Education, Training and Productivity: Exploring the Linkages

1. Education, Training and Productivity: Exploring the Linkages John Innes Europe & Central Asia Human Dev. The World Bank

2. Overview • General linkages between education and training, on the one hand, and productivity and economic growth, on the other • Implications for education and training systems • Where do countries of South-eastern Europe stand? • Implications for government policy

3. Linkages • For individuals an increase in number of years of education improves labor market performance • Around the world, wages and employment prospects are improving for those with secondary or, especially, tertiary education • In every country in South-eastern Europe, those with more years of education do better in the labor market • More likely to be employed • When employed, more likely to be employed in the formal sector • Much less likely to be poor

4. Also, generally agreed that education contributes to economic growth • Numerous studies have shown that differences between countries in per-capita income depend more on differences in the effective use of labor and capital [total factor productivity (TFP)] than on differences in natural resources • Skills upgrading, technological change, and their interaction are major factors behind TFP growth, because: • Skilled workers are better able to adapt to change and, therefore, better able to use new technology • Presence of skilled workers creates incentives for companies to develop new technologies that are more skill-intensive • Adoption and diffusion of existing technologies requires sufficient generalized level of education in the work force, • And higher levels of education are needed to enable significant adaptations of existing technology

5. Implications for Education and Training Systems • Synchronization of education reform must be linked to changes in broader economic agenda (e.g., open economy, FDI flows, etc.) • Widespread attainment of secondary education in labor force • Flexible skills on entry to labor market so workers can adapt to change • Most adult training is paid for and, usually, provided by employers • Domestic R&D capacity is closely linked to private sector enterprises

6. 3. Where do countries of South-eastern Europe stand? • Primary education/literacy rates. • Generally good, with high rates of gross and net enrollment (above 90%) • Secondary education • Attainment. Varies, but generally needs increasing (everyone getting secondary education is OECD/EU expectation) • Quality of secondary education • Evidence from PISA (Albania, Serbia) and PIRLS (Macedonia). SEE countries below international means and have larger than average standard deviation of performance (with large tail of lower performance) • Prevalence of narrow vocational programmes • Tertiary education • High demand but constrained supply because of heavy public subsidy • Very low on-time graduation rates • Employee training and adult education • Employee training not been a priority since most productivity improvements driven by employee redundancies • But this will need to change in short to medium term • Adult education very low levels. • Research and Development (‘science’) • Very low levels

7. 4. Implications for government policy • High level of overall government spending is a barrier to higher public spending on education and training • This implies a need to focus on improving efficiency • And the need to make clear trade-offs • Primary education • Targeting completion rates, and last areas of non-attendance (e.g., some ethnic minorities, and girls in some countries) • Role of early childhood interventions to ensure vulnerable populations are ready to start school • Secondary education • Finding ways to finance expansion • Shift to lower cost and more effective general education programmes • Re-assess the role of initial VET in formal education (move to broader skill sets and provide access to tertiary study) and its link to continuing VET (where specific skills are learnt, is demand-driven with strong private contributions)

8. 4. Implications (contd.) • Tertiary education • Finding ways to finance expansion • Improve on-time graduation rates • Increase cost-recovery • Target public subsidies to those from poorer backgrounds • Employee training and adult education • Review regulatory and tax environment to see if it encourages private investment in training • Importance of employment as source of new skills, and hence urgency to address unemployment (especially long-term unemployment) • Research and development • Enterprise spending must be a significant proportion of total R&D spending • National priorities must be few, and funding must follow these priorities • Formalization of the labor market • Formal sector companies will have: • Greater possibility to expand (including by investing in technology) • Greater possibilities to be export oriented, and therefore exposed to competitive pressures • Larger companies usually invest more in training

9. Conclusion • Changes to education and training system require action beyond just the education ministries in a country • Broader macro-economic framework needs to be right • Important direct actions lie with other ministries, such as early childhood, incentives/regulation of employee training • Key to address new entrants – youth unemployment through competency based education – IT and languages, problem-solving, critical thinking, teamwork, life skills. Break down the barriers.