The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
The paper explains how a country can fall into a “low-skill, bad-job trap,” in which workers acquire insufficient training and firms provide insufficient skilled vacancies. In particular, the paper argues that in countries where a large proportion of the workforce is unskilled, firms have little incentive to provide good jobs (requiring high skills and providing high wages), and if few good jobs are available, workers have little incentive to acquire skills. In this context, the paper examines the need and effectiveness of training policy, and provides a possible explanation for why western countries have responded so differently to the broad-based shift in labor demand from unskilled to skilled labor.