copy the linklink copied!1. Assessment and recommendations

copy the linklink copied!Megatrends are reshaping the world of work and societies

In Latin America, as across the globe, globalisation and rapid technological change, together with demographic developments are reshaping skill demands and supply in all countries. These trends are expected to continue in the coming years at an increasing pace. Technological progress, in particular, is profoundly transforming the world of work and, in turn, the skills demanded by employers. This poses challenges but it also creates opportunities for Latin American and the Caribbean (LAC) countries in the near future.

copy the linklink copied!LAC countries have made substantial progress in improving the coverage and the quality of their education systems but challenges remain

Only 64.2% of individuals aged 25-34 years old in the region has completed secondary education. This figure is about 20 percentage points lower than the OECD average (84%). In addition, only 24% of 25-34 year-olds hold a tertiary degree relative to 43% on average across OECD countries. Insufficient skill development in formal education (from primary to tertiary) has scarring effects on the likelihood of adults to participate in further training and, therefore, it represents a barrier for LAC countries to effectively address the challenges of the future of work.

It is not only the quantity of enrolled students, however, but also the relatively poor quality of LAC region’s education and training systems that represents a key challenge in many countries. The OECD's Programme for International Student Assessment (PISA) measures 15-year-olds' proficiency in reading, mathematics and science. Across many LAC countries, PISA scores are substantially below the OECD average and that of other emerging economies. Worryingly, the socio-economic background of students plays a prominent role in students’ scores in LAC countries, much more than the average across OECD countries.

Progress has been made in the last decade in many LAC countries to ensure that education and training systems are more inclusive and to boost their quality for students of all backgrounds. Many countries, however, are still struggling. For example, in Peru the socio-economic status of students still explains more than 20% of the variation in PISA scores in science. Socio-economic status also plays a great role in Chile, Costa Rica and Colombia where its impact is well above that observed in the average across OECD countries. Furthermore, in Chile and Colombia the importance of socio-economic background in explaining students’ performance increased considerably between 2006 and 2015.

copy the linklink copied!Low levels of participation in adult learning are a common challenge across many countries but lack of participation is especially worrisome in LAC countries

Further evidence highlights how LAC countries need to boost participation in high-quality training and, especially, in adult learning where countries in the region are lagging particularly behind. The Survey of Adult Skills, a product of the Programme for the International Assessment of Adult Competencies (PIAAC) shows, in fact, that in many LAC countries (Chile, Ecuador, Mexico and Peru) up to 60% of adults have low levels of skills – both in terms of literacy and numeracy proficiency. This calls for immediate action to boost the participation in up-skilling and learning activities for many adults in the region.

Participation in adult learning in the region is also more than 10 percentage points below the OECD average. Non-participation in adult leaning is particularly worrying. Approximately 57% of adults did not participate – and did not want to participate – in adult learning activities (compared to the OECD average of 49%). However, participation in adult learning is very heterogeneous across countries in the region. Chile and Peru for instance, show levels of participation that are similar to those of some developed economies such as Japan or Spain and even higher than in certain other OECD countries like Greece, Italy and Turkey. Other LAC countries, instead, lag far behind and too many adults are uninterested in participating in training.

The average duration of training is also shorter in Latin America than across OECD countries with the median number of hours spent on non-formal job related learning per year (an indicator of the intensity of the participation) being significantly lower in LAC countries than the OECD average. Furthermore, the type of training differs between LAC countries and OECD countries. In Latin America, adults participate more often in informal and less structured training than their peers in OECD countries. On average, for instance, 80% of workers in LAC countries report to learn by doing or from observing others, keeping their skills up-to-date with new products or services at least once per week but in an informal setting.

Informality influences participation in training and skill development and this link is especially important in Latin America. Informality reduces participation in training activities as informal firms are usually small, and have few resources and incentives to devote to training of their workers. This situation perpetuates a vicious circle where informal workers do not train and their lack of skills leads makes them more likely to find jobs in the informal sector than in the formal sector. Providing flexible, cheaper and more accessible learning options to both employees and employers could reverse this trend, helping individuals building labour market relevant skills and igniting a virtuous circle leading to high-quality and formal jobs.

