched. As a result, skills mismatch between workers (supply) and jobs (demand) commands the ongoing attention of policymakers in many countries. Policies intended to address the persistence of skills mismatch focus on the supply side of the issue by emphasizing worker education and training. However, the role of the demand side, that is, employers’ wage-setting practices, garners comparatively little policy attention.
It has been argued that vocational education facilitates the school-to-work transition but reduces later adaptability to changing environments. Using the recent international PIAAC data, we confirm such a trade-off over the life-cycle in a difference-in-differences model that compares employment rates across education type and age. An initial employment advantage of individuals with vocational compared to general education turns into a disadvantage later in life. Results are strongest in apprenticeship countries that provide the highest intensity of industry-based vocational education.
There is considerable concern regarding the prospective development of employment levels and job types in the future. The paper tries to highlight major trends shaping the world of work in developed economies with the aim of giving a realistic account of probable developments and the contributions of different driving forces, importantly focusing on the role of actors such as policy makers, firms and individuals. While it is true that the future of work poses considerable challenges to actors at different levels, there is no need to be particularly worried.
We investigate unemployment due to mismatch in the US over the past three decades. Mismatch is quantitatively important for unemployment and the cyclical behavior of mismatch unemployment is very similar to that of the overall unemployment rate. Geographic mismatch is driven primarily by wage frictions. Mismatch across industries is driven by wage frictions as well as barriers to job mobility. We find virtually no role for worker mobility frictions.
This paper aims to survey the theoretical and empirical literature on cross-country differences in overeducation. While technological change and globalization have entailed a skill-bias in the evolution of labour demand in the Anglo-Saxon countries, instead, in other advanced economies in Western Europe the increased educational level has not been associated with a parallel raise in the share of skilled occupations, therefore generating skills mismatch. Overeducation causes a penalty to individuals in terms of earnings and employment opportunities and a waste of resources to the society at large in terms of state investment into education that do not bear its yields. Both penalties are higher not only where the demand for skill is lower, but also where school-to-work transition systems fail to effectively address the aim of generating competences rather than only education for their graduates.
The authors provide first evidence on whether the direct relationship between educational mismatch and firm productivity varies across working environments. Using detailed Belgian linked employer-employee panel data for 1999-2010, they find the existence of a significant, positive (negative) impact of over- (under-)education on firm productivity. Moreover, their results show that the effect of over-education on productivity is stronger among firms: (i) with a higher share of high-skilled jobs, (ii) belonging to high-tech/knowledge-intensive industries, and (iii) evolving in a more uncertain economic environment. Interaction effects between under-education and working environments are less clear-cut. However, economic uncertainty is systematically found to accentuate the detrimental effect of under-education on productivity.
This paper provides more insight into the relevance of the assumption of human capital theory that the productivity of job-related training is driven by the improvement of workers’ skills. We analyse the extent to which training and informal learning on the job are related to employee skill development and consider the heterogeneity of this relationship with respect to workers’ skill mismatch at job entry. This complementarity between training and informal learning is related to a significant additional improvement of workers’ skills. The skill development of workers who were initially underskilled for their job seems to benefit the most from both training and informal learning, whereas the skill development of those who were initially overskilled benefits the least. Work-related learning investments in the latter group seem to be more functional in offsetting skill depreciation than in fostering skill accumulation.
Training funds are used to incentivize training in developing countries, but the funds are based on payroll taxes that lower the return to training. In the absence of training funds, larger, high-wage and more capital intensive firms are the most likely to offer training unless they are liquidity constrained. If firms are not liquidity constrained, the fund could lower training investments. Using an administrative dataset on the Mauritius training fund, we find that the firms most likely to train pay more in taxes than they gain in subsidies. The smallest firms receive more benefits than they pay in taxes.
Germany. Coaching, Counseling, Case-Working: Do They Help the Older Unemployed Out of Benefit Receipt and Back into the Labor Market?
