Structural change and skills: is VET an obstacle to labor reallocation? Žilvinas Martinaitis, post-doc at Kaunas University of Technology

Research question and basic argument NSE: – as economy develops, facilitating state should invest in up-skilling; – Does not address, how the labor is expected to move from “old“ to „new“ sectors? Focus on: reallocation of labor during transition. Argument in the literature: specificity of skills (VET in particular) hindered effective movement of labor. Research question: do deep occupational skills inhibit reallocation of labor during economic restructuring? Basic argument: – „VET hinders adjustment of labor“ is not the lesson to be learned; – Abundant occupational skills facilitate modernization / upgrading of industries that rely on task-specific work; – Abundant general / academic skills facilitate movement of labor to sectors that rely on non-specific tasks.

The hopes of L 1 =L 2 literature Expectations of early transition literature: Transition economies with some of the human capital indicators higher than in the OECD were well prepared for convergence with advanced capitalist countries. Market forces should reallocate labor from less to more productive firms/industries; Labor did move: Annual average labour turnover between % during the first 5 years (Cazes & Nesporova, 2001); Large movements from employment to inactivity and persistently high unemployment during the first decade of transition; Jeong, Kejak and Vinogradov (2008) estimate that skills mismatches led to output loss between 8 and 40 percent of GDP in Czech Republic, Hungary and Poland.

Literature: what was the obstacle to adjustment? In general: focus on narrow skills in initial education, long tenures, absence of life-long-learning systems; Specifically: high proportion of workers with VET; Assumptions in literature on developed economies (Estavez- Abe, et. al., 2001, etc.) that were copied by students of transition: Academic education: broad range of subjects, development of higher level skills  can be applied to perform a broad range of tasks; VET: training linked with performance of occupation or industry-relevant tasks  difficult to adapt to structural change.

VET hinders reallocation: empirical findings (1) Boeri (2000): returns to VET lower than to academic education; Rashid, Rutkowski &Fretwell (2005): less skilled and VET graduates more likely to move to unemployment and inactivity; Lamo, Messina & Wasmer (2011): “In both countries, each additional year of education raises the probability of re-entering employment by about 10 to 11%, while holding basic vocational or secondary vocational degrees reduces it by 12 to 16%” (p. 243). BUT: does it makes sende to compare tertiary and secondary vocational education?

VET hinders reallocation: empirical findings (2) Table 1. Unemployment rate and education in Basic General Secondary Vocational secondary Higher Bulgaria Czech Republic Hungary Poland Romania Slovakia Lithuania (2000)* Source: Laporte & Ringold, 1997, p. 38. Data for Lithuania refers to 2000, Source: Rutkowski, 2003, p. 50.

VET hinders reallocation: empirical findings (3) Education, employment, unemployment and inactivity (2010) Pre-primary / primary Secondary and post-secondary (general) Secondary and post-secondary (vocational) Tertiary Employed 4,4 %26,4 %48,5 %68,0 % Unemployed 16,7 %10,3 %9,0 %4,8 % Inactive 78,9 %63,3 %42,5 %27,2 % Source: European social survey, Note: the table provides aggregate data for Bulgaria, Czech Republic, Estonia, Hungary, Lithuania, Poland, Slovak republic and Slovenia.

Is tertiary education „the answer“?

An alternative interpretation of transferability of skills (extension of Streeck, 2012) Task-specificity understood as ease of replacing workers: – Non-specific: L 1 =L 2 – Highly specific: requires considerable on-the-job training and learning-by- doing; General / academic education: transferable skills to move between jobs that rely on non-specific tasks Vocational education: transferable skills to move within a segment of jobs that rely on specific tasks. Implications: VET graduates in jobs that require considerable further training beyond required qualification; workers with general education in jobs that do not require further training; Countries that engaged in up-grading / modernisation of „old“ industries should gravitate towards VET-specific tasks development path; Countries that engaged in engaged in building „new“ industries should gravitate towards general education-nonspecific tasks development path.

Implication 1: VET in task-specific jobs; general education in non-specific jobs. Operationalisation of task specificity: how much additional training is needed beyond required qualification? Data: European Social Survey (5), performed in Countries: BG, CZ, EE, HU, LT, PL, SK and SI. Result: statistically significant differences, but overall small task-specificity.

Implication 2: explaining cross-country differences in restructuring paths Restructuring as modernization of „old“ industries relies on skills to carry out specific tasks:  Should maintain high VET participation and employment in „old“ industries; Restructuring as decline of „old“ and development of „new“ industries relies on skills to perform a range on non-specific tasks:  decline in VET participation and employment in „old“ industries. Focus on complex manufacturing (Chemicals and chemical products (24), machinery, NEC (29), Electrical and optical equipment (30-33), transport equipment (34-35)): – Mature technologies, relying on high task-specific skills; – Relatively well development during socialist years.

Divergent modernization paths and types of skills Notes: Data for enrolment in VET: 90s refer to average of ; 00s refer to average of Source: UNESCO Institute for Statistics. Data for Employment in complex manufacturing: 90s refer to average of ; 00s refer to average of Source: KLEMS database.

VET in complex manufacturing

Preliminary conclusions and policy implications What type of education system facilitates economic restructuring? – „VET hinders adjustment of labor“ is not the lesson to be learned; – Abundant occupational skills facilitate modernization / upgrading of „old“ industries that rely on task-specific work; – Abundant general / academic skills facilitate movement of labor from „old“ to „new“ sectors that rely on non-specific tasks.