The Survey of Adults Skills (PIAAC) shows that workers employed without a regular contract are, on average, less than half as likely to participate in learning activities than their peers who are employed formally. In some countries, such as Ecuador, the difference in participation in learning activities between workers with and without an employment contract is staggering: approximately 42 percentage points.

copy the linklink copied!Several barriers hinder participation in adult learning, from lack of inclusiveness, financial and time constraints or family obligations

Providing truly inclusive learning opportunities for all and, particularly, to individuals in a region with high levels of inequality such as Latin America is, therefore, of paramount importance. In LAC countries, however, the incidence of adults’ participation in training varies considerably depending on socio-economic backgrounds and/or on the employment status of the individual.

Low skilled individuals, who tend to be in lower-quality jobs and often in the informal economy, participate substantially less in training. One extra year of education is associated with an increase in participation in training of approximately 0.4% across OECD countries and approximately 0.5% in Latin America.

Employment status and job-quality are also strongly related to the take-up of training. According to the Survey of Adult Skills (PIAAC) data, on average in Latin America, the participation rate of the low-wage workers is 26 percentage points lower than that of higher-wage employees. This result is likely to be self-reinforcing, as individuals participating less in training are also those who struggle the most to find high-quality and well-paid jobs.

Gender plays an important role when it comes to participating in training. Across LAC countries, the participation of women in learning activities is lower than that of men. Being a woman reduces the likelihood of participating in job-related training by 8% across OECD countries and by almost 19% in LAC countries. This result is driven by the large gap in participation between men and women in Chile, Ecuador, and Peru. Also, marital status plays a far more important role in LAC countries than across OECD countries and being married reduces the likelihood to participate in training by approximately 17% in LAC countries (while it is not statistically significant across OECD countries).

Perhaps surprisingly, however, workers with dependent children in LAC countries are significantly more likely to participate in job-related training activities than across OECD countries. One possible explanation relates to the existence of numerous social protection training programmes (e.g. Jovenes Programmes or those for poor households) that have been implemented in the last two decades and that are targeting vulnerable families in many LAC countries.

Finally, in contrast with the majority of OECD countries, LAC countries display a very small gap in participation in adult learning between the unemployed and the employed population (only 8 percentage point differences vs. 17 percentage points across OECD countries). This result is because most unemployed individuals in LAC countries are young and are also the recipients of most public training programmes for adults.

copy the linklink copied!Aligning skill development and adult learning to the demands of the labour market is of fundamental importance

A large share of employment in LAC economies is found in low to medium-tech sectors such as manufacturing and agriculture. In countries such as Argentina, Brazil, Chile, Mexico or Peru the shortages of highly skilled professionals is significantly lower than the OECD average, with less than 2 out of 10 jobs in shortage being “high-skilled” and the majority of jobs in demand being found in medium to low-skilled occupations in the manufacturing and agriculture sectors.

Occupational and skill shortages are, however, rather heterogeneous across countries and call for tailored policy intervention. In Chile, for instance, labourers in the mining and construction sector have experienced robust wage growth, signalling a strong demand for low-medium skilled workers in the country. At the same time, business and administration professionals have also seen a sharp increase in both their hours worked and wages, implying a sustained demand for these medium-skilled professionals. In Brazil, however, where the largest demand is in middle-skill professionals, health associate professional and personal care workers have been on the rise in recent years, while wages have been declining in traditionally high-skilled occupations such as science and engineering professionals, signalling a decrease in demand. Technical skills are also in strong demand in both Mexico and Chile, while Argentina’s shortages are in social as well as in basic and complex problem solving skills. Surpluses of complex problem solving skills are found in Peru where demand for high-level skills is weak. In sum, skill demands are varied within the region and what works in one country may not work in another. Tailored interventions, which rely on robust Skill Assessment and Anticipation (SAA) information, is key to fill skill gaps in the labour market, develop relevant curricula, and ensure that demand and supply of skills match.

copy the linklink copied!Digitalisation plays a fundamental role in shaping skill demands and countries in the region are already taking some measures to develop relevant skills

When considering the impact of new technologies on skill imbalances, evidence shows that digitalisation has been slow in making its way in Latin America. Forecasts, however, predict that it is only a matter of time before LAC countries will adopt these technologies more broadly, potentially affecting millions of jobs and workers in the region.