Job search assistance and intensified counseling have been found to be effective for labor market integration by a large number of studies, but the evidence for older and hard-to-place unemployed individuals more specifically is mixed. To identify the treatment effects, we exploit regional variation in program participation. Based on survey evidence, we argue that participation of regions is not endogenous in the vast majority of cases. We use a combination of different evaluation estimators to check the sensitivity of the results to selection, substitution and local labor market effects. We find large positive effects of the program in the range of five to ten percentage points on integration into unsubsidized employment. However, there are also substantial lock-in effects, such that program participants have a higher probability of remaining on public welfare benefit receipt for up to one year after commencing the program.
We investigate the labour market determinants and outcomes of adult participation in formal education (lifelong learning) in Australia, a country with high levels of adult education. Employing longitudinal data and fixed effects methods allows identification of effects on outcomes free of ability bias. Different trends in outcomes across groups are also allowed for. The impacts of adult education differ by gender and level of study, with small or zero labour market returns in many cases. Wage rates only increase for males undertaking university studies. For men, vocational education and training (VET) lead to higher job satisfaction and fewer weekly hours. For women, VET is linked to higher levels of satisfaction with employment opportunities and higher employment probabilities.
The tracking of students in upper-secondary school is often criticised for narrowing the career prospects of student in the vocational education and training (VET) track, which in many countries leads to the stigmatisation of VET courses. To tackle this problem, Australia blurred the lines between the two tracks by introducing VET courses that count to both a national VET qualification and university entry. In this study, we estimate the impacts of taking these courses on academic achievement and university entry using administrative data, propensity score matching and a decomposition method developed especially. We find that among those who intend to go to university, taking a VET course is associated with 5 percent lower academic achievement, due mainly to relatively weak achievement in VET, and an 8 percentage point lower chance of receiving a university offer. These findings tell a cautionary tale on the merits of integrating VET and academic courses.
Outside the U.S., little is known about the labor-market returns to vocational (or polytechnic) postsecondary education. This paper focuses on the labor-market returns to polytechnic bachelor’s degrees in Finland. Using detailed administrative data, we estimate person fixed effect models to study returns for individuals with labor-force attachment prior to polytechnic school enrollment. We find sizable earnings and employment impacts for polytechnic bachelor’s degrees, although the returns vary by personal characteristics and field of study.
We study the effect of a job training program for low income youth in Cordoba, Argentina. The program included life-skills and vocational training, as well as internships with private sector employers. The results indicate sizable gains of about 8 percentage points in formal employment in the short term (about 32% higher than the control group), although these effects dissipate in the medium and in the long term. Contrary to previous results for similar programs in the region, the effects are substantially larger for men, although they also seem to fade in the long run. Program participants also exhibit earnings about 40% higher than those in the control group, and an analysis of bounds indicates that these gains result from both higher employment levels and higher wages.
The firm’s stock of human capital is an important determinant of its ability to innovate. As such, any increase in this stock through firm-sponsored training might lead to more innovation. We test this hypothesis using detailed data on firms’ human capital investments and innovation performance, the Canadian longitudinal linked employer-employee data from 1999-2006. Our results, with workplace fixed-effects and allowing for time-varying productivity shocks, demonstrate that more training leads to more product and process innovation, with on-the-job training playing a role that is as important as classroom training. We then demonstrate that on-the-job training has a positive impact on firm-level productivity through improved process innovation.
Skills shortages and skill mismatch are a pressing concern for policymakers in several developing countries, and in East Asia specifically. Providing on-the-job training can be an effective policy tool to shape the skills of the existent workforce to the specific needs of the firms. This paper explores a unique data set of matched employer-employee data for Malaysia and Thailand to estimate the wage return to on-the-job training in these two countries. Exploring propensity score matching estimates, we show that the average wage returns to on-the-job training are 7.7% for Malaysia and 4.5% for Thailand. Furthermore, we find evidence that the wage returns to on-the-job training are higher for males than for females in Malaysia and that, for both countries, returns are higher for workers with at least secondary education.
