Job training and Job Matching Programs in Developing Countries

1. Job training and Job Matching Programs in Developing Countries Volker Schöer & Gareth Roberts African Micro-Economic Research Unit, University of the Witwatersrand Impact Evaluation Workshop: Trade up and compete Istanbul, 12th May 2015 AMERU

2. Constraints to firm growth/ performance Market for firm’s product Access to Inputs Production process • Supply of required inputs: • Capital • Labour • Intermediate inputs • Infrastructure • Uncertainty about quality of inputs • Entrepreneur's managerial/ business skills: • Finance • Accounting • Human resource • Marketing • Productivity of inputs: are the inputs matched properly? • Is there a market for firm’s product? • Are there obstacles to supply the market? • Are customers aware of firm’s product? Legislation/ regulatory environment affecting: market structure; cost of inputs; mix of inputs; sales strategies,etc AMERU

3. Worker skills and firm performance Is the mix of inputs (technology and labour used by the firm to produce product) the most productive? Is there a mismatch between type of capital and skill-level of labour? The importance of having access to a wide range of skills in the labour market and skills development: • Allows entrepreneur to match workers with technology so that the production process is efficient and achieves full production potential. • Skilled workers more versatile in combination with technology => allows entrepreneur to respond to demand changes through innovation => improve competitiveness Three possible skill constraints: • Insufficient supply of skills by the labour market • Uncertainty about the quality of skills/ productivity signal • Lack of managerial/ business skills of entrepreneur AMERU

4. Insufficient supply of skilled labour Source: AEO (2012) Problem: insufficient supply of skilled labour Solution: National skills development policies aimed at increasing supply of skills => private and public institutions, sector specific training initiatives But: are any graduates better than none? AMERU

5. Insufficient supply of required skills Employer perception of skills mismatch in Africa Source: AEO (2012) Problem: misalignment of acquired skills and required skills Solution: National skills policies aimed at aligning supply of skills with demand of skills by industry, sector specific initiatives to address skill shortages, labour market information strategies (targeted at youth) AMERU

6. Uncertainty about skill quality Average grade 8 mathematics test scores for middle-income countries participating in TIMSS 2011 Source: Spaull, 2012 Problem: uncertainty about productivity signal increases matching cost to the firm especially when the productivity level of the job is highly dependent on the quality of the match => higher recruitment cost and/ or higher on-the-job training cost to ensure high match quality. Solution: improve quality of education and/or productivity signals AMERU

7. Insufficient training of workers Firms offering on-the-job training Source: World Bank Enterprise Surveys 2006-2010 reported in AEO, 2012 Problem: cost of training and uncertainty if firm will benefit from investment in skills development of workers especially in a scarce skills economy with large numbers of unskilled job seekers, low school quality and a predominance of small enterprises => poaching of trained workers by competitors or workers leaving company to start their own. Solution: reduce training cost AMERU

8. Impact evaluations of skill development and matching interventions AMERU

9. Skill development and matching interventions • Variety of programs addressing these objectives • Range from increasing the supply of skilled and semi-skilled labour to improving management AMERU

10. Increase in supply of skilled labour Card, D., Ibarraran, P., Regalia, F., Rosas, D., & Soares, Y. (2007) “The labor market impacts of youth training in the Dominican Republic: evidence from a randomized evaluation”( No. W12883, National Bureau of Economic Research) • Low-income youth in urban areas of Dominican Republic • Subsidized classroom instruction followed by an internship at a private sector firm • No effect AMERU

11. Reducing uncertainty about the quality of skills Groh, M., McKenzie, D., & Vishwanath, T. (2014). “Reducing Information Asymmetries in the Youth Labor Market of Jordan with Psychometrics and Skill Based Tests.”(World Bank Economic Review Papers & Proceedings) • Tertiary-educated youth in Jordan. • Psychometric Measurement measuring mental ability, English proficiency, soft skills, Excel ability, and also measuring their personality traits. • Psychometric testing may reduce labor market matching frictions.  Abel, M., Burger, R., & Piraino, P. (ongoing). Reducing information asymmetries through skill certification: Experimental evidence from South Africa. • Unemployed South Africans. • A certificate with scores from English and Math proficiency test. AMERU

12. More productive employees Rosholm, M., Nielsen, H. S., & Dabalen, A. (2007) “Evaluation of training in African enterprises.” (Journal of Development Economics, 84(1), 310-329) • Formal sector enterprises in Kenya and Zambia • Employer-financed training of employees • Returns of 20% AMERU

13. Reducing cost of training Ranchhod, R., & Finn, A. (2014) “Estimating the short run effects of South Africa's Employment Tax Incentive on youth employment probabilities using a difference-in-differences approach.”(SALDRU Working Papers 134, Southern Africa Labour and Development Research Unit, University of Cape Town) • Firms that are registered for Employees’ Tax; Youth Aged 18 to 29 • Wage subsidy that firms can claim back from the South African Revenue Service (SARS) i.e. an employment tax incentive • No effect on employment, but no data on wages AMERU

14. Caveat: Displacement effect Roberts, G., Schöer, V., and Rankin, N. (ongoing) “The impact of South Africa's Employment Tax Incentive on formal employment among youth.” • ETI may have increased formal employment, but may have reduced formal employment among workers that are not eligible Crépon, B., Duflo, E., Gurgand, M., Rathelot, R., & Zamora, P. (2012) “Do labor market policies have displacement effects? Evidence from a clustered randomized experiment”(NBER No. w18597)  • Young, educated job seekers in France • Job placement assistance • Gains at expense of workers that were not part of the program AMERU

15. SME development Bruhn, M., Karlan, D. S., & Schoar, A. (2013) “The impact of consulting services on small and medium enterprises: Evidence from a randomized trial in Mexico”(World Bank Policy Research Working Paper, no. 6508) • Mexican small and medium enterprises (average size of 14 employees). • Access to subsidized consulting and mentoring services with different service providers for one year (four hours a week): Micro enterprises paid only 10 percent of the market cost of the consulting services, small enterprises 20 percent, and medium sized enterprises about 30 percent. • Positive effects on return-on-assets and total factor productivity • Did not find an impact on sales, profits, or the number of workers in the short run, but the longer-term evidence suggests that there was an impact on employment “For some, the impact may have been to increase revenues, for others to lower costs, for others to shed unproductive assets” “The improvements seem to be most focused around improvements in marketing and financial controls.” AMERU

16. Output and employment growth in large firms Bloom, N., Eifert, B., Mahajan, A., McKenzie, D. & Roberts, J. (2013) “Does Management Matter? Evidence from India.”The Quarterly Journal of Economics, vol. 128(1), pages 1-5 • Large Indian Textile firms (average size of 270 employees). • Five months of extensive management consulting from a large international consulting firm. Consultants identified opportunities for improvement in operational management practices during the first month, followed by four months of intensive support for the implementation of these recommendations. • Led to improvements in productivity of 17% within the first year from improved quality and efficiency and reduced inventory and appear to have been followed by a longer-run increase in firm size. AMERU

17. Conclusion • The context is important • We need to think not only about the characteristics of the labour force and employees (including management), but also about the structure of the market and the extent to which any interventions will shift the production frontier AMERU