Skills formation and public policies

Skill formation and public policies: why bother? A well trained workforce is a key (though far from unique) factor to facilitate the generation of high productivity jobs. Conversely, availability of skills may be a constraint for technology adoption and thus dampen the evolution of productivity. Public (and private) expenditure in skill acquisition (in a broad sense education and training) is an important component of total public expenditure. Training is a component is almost all “promotion of the poor / apoyos productivos” type of program.

The skill formation system Set of institutions, rules and arrangements involved in the skill formation of new entrants in the labor force and the skill upgrading of active workers. Workers invest in skill acquisition going to school or taking training courses. Skill providers use teachers and facilities in schools and training institutions to teach workers. Firms deploy those skills in production and realize the investment value of workers’ skills. The interactions of these three actors are regulated through institutional arrangements that evolved from past conflicts and from changes in the productive sector.

Historically Economies growing on the basis of chuncky investment in basic heavy industries tended to develop centralized, fiscally financed training institutions that fulfilled the skill needs of a few very large firms. This was the “collective provision” solution to the problems of underinvestment in training associated with capital constraints on workers and the effect of poaching externalities on firms. However, these National Training Institutions (NTIs) have difficulties performing in a more decentralized, sectorally diverse, and private sector based economy whose skill needs are more varied and decentralized.

What do we know? Acemoglu and his co-authors suggest that Becker’s pessimism regarding firm’s investment in training can be affected by the existence of costly matches and specificity of investments that make firms more prone to invest in OJT and other forms of training. The evaluation literature on organization of training providers suggest that institutional arrangements and rules that make providers more competitive make them more efficient and more responsive to the more diverse and privately determined demand for skills.

Objective Though both approaches are rigorous and useful, both fail to look at the process of skill formation as a 3-way interaction between workers, firms and training providers that is shaped by institutional arrangements and rules that can be shaped by public policies. The objective of the chapter is to discuss the role of public policies in generating institutional arrangements and incentives to facilitate the acquisition by workers and the deployment by firms of productive skills.

The pieces (1) The organization of training providers (school system and training institutions) Galhardi (2004), CINTERFOR (vs ys) Ibarrarán, the 2000 studies and other impact evaluation of training programs in the region CIPEC (2008) is taking a fresh look at the structure, organization, financing and coverage of the national structure of training provision in 6 countries in the region. How does the institutional and financial structure of training provision in the country impacts the ability of workers and firms to acquire and productively deploy skills?

The pieces (2) Training provision by firms: how much and what kind? What kind of formal firms do train and who do they train? Through an in-depth analysis of the WBES we expect to provide an analysis of the correlates of training comparable with state of the art analysis of firms in the US (Lynch et al.) and Europe (IZA paper). What about informal firms? Using micro-enterprise surveys we are analyzing what firm and market characteristics correlate with training. Brazil, Paraguay, and Colombia already have data, Peru data is not usable (NI on training questions). What can public policies do to improve the efficiency and efficacy of OJT? Do firms use OJT to overcome educational policy failures?

The pieces (3) What skills do firms demand? Hiring and OJT for new hires ‘reveal’ the skills that firms demand and what is the gap between what providers (schools and the training system) provide and what firms deploy. Survey based: collection of survey information along the lines of Osterman (2000) to explore the career path and hiring patterns of new entrants and hiring firms. Case studies: a couple of case studies to analyze how the production strategy of firms in selected sectors shape their demand for skills along the lines of Murnane (2002) What policy changes are needed to align the skills imparted by schools and training providers with those demanded by firms?