The efficiency of educational choices is studied in a search-matching model where individuals face a trade off: acquiring formal education or learning while on the job. When their education effort is successful, newcomers directly obtain a high-skill job; otherwise, they begin with a low-skill job, learn-by-doing and then search while on-the-job for a high-skill job. Low-skill firms suffer from hold-up behavior by high-skill firms. The low-skill sector is insufficiently attractive and individuals devote too much effort to formal education. A self financing tax and subsidy policy restores market efficiency.
The new training literature suggests that in a monopsonistic market employers will not only pay for firm-specific training but also for general training if the risk of poaching is limited. This implies that training participation should decrease when competition for employees is higher among firms. Using worker level data for Germany we find that the hypothesis is supported empirically. Specifically, we find that employees are significantly less likely to participate in training if the density of firms in a sector is higher within the local labor market.
Ethiopia. The Impact of Globalization and Technology Transfer on Manufacturing Employment and Skills in Ethiopia
There is a dearth of research on the impact of technological change on employment in the context of least developed countries (LDCs) embarking on globalization, which enhances the prospect of direct technological imports or embodied technological transfer. Using a sample of 1,940 enterprises from Ethiopia over the period 1996-2004 and deploying System Generalized Method of Moments (GMM-SYS), this paper attempts to establish the nature of manufacturing employment in Ethiopia and the role played by trade and FDI in determining employment. The empirical results obtained lend support to globalization having a labour augmenting effect, increasing total manufacturing employment. The two-equation dynamic framework implemented to analyse enterprise-level employment trends by skill level provides some evidence of skill-bias specific to enterprises with higher share of foreign ownership and those that that are located in the vicinity of the capital city. Exporters are not found to benefit from “learning by exporting”.
The objective of this paper is to analyse and explain the factors behind the observed differences in skill mismatches (vertical and horizontal) between natives and immigrants in EU countries. Our analysis shows that immigrants are more likely to be skill mismatched than natives, being this difference much larger for vertical mismatch. In this case, the difference is higher for immigrants coming from non-EU countries than for those coming from other EU countries. We find that immigrants from non-EU countries are less valued in the EU labour markets than natives with similar characteristics, a result that is not observed for immigrants from EU countries. These results could be related to the limited transferability of the human capital acquired in non-EU countries. The findings suggest that specific programs to adapt immigrants’ human capital acquired in home country are required to reduce differences in the incidence of skill mismatch and a better integration in the EU labour markets.
In Italy the reforms of the last twenty years shaped a dual labour market with different levels of employment protection for permanent jobs, on one side, and temporary jobs like apprenticeships and fixed-term contracts, on the other side. The main difference between apprentices and other types of temporary workers is that the former should receive firm provided training. The firm incentive in hiring apprentices consists in the possibility to pay lower wages and in a reduction in labour taxes. Using an Italian administrative longitudinal dataset containing information on all the job contracts started between January 2009 and June 2012, we estimate hazard functions towards permanent jobs and contrast the ones of apprentices with those of other types of temporary workers. The hazard function estimates based on a regression discontinuity approach affirm that apprenticeships are sorts of “long entrance halls” towards open-ended contracts, especially within the same firm where the apprenticeship was performed.
In recent years, the economics of migration literature has shown a substantial growth in papers exploring host country impacts beyond the labour market. Specifically, researchers have begun to shift their attention from labour market and fiscal changes, towards exploring what we might call ‘the wider effects of migration’ on the production and consumption sides of the economy – and the role of high-skilled migrants in these processes. This paper surveys the emerging ‘wider impacts’ literature, including studies from the US, European and other countries. It sets out some simple, non-technical frameworks, discusses the main empirical findings and identifies avenues for future research.
In OECD countries, ‘real world’ upper-secondary vocational education and training (VET) programs are used to engage less academically oriented youth in learning, while helping to prepare them for post-school work and/or further training. In general terms, VET programs with high employer involvement, such as apprenticeship schemes, are considered to be superior to classroom-based VET programs that are typically found in many English-speaking countries. In this study, we examine outcomes from a potential ‘third way’: classroom-based VET with a short-term structured workplace learning component. Using propensity score matching and PISA data linked to information from the Longitudinal Survey of Australian Youth, we find time in workplace learning is associated with higher school completion rates and better employment transitions.