Governments in Latin America are already designing training interventions to respond to the skill challenges of more connected and digital labour markets. In Mexico, for instance, 32 Digital Inclusion Centres (Puntos Mexico Conectado – Centros de Inclusión Digital) have been set up across the country, providing basic digital skills programmes. Peru passed the National Digital Literacy Plan to train individuals in ICT (information and communications technology) skills, the use of computer tools as well as mobile devices. Around 107 online courses were made available also to teachers as part of the Educate Peru Programme with emphasis on developing digital skills to incorporate ICT use in the classroom. Costa Rica and Brazil have been devoting resources to finance the development of ICT skills in universities and graduate courses.

As digital technologies gradually spread across the region, online learning offers a significant opportunity to leverage broadband network access to spread knowledge in a cost-effective way. Massive Open Online Courses (MOOCs), academic courses offered online often provided at no cost, aim at large-scale interactive participation from around the world. These, however, face challenges of implementation in the region. Evidence shows that individuals, who are more likely to participate in open education in Latin America, as across OECD countries more broadly, are mainly young, educated and skilled workers. This situation potentially leaves out the most vulnerable and the low skilled most in need of receiving training. More effort is needed to strengthen the ICT skills of disadvantaged groups and to create suitable options for them to use digital technologies for learning.

While the use of new technologies could potentially bring substantial benefits for learning, governments also need to create the framework conditions for all individuals to access those training opportunities. Among the different policy interventions, governments in Latin America need to build data collection infrastructures to support the timely analysis of labour market needs and inform curricula revisions. This is not always easy. SAA exercises do not always respond effectively to the varying needs of different potential policy uses or are insufficiently disaggregated at the regional, sub-regional or sectoral levels for the policy makers to be able to use them.

Some countries in Latin America have implemented good initiatives to improve their labour market and skills information and those can be potentially useful to match skill demand and supply. In Chile, for instance, the Public Employment Service uses information on labour demand, collected through interviews, surveys and roundtables, to align their training offer with labour market needs. In addition, the government runs an online portal called the National Employment Exchange (BNE), a free site where companies publish job offers and workers can submit CVs for consideration. In the Dominican Republic, the Ministry of Labour created a job portal that matches employers with potential workers. In Brazil, as part of the Pronatec programme, different ministries can submit requests to the Ministry of Education for creating specific training programmes that correspond to the identified skill needs. The Ministry of Education centralises these requests and co-ordinates the opening of funded training programmes with public and private training providers.

copy the linklink copied!All stakeholders, public and private, need to contribute equitably to steering and fostering lifelong learning activities

On average, the amount spent by LAC countries in active labour market policies (ALMPs) is almost half of that of the OECD average. In addition, wide differences exist between OECD and LAC countries when it comes to the focus, scope and configuration of ALMPs policies. With the exception of Colombia and Chile, public spending for training measures in LAC countries is well below the OECD average. For instance, in Argentina, spending on training is roughly half that of the OECD average, and in Mexico and Brazil, funding allocated to training has decreased considerably in recent years, reaching very low levels.

One traditional way to support training in Latin America has been to subsidise its supply through the creation of National Training Institutes (NTI). NTIs, public agencies in charge of supplying and overseeing Adult Learning funded by the government, are financed with a specific tax on the payroll of formal workers that ranges from 0.25% (Uruguay) to 2% (Colombia). Evidence suggests that even when public investments in NTIs are sizable, the effectiveness of their actions could be strengthened. In particular, the training provided by NTIs reaches only a small fraction of employed workers. In the region, less than 15% of employed workers accessed training provided by NTIs – the only exception is Colombia where up to 24% of workers were involved.

