Governments need to weigh carefully their objectives and resources before encouraging more training in modern sector vocational skills
Education and Employment Division, World Bank
Major questions are being raised about the efficiency of public pre-employment vocational education and training (VET) in both developed and developing nations. Does it really stimulate economic growth? Can it ameliorate problems of unemployment? Increasingly rapid economic change and growing uncertainty in the process of development raise further questions about the capacity of public VET systems, conceived in an earlier era, to respond effectively to the needs of economies and individuals. Training systems are often too large, poorly financed, inflexible, and of low quality.
Historically, job training was a private matter. Individuals acquired skills through apprenticeship or on the job, and financed their training by accepting reduced wages during the learning period. Not only blacksmiths and carpenters, but also lawyers and accountants, learned their trades in this way. As technological sophistication and the scale of production increased, especially in manufacturing, jobs and occupations became more complex, and more formally organized, according to levels of skill. Training needs became more complex and more technical. In developed countries, these needs were met, in larger enterprises, through formally organized training programs. In many countries, governments began to finance and provide training in schools and training centers before employment. Variations of these systems can be found in many developing countries today.
But these systems will be severely tested in this decade by a combination of four trends: (1) Labor shortages may begin to emerge in countries where population growth rates have fallen, increasing the capital intensity of production and raising the levels of female participation in the work force; meanwhile, in other countries, rapid population growth has outstripped employment creation, producing serious youth underemployment. (2) Adjustment and indebtedness require restructuring of economies, raising the need to increase productivity in industries opened to competition, and constraining both public and private resources. (3) Changing patterns of trade and competition demand rapid responses by economies, especially in manufactured and agricultural exports. (4) New technologies in manufacturing and agriculture are spreading, though unevenly, changing the demand for particular patterns of skills in industrializing economies.
In the face of these challenges, training policy and planning will need to be better integrated with economic policy and planning and made more responsive to market forces. A main role of the government should be to strengthen private training capacity and improve cooperation with the private sector. Over time, this will involve moving from routine state provision of training toward quality control and systems management through incentives for both public and private training. The flexibility, quality, and efficiency of education and training for modern sector employment will need to be improved; in many cases, this will require reconsideration of the current mix of general and vocational education.
The economic efficiency of publicly provided VET has long been the subject of debate. Proponents have argued that, because vocational and technical skills are crucial to economic growth, governments must assume a central role in their development, particularly for the poor and educationally disadvantaged. Critics argue that there are private, more efficient alternatives to such pre-employment training. Since enterprises have the best knowledge of skill requirements, should they not provide training, and since employers and workers benefit most, should they not assume the principal burden and financing? Critics also question the effectiveness of VET in meeting the needs of the disadvantaged. The debate has become especially intense given the continuing need to choose among investments of scarce public resources.
Research and experience indicate that, as is often the case, the terms of the debate have been too simply drawn. There is a role for governments in vocational training. But this role must evolve as economies change if the skills needed for economic growth are to be developed efficiently. This process of evolution has been constrained in many countries. The principal barriers have been pursuit of inappropriate policy objectives, a static approach to planning, poor quality, and inflexible training institutions. Improved efficiency will require policy and institutional reforms suited to individual economies. Providing financial and technical support for reform is a major challenge for the World Bank and other international agencies.
Why skills training?
The productive use of capital and technology requires effective management and an appropriate mix of complementary vocational and technical skills in the work force. Investments in training pay off when workers use their skills efficiently, and these returns are largely captured by enterprises in the form of increased efficiency and profitability, and by workers in the form of higher wages. Unlike the case of general education which yields, in addition, a broader range of benefits only indirectly linked to productivity, the benefits of training in skills in specific occupations are more immediately and directly tied to the economy.
Enterprises and workers will invest in such training when the returns on investment in the form of increased productivity and earnings are real. Much of this training takes place informally on the job. But private training capacity is often weak, requiring government provision of training in early stages of development. The bulk of public investment in this field has been devoted to building, equipping, and staffing vocational secondary schools, post-secondary technical education institutions, and labor training centers to provide training to youth prior to wage employment in the modern sector.
Focus on productivity
VET is cost-effective when it provides training for productive employment, actively seeking to balance the supply of trained persons with employment demand, and investing in the quality of training. These conditions have been most easily met in rapidly expanding and industrializing economies, such as Malaysia, Brazil, the Republic of Korea, and some low-income countries, such as Botswana. Even where economic growth is constrained, VET systems that are able to adjust rapidly and effectively in response to changes in employment demand can also be cost-effective, as was the case in Malawi. Research has also established that pre-employment vocational training in traditional (usually commercial and secretarial) skills has increased women’s access to wage employment.
In brief, VET in developing countries can be efficient when allowed to do the job they do best; providing the complementary skills needed to raise productivity. Unfortunately, such training has often been expected to address broader social problems created by rapidly expanding populations and stagnant economies.
In many countries, significant investments have been made with such broader social objectives in mind. The first goal, now largely abandoned, was the production of skilled workers, on the assumption that supply would stimulate economic growth, thereby creating its own demand. Similar thinking lies behind attempts to attack problems of youth unemployment through vocational schooling and training. Narrowly targeted training to meet a short-term goal can have a marginal effect in helping people find jobs, but in the absence of sustained employment growth, large-scale training alone does not have much impact on overall unemployment levels. When a trained person does find a job, it is more likely because of the displacement of a less well-trained worker than the emergence of a vacancy.