We estimate gender differences in internal promotion experiences for a representative sample of Canadian workers using linked employer-employee data. We find that women in Canada are 3 percentage points less likely to be promoted and have received fewer promotions than similar men, but these differences stem almost entirely from gender differences in industry and occupation. By contrast, women experience an estimated 2.9 percent less wage growth in the year of a promotion than similar men even after controlling for industry, occupation, and firm effects – though a significant “family gap” exists among women as single women and women without children experience essentially the same wage returns to promotion as men.
We study the mechanisms that are associated with the gender education gap and its reversal in Germany. We focus on three outcomes, graduation from upper secondary school, any tertiary education, and tertiary degree. Neither individual and family background nor labor market characteristics appear to be strongly associated with the gender education gap. There is some evidence that the gender gap in upper secondary education reflects the rising share of single parent households which impacts boys’ attainment more than girls’. The gender education gap in tertiary education is correlated with the development of class sizes and social norms.
Women who want to work often face many more hurdles than men. This is true in Tajikistan where there is a large gender gap in labour force participation. We highlight the role of two factors – international migration and education – on the labour force participation decision and its gender gap. Using probit and decomposition analysis, our investigation shows that education and migration have a significant association with the gender gap in labour force participation in Tajikistan. International emigration from Tajikistan, in which approximately 93.5% of the participants are men, reduces labour force participation by men domestically; increased female education, especially at the university and vocational level, increases female participation. Both women acquiring greater access to education and men increasing their migration abroad contribute to reducing the gender gap.
Institutionalized Inequality and Brain Drain: An Empirical Study of the Effects of Women’s Rights on the Gender Gap in High-Skilled Migration
This paper investigates the effects of institutionalized gender inequality, proxied by a women’s rights index, on the female high-skilled migration rates relative to that of male (the female brain drain ratio). By developing a model of migration choice I find non-linear effects of gender inequality on the female brain drain ratio as a result of effects of gender inequality on both costs and benefits of migration. At low levels of women’s rights, increases in the index lead to increases in the female brain drain ratio. This is consistent with, at low levels of women’s rights, prohibitively high costs of migration for females. Once a certain level of protections has been afforded to them, the costs to migration are low enough that many women then decide to leave the oppressive society and migrate where the benefits associated with their human capital are higher. However, as women’s rights continue to strengthen, those benefits to migration then tend to decrease. The effect on female brain drain then turns negative. Using a panel of up to 195 countries I find evidence consistent with this model which is robust to instrumental variable approach. A one-point increase in the above average level of this index is associated with an average of about a 25-percentage point decrease in the female brain drain ratio.
Belgium. Native-Immigrant Gaps in Educational and School-to-Work Transitions in the Second Generation: The Role of Gender and Ethnicity
We study how native-immigrant (second generation) differences in educational trajectories and school-to-work transitions vary by gender. Using longitudinal Belgian data and adjusting for family background and educational sorting, we find that both male and female second generation immigrants, especially Turks and Moroccans, lag natives in finishing secondary education and beginning tertiary education when schooling delay is taken into account, though the female gap is larger. The same is true for residual gaps in the transition to work: native males are 30% more likely than comparable Turkish males to be employed three months after leaving school, while the corresponding female gap is 60%. In addition, we study demographic behaviors (fertility, marriage and cohabitation) related to hypotheses that attribute educational and economic gaps to cultural differences between immigrants and natives.