Despite the weak take up of training made available by NTIs, evidence shows that some 30% to 50% of LAC firms in the manufacturing sector still offered training through short, structured courses focusing on specific job-related skills. This signals a substantial direct involvement of employers in supporting training in LAC countries. The OECD Survey of Adult Skills (PIAAC) shows that, on average, across LAC countries, 63% of workers who participated in training report to have received funding from her/his employers for at least one learning activity. Mexico shows the largest share of workers receiving direct support from employers, above 80%. These results, however, only refer to workers in formal firms, and little can be said about the engagement of informal firms in training, these latter representing the majority of businesses in the region.

The average figures discussed above mask great heterogeneity across firms of different sizes, with SMEs engaging in the provision of training activities much less than larger firms in the region. Evidence shows that only 40% of workers in SMEs participated in training, compared to 69% workers in larger firms. While a similar pattern can be found in all other countries participating in the OECD Survey of Adult Skills (PIAAC), in Latin America the gap in training participation between small and large firms is almost twice as large (approx. 30%) as the OECD average (17%). The gap in Ecuador and Mexico is even greater than 30%. This particularly worrying and represents a key challenge for LAC countries, as SMEs account for more than 80% of employment and more than 90% of firms in the region.

Recent evidence for LAC countries shows that an increase in the number of skilled workers in the firm increases productivity, but this result holds only for manufacturing firms with more than 100 employees. A 1% increase in the share of high-skilled workers could lead, on average, to a 0.7% increase in productivity in large firms. No such effect is found in small firms. Part of the difference in the way large and small firms are able to benefit from skilled workers is likely to be explained by the differences in managerial skills across firms of different sizes.

A range of market failures and barriers such as the lack of information, capacity and/or resources means that investment in education and training by employers remains sub-optimal, particularly in the case of SMEs. Creating employer networks can be a solution to the lack of managerial skills and resources in SMEs as these often provide leadership and management skills programmes, in addition to their role as facilitators of knowledge exchange and capacity building. Networks of employers have also the key advantage of pooling the resources of smaller actors together, creating a critical mass and economies of scale that SMEs can leverage to their own advantage.

In addition, other solutions could be used to spur the participation of firms of all sizes in adult learning. Well-designed financial incentives steered by government intervention can be a useful tool to boost incentives to participate in training. There are important caveats however, when designing and implementing financial incentives. As with any policy intervention, a key challenge is, in fact, to ensure the effectiveness of the incentive while minimising potential deadweight losses.

First, the design of financial incentives needs to consider the institutional context as well as the specific objectives that a policy intervention is meant to achieve. In the case of skill development policies, before introducing any intervention the policy maker should carefully assess the reasons for any apparent under-investment in training and the best way to create (or restore) adequate incentives with minimum intervention.

Second, the efficacy of financial incentives depends on a range of framework conditions being in place in the country. For instance, while providing financial support to firms may be desirable to reduce the cost associated to their participation in training, doing so without setting up a solid skills information system that supports employers in making informed decisions on the choice of education providers or on the skills to be developed, may lead to a considerable waste of resources.

Targeting financial incentives at employers rather than at individuals has the advantage that training is more likely to meet the specific needs of the firms and, therefore, to fill concrete gaps in labour market needs. One drawback, however, is that, by providing direct and unconditional support to employers through cash transfers or tax credits, the government risks not being able to reach disadvantaged and vulnerable workers, as employers have weaker incentives to provide training to those groups. Intermediate solutions can be found so that the financial incentives are designed to reach employers under the condition that these provide training also to disadvantaged workers. Funds can also be made conditional on supplying training to the unemployed to ensure their re-inclusion in the labour market and ensure that adult learning plays a key role in ensuring that all citizens develop the skills that will be needed to face the challenges of the future of work. A multipronged approach is needed, where different tools and instruments are used jointly and tailored to the specific policy objective and context of the country.