The World Bank’s role in vocational training
The World Bank has been the largest single source of international financial support for skills training, joining governments in investing $7.5 billion in the quarter century since lending for education and training began in 1963. Bank assistance has evolved along with training policies and systems in member countries during this period, with increased emphasis on support for national training agencies, improving links between training and employment, and increasing efficiency. Support for secondary vocational schools has declined and support for post-secondary technical education, much of it for strategic technical skills, has remained stable as a share of total investment. Investment in center-based vocational training has increased. Substantial investments have been made in developing vocational training systems in middle-income countries in all regions during the last decade, most often through a sequence of projects over a decade or more in which the development of institutional capacity figured prominently.
Some countries have sought to divert the aspirations of their youth for higher education and white collar employment by guiding a large portion of secondary school-age children into vocational schools. This is the case in Egypt, Thailand, and China. Where vocational schooling leads to productive and remunerative employment, the policy may be effective. But, where jobs are not available, the policy has led to massive unemployment of vocational graduates.
What should be done?
Governments have a critical role in the promotion of vocational training and skills development. However, a government need not be solely responsible for this activity; the nature of its involvement depends upon the evolving institutional and economic environment in the economy as a whole.
National training agencies. While the usual arrangement for public sector intervention in vocational training is through relevant government ministries, an increasingly dominant and creative role is now being played by quasi-independent national training agencies in many countries around the world. These agencies are located outside education ministries, many of them being attached to ministries of labor. They provide subsidized skills training in their training centers, but their responsibilities and influence go well beyond this. Most play a role in determining national policy and setting regulations and some, particularly in middle-income countries, provide consultancy and technology information services. They also help organize specialized training in support of specific investments or to facilitate adjustment in the work force.
Such agencies have been able to develop national training systems of high quality with strong links to industry, and considerable flexibility and responsiveness. This has been facilitated by employer and worker representation on their boards of management as well as by stable funding. A good example of such an operation is the National Industrial Apprenticeship Agency in Brazil (SENAI), established and governed by enterprises, which finance it through payroll levies. The Board also includes representatives of workers and the Government. SENAI is heavily decentralized at the regional levels to permit adjustment to local skill needs. In Jordan, the Board of Vocational Training Corporation is linked to the Prime Minister’s Office. It is chaired by the Minister of Labor, and includes representatives of other ministries, employers, and workers. Core financing is provided by government budgetary allocations, with significant cost-sharing from enterprises.
Diversifying finance. Developing the institutional capacity for effective public intervention in training requires constant and adequate financing. If trainees capture the main benefits of training through higher earnings, efficiency considerations would call for a greater use of student fees. Yet governments, particularly in low-income countries, may be reluctant to employ user fees for both political and equity reasons, particularly when incomes (and savings) are low and post-training employment prospects appear uncertain to individuals.
But central government subventions face severe constraints in most developing countries as a result of narrow tax bases and increasingly tighter budgets. To correct this, a number of Latin American countries have imposed training levies on enterprises that will eventually employ the workers with vocational training. These levies have provided an effective and stable source of funding for the development of sustained capacity for high quality skills training, both in specialized training institutions (usually under the aegis of a national training agency) or in enterprises.
Encouraging private training. Private training (in enterprises and institutions) has both economic and institutional benefits. It aligns costs and benefits equitably and facilitates the match between supply and demand. As most technological innovation enters developing countries through enterprises, employers have the equipment and technical information needed to develop new skills.
Governments can encourage private training by reducing policy distortions that have a negative impact on incentives to individuals and firms to invest in skills development. They can also encourage the setting up of private training institutions. Governments may also provide, through national training agencies, technical support to enterprise training, ranging from joint financing of courses to assistance with the development of training policies, systems, and materials.
Experience in a wide range of countries (for example, Brazil, Colombia, Jordan, Malawi) shows that public training centers outside the educational system are more flexible and efficient than schools. They have more freedom to develop courses of varying lengths and minimize training time. Greater flexibility in scheduling enables them to offer courses in the evening, provide training services to enterprises, and use part-time instructors effectively.
Flexibility, efficiency, and quality
Most entry-level jobs require little training. Individuals enter skilled employment in the modern sector via many training paths, of which pre-employment vocational education is only one, and often the least important, in terms of numbers. General education, combined with training after employment in enterprises, or in private or public training institutions (often at individual initiative), provides most of the needed skills in many countries. Completion of primary schooling, however, is the foundation for continuing education and training. General secondary education gives graduates more labor market flexibility than narrow vocational training and complements training after employment. Thus, an important policy option in countries facing high levels of youth unemployment, as well as in economies undergoing rapid technological change, is expansion of general education.
Pre-employment vocational training will continue to be needed in many countries, although the government’s role in providing it can be reduced as economies grow and private training capacity develops. Countries seeking to improve VET in the modern sector face a complex agenda for institutional development and reform. In the near term, the flexibility of training must be improved to respond to market demand. Efficiency must be increased to generate resources for improved quality. Training systems will be asked to take on new roles in economic restructuring, in support of small enterprise development, and in direct support for new public and private investment. In the longer term, adjusting the government’s role calls for strong policy analysis and the development of management training systems.
The key to the improved impact of VET on productivity lies in increasing the flexibility of the work force and of training systems, in improving the balance between skills demand and supply, and in meeting a range of specialized training needs.
WORLD BANK ANNUAL CONFERENCE ON DEVELOPMENT ECONOMICS 1990
THE TRANSITION FROM ADJUSTMENT TO GROWTH
SUSTAINABLE DEVELOPMENT AND THE ENVIRONMENT
Karl-Goran Maler & Partha Dasgupta
POPULATION CHANGE AND ECONOMIC DEVELOPMENT
John C. Caldwell
Ronald D. Lee
Kenneth M. Chomitz & Nancy Birdsall
PUBLIC PROJECT APPRAISAL
I.M.D. Little & James A. Mirrlees
Jock R. Anderson & John C. Quiggin
ROUND TABLE DISCUSSION
April 26 and 27, 1990