Do Interventions Targeted at Micro-Entrepreneurs and Small and Medium-Sized Firms Create Jobs? A Systematic Review of the Evidence for Low and Middle Income Countries
Worldwide 600 million jobs are needed over the next 15 years to keep employment rates at their current level. Governments, non-governmental organizations and donors spend on targeted programs and broader policies to enhance employment creation and the creation of new firms. Because most employment in low and middle income countries is in micro, small and medium-sized enterprises, these firms are especially targeted by such interventions. Despite these efforts, not much is known about which of these interventions are really effective and under which conditions particular interventions work. This systematic review synthesizes the existing evidence on the impact of these programs. Overall the review shows that creating employment is a very complex challenge. Many conditions have to be met before interventions in favor of individual enterprises do not only improve business practices and performance but also lead to additional jobs. A striking finding is that the study design matters for the impacts found; randomized controlled trials find systematically smaller effects than quasi-experimental studies. A significant shortcoming of the literature is that almost nothing is known about long term effects and cost effectiveness.
The shortages of entrepreneurial skills have lowered search effectiveness of potential young entrepreneurs and the rate of youth start-ups. Our paper contributes to closing a gap in the entrepreneurship and development literature with a model of costly firm creation and skill differences between young and adult entrepreneurs. The model shows that for young entrepreneurs facing high costs of searching for business opportunities, support for training is more effective in stimulating productive start-ups than subsidies. The case for interventions targeted at youth rises in societies with high costs of youth unemployment. We test the role of skills and training for productive youth entrepreneurship on data from a recent survey of entrepreneurs in Swaziland.
Germany. Using Online Platforms for Competence Tests: A Component of the Demographic Policy of Germany
Given the increasing skills shortages and the reduced halflife of qualifications, training continues to gain importance, including in the context of employer branding and companies’ corporate social responsibility activities. However, there is no linking of skills acquired through training with the automatic acquisition of qualifications. In this respect, online portals involving competency tests for young and old in connection with major credit points could play an important role.
This paper documents the evolution of the experience-earnings profiles of private employees in Italy over the first six years of working career across three birth cohorts (1965-1969, 1970- 1974, 1975-1979). We explore the average trends and disentangle how the patterns vary according to individual skills, defined in terms of both educational levels and percentiles of the unconditional earnings distribution. Unlike previous studies, and in contrast with the expectations prompted by the skill-biased literature, our results surprisingly show that the Italian “best of youth”, i.e. the best workers of the most recent cohorts (the high skilled), have suffered, compared to the previous cohorts, an earnings penalty much more severe than that experienced by unskilled workers. This finding also raises questions about the effectiveness of the European Employment Strategy, which repeatedly stressed the importance of human capital and technological knowledge as main drivers for European performance.
This paper studies the causal effect of student internship experience on labor market choices and wages later in life. We use variation in the introduction and abolishment of mandatory internships at German universities as an instrument for completing an internship while attending university. The result is mainly driven by a higher propensity of working full-time and a lower propensity of being unemployed in the first five years after entering the labor market. Moreover, former interns pursue doctoral studies less frequently. The positive returns are particularly pronounced for individuals and areas of study that are characterized by a weak labor market orientation. Heterogeneous effects are not found across other subgroups of the population.
We use a randomized experiment to evaluate a large-scale active labor market policy: Turkey’s vocational training programs for the unemployed. A detailed follow-up survey of a large sample with low attrition enables precise estimation of treatment impacts and their heterogeneity. The average impact of training on employment is positive, but close to zero and statistically insignificant, which is much lower than either program officials or applicants expected. Over the first year after training we do find training to have had statistically significant effects on the quality of employment, and that the positive impacts are stronger when training is offered by private providers. However, longer-term administrative data shows that after three years these effects have also dissipated.
Concerns about the polarization of the labor market are widespread. However, countries vary widely in strategies for strengthening jobs at intermediate levels of skill. This paper examines the diversity of approaches to apprenticeship and related training for middle-level occupations.
This paper provides first systematic evidence on recent youth employment challenges in Swaziland, a small, land-locked, middle-income country with one of the highest youth unemployment rates in Africa. The paper first documents the various labor market disadvantages faced by the Swazi youth, such as high unemployment and discouragement, and how they changed from 2007 to 2010. A multinomial logit regression analysis is then carried out to analyze the socio-economic drivers of the unfavorable youth labor market outcomes on the supply side. Since many of the factors that can unlock the employment potential of the Swazi youth are on the demand side of the labor market, the paper examines the barriers to job creation and youth entrepreneurship. It concludes with experiences of other countries that could inform design of more effective interventions for youth employment in Swaziland.
