Motivation and Questions

1. The Value of Nascent Skills for Employability in PeruInforming Human Development: ESW FairWednesday, January 12, 2011

2. Motivation and Questions • Why focus on multiple skills? (Beside schooling) • Which skills matter most for employability in Peru? (New Skills & Labor Survey) • How can they be developed through public intervention? (What it means for the Bank)

3. Why multiple skills? Peruvian employers want both cognitive and socio-emotional skills Employers’ reported factors considered always/frequently to assess workers suitability (% responses) Employers’ reported problems to hire suitable workers (% responses) • Corroborated by data from ICA surveys, public job intermediation service, qualitative study/interviews of larger firms (similar to OECD, other MICs) ~=40% Non-cognitive Source: Peru Firm Informality Survey 2007, N=804 firms,1-50 employees

4. Which skills matter most for employability in Peru?:Learning from a New Labor Skills Survey

5. Measuring Skills and Employability • Developed over 1+ year (DECRG grant), interdisciplinary team • Representative of main urban areas (n=2,666 HHs) and regions. Built on national HH survey, supplemented by modules on: • Employability outcomes (employment, earnings, job satisfaction) • Labor insertion, educational trajectories, family background • Skills: Cognitive (receptive language, verbal fluency, working memory, numeracy-problem solving) and socio-emotional (Big-5 Personality Factors, GRIT) • Big-five: wide consensus that personality traits cluster into five factors: • Openness to experience; Conscientiousness; Extraversion; Agreeableness; Neuroticism (inverse of emotional stability) • GRIT: Narrower trait “perseverance (duration of effort) & passion for long-term goals (consistency of interest)” (Duckworth et al 2007) • Strong predictor of high achievement in US (over cognitive ability)

6. While interrelated, these skills capture distinct dimensions of human capacity/motivation Correlationbetweencognitive test scores Correlationbetween socio-emotional test scores Cognitive skills more highly interrelated (‘G’ IQ), socio-emotional less so • OECD evidence of causal connection behind correlations (Heckman et al)

7. Which skills matter most for employability in Peru?:Earnings returns to skills and schooling

8. Cognitive and socio-emotional skills correlate significantly with earnings • When assessed individually without controlling for schooling (yes, parental education, demographics), workers scoring 1 std dev higher in these skills earn more: • 10 percent (working memory, verbal fluency) to 18 percent (receptive language, numeracy) • 8 percent (Big-five emotional stability, openness to experience, extraversion) to 13 percent (Grit-perseverance ) • Those scoring higher in agreeableness (facet cooperation) have 5 percent lower earnings (found in U.S too!)

9. These correlations reflect direct earnings returnsbesides years of schooling

10. Cognitive andsocio-emotional skills give comparable advantage in life-time earnings, though below college credentials • Advantage from higher cognitive ability comparable to some socio-emotional skills • Both can compensate for low schooling • Education produces largest earnings inequality – college educated have biggest advantage • Note: Simulations of age-earnings profiles over work life (graduation-65 yrs retirement) for typical workers using Mincer regression parameters (discount rate 5%)

11. Which skills matter most for employability in Peru?:skills  schooling

12. Skills beget skills: Cognitive ability strong predictor of educational achievement Distribution of Summarycognitive scores byeducationlevel • Holds controlling for host of confounding factors. OECD evidence of two-way causal connection

13. Skills beget skills: Socio-emotional skills also predict educational achievement, though less so Distribution of GRIT scores byeducationlevel • Holds controlling for host of confounding factors. OECD evidence of two-way causal connection

14. Cognitive and socio-emotional skills appear more binding for college access than financial constraints Change in probability of tertiaryeducationenrollment Note: Simulations from bivariateprobit regressions: Eq1: 1= pursued tertiary education, 0=otherwise; Eq2: 1= enrolled in college, 0= enrolled in technical/non-university. Controls for individual and family factors such as gender, ethnic group, parental/family background, reported SES and scholastic performance during secondary schooling and. Wald test of indep. Eqns: Prob > chi2 = 0.0063

15. RecappingtheEvidence • Schooling (content + credentials) and cognitive and socio-emotional skills are all very valued in the Peruvian labor market • Significant gaps in these skills between working-age of better-off and worse-off families • Timely development of cognitive and socio-emotional skills and improved educational achievement go together, and are essential to a more competitive and equitable Peru

16. How can these skills be developed through public intervention? What does it mean for the Bank?

17. Science and Policy Evaluation gives ample room for Cost-effective Public Intervention • “Nature” vs “Nurture” separation obsolete: Heritability + family influences interact, both matter • Different sensitive periods: Socio-emotional skills more malleable through adolescence/early 20s • With adequate support, good parenting and schools can develop cognitive and socio-emotional skills (Durlak et al; Heckhman & Cunha; Sankoff et al; WB ECD studies): • “Tools of the Mind” improve pre-school children’s self-control. Universal school-based interventions (K - high-school), youth mentoring (Big Brother/Sister) & training improve Big-five-related skills • Early investments to compensate initial disadvantage can be costly, but also yield high returns

18. What does it mean for the Bank? • Help redefine what it takes to be a well-educated person in the 21st Century • Cognitive and socio-emotional skills determine a person’s “readiness to learn” through the life cycle • Numeracy, literacy and academic qualifications a core but not the only output of education systems. Curricula, learning standards and pedagogic practice should also take socio-emotional skills seriously • Expand policy research (already happening) to underscore evidence base of links between early HD investments (maternal, child nutrition & health, ECD) & employability skills • Issue: intangibility and long maturity of investments vis-à-vis short political horizons – better outreach, broader social consensus building (Peru video) • Learn from and build capacity to adapt successful interventions (expertise on developmental, education psychology)

19. Thank you!