This paper provides a better understanding of VET around the world, dealing with three types of vocational systems: school-based education, a dual system in which school-based education is combined with firm-based training, and informal training. We first explore the motivation for these different types of training, before summarizing the institutional evidence, highlighting the key elements of each training system and discussing its main implementation strengths and challenges. We subsequently review the evidence on the effectiveness of VET versus general education and between the three VET systems. There are clear indications that VET is a valued alternative beyond the core of general education, while the dual system tends to be more effective than school-based VET. Informal training is effective, however relatively little is known of its relative strengths compared with other forms of vocational education.
This policy analysis paper explores the implications for the host country population of alternative immigration policies. The two immigration options considered are a policy based on admitting primarily high-skilled workers and another that has the effect of admitting primarily low-skilled workers. The implications for the native-born population for their aggregate level of income, the distribution of their income by skill level, and the size of the income redistribution system are considered.
Stagnant earnings and growing inequality in the US labor market reflect both a slowdown in the growth of worker skills and the growing matching of good-paying jobs to skilled workers. Improving the ties between colleges, workforce institutions, and employers would help more workers gain the needed skills. Evaluation evidence shows that training programs linked to employers and good-paying jobs are often cost-effective. Helping more states develop such programs and systems would help raise worker earnings and reduce inequality.
Tunisia. Entrepreneurship Training and Self-Employment among University Graduates: Evidence from a Randomized Trial in Tunisia
This paper relies on randomized assignment of the entrepreneurship track to identify impacts on labor market outcomes one year after graduation. The analysis finds that the entrepreneurship track was effective in increasing self-employment among applicants, but that the effects are small in absolute terms. In addition, the employment rate among participants remains unchanged, pointing to a partial substitution from wage employment to self-employment. The evidence shows that the program fostered business skills, expanded networks, and affected a range of behavioral skills. Participation in the entrepreneurship track also heightened graduates’ optimism toward the future shortly after the Tunisian revolution.
Survey of recruitment firms to look at how Russian firms perceive the supply of skills in the labour market and how well those skills match to their demand for labour.
What Are We Learning from Business Training and Entrepreneurship Evaluations around the Developing World?
Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed.
This paper focuses on the determinants of the labor market situation of young people in developed countries and the developing world, with a special emphasis on the role of vocational training and education policies. We highlight the role of demographic factors, economic growth and labor market institutions in explaining young people’s transition into work. We then assess differences in the setup and functioning of the vocational education and training policies in major world regions, as an important driver of differential labor market situation of youth. Based on our analysis we argue in favor of vocational education and training systems combining work experience and general education and give some policy recommendations regarding the implementation of education and training systems adapted to a country’s economic and institutional context.
Norway. Good Skills in Bad Times: Cyclical Skill Mismatch and the Long-Term Effects of Graduating in a Recession
We show that cyclical skill mismatch, defined as mismatch between the skills supplied by college graduates and skills demanded by hiring industries, is an important mechanism behind persistent career loss from graduating in recessions.
USA. Raising Job Quality and Worker Skills in the US: Creating More Effective Education and Workforce Development Systems in States
This paper proposes a new set of competitive grants from the federal government to states that would fund training partnerships between employers in key industries, education providers, workforce agencies and intermediaries at the state level, plus a range of other supports and services. The grants would especially reward the expansion of programs that appear successful when evaluated with randomized control trial techniques. The evidence suggests that these grants could generate benefits that are several times larger than their costs, and would therefore lead to higher earnings and lower unemployment rates among the disadvantaged.
Dominican Republic. Life Skills, Employability and Training for Disadvantaged Youth: Evidence from a Randomized Evaluation Design
This paper presents an impact evaluation of a revamped version of the Dominican youth training program Juventud y Empleo. The paper analyzes the impact of the program on traditional labor market outcomes and on outcomes related to youth behavior and life style, expectations about the future and socio-emotional skills.