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YOUTH SKILLS AND JOBS: The Informal Sector

This is the fourth of a five-part article series by Dr David Smawfield, an international expert on technical and vocational education and training, exploring different dimensions of youth skills development for jobs and employability. This discourse leads up to the ADB International Skills Development Forum in Manila from 10-12 December 2013.  Edited, Shanti Jagannathan, ADB.

In developing economies, the informal sector employs a large proportion of the working population often approaching and even exceeding 90% of the economically active work force.    Skills development strategies are often not tailored to the needs of small and medium enterprises (SMEs) who may not have sufficient resources for training. A major tool to increase productivity and competitiveness of SMEs is through appropriate skills development.

The informal sector is mostly made up of micro- and small enterprises. Small businesses find it difficult to release key employees to undertake training away from the job. The opportunity costs for the learner may also be high. Limited cash flow for training is an associated constraint. Workers in SMEs have multiple skilling needs – in some cases, know-how on financial, business and marketing aspects of a trade or enterprise may be just as important, if not more so, than technical training.

A key policy dilemma is where to put the emphasis in the informal sector: training those without employment to help them become economically active; or training those with businesses and employment to be more economically productive. Equity considerations may favour the former. However, anecdotal evidence from programme and project experience suggests the latter can be powerful to increase productivity of enterprises.

With regard to skills upgrading in the informal sector, a number of approaches have been held to show promise:

  • Encouragement of ‘recognition of prior learning and experience’. This allows informal sector workers to gain credence for their experience for further skills upgrading and progression to higher order jobs, including in the formal sector.
  • NGOs and some private sector providers have a good track record at reaching the ‘hardest to reach’ in the informal sector. Policies need to specifically acknowledge and support such training provision and delivery by non-government channels.  Equally, provision of training vouchers for informal sector workers to access formal institutional training must be encouraged.
  • Flexible learning approaches could be great importance for effective training delivery to informal sector workers, such as modular approaches where higher competencies can be built up over a period of time.

A recent World Bank Research Report on Improving Skills Development in the Informal Sector, while focused on Sub-Saharan Africa, has key findings that can also be applicable for Asia. The report stresses that apprenticeships are the most important form of skills development in the informal sector and efforts are needed to improve their efficiency. It is acknowledged that to some extent, skills development in the informal sector remains a remedial activity that compensates for inadequate quality basic and secondary education. Countries need to explicitly incorporate skills development in the informal sector more firmly in the policy agenda.

An OECD report on Skills Development Pathways in Asia also finds that developing countries in Asia commonly face a lack of skills development in SMEs, especially internal training. This phenomenon has not been effectively addressed in donor partnerships either.  The report advocates the development of local skills ecosystems that bind organizations, institutions and firms in a certain local area or labor market in area-based partnerships for training and skills development. There are many advantages in putting more emphasis on devolving more responsibility and resources for partnership development to the local level.

On the one hand, the scale of investments for skills development in the informal sector needs to match the need of the sector. On the other hand, innovative and alternative routes to traditional training are also required.

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Skills Development – a pressing development challenge. Shanti Jagannathan, Senior Education Specialist, ADB

Skills development is currently occupying center stage in development discourse– to sustain growth, increase employment, reduce inequalities, strengthen human capital and advance knowledge based economies.  Unprecedented interest is directed to policies and strategies that governments and business must adopt for skills development. UNESCO is scheduled to release two major reports on skills this year: the Global Monitoring Report on Skills and the World TVET report.  The OECD’s emerging Skills Strategy talks about skills as the global currency for the 21st century. The ADB’s Education by 2020: A Sector Operations Plan emphasizes strengthening quality, inclusiveness and relevant skills at levels of education. The World Bank’s recently launched Education Strategy for 2020 states that it is knowledge and skills of people, not years spent in a classroom, that contribute more to economic growth.  The skills-employment nexus has become an overriding priority. The G20 Declaration of November 2011 put employment at the heart of policy action to restore growth and set up a task force to tackle youth unemployment. The special chapter on employment in the ADB’s Key Indicators for Asia and the Pacific 2011 discusses the transition to higher quality employment as a key link to economic growth and poverty reduction in developing Asia. The Asian Development Outlook 2012 discusses rising inequality in Asia despite high growth rates. Employment intensity of growth in Asia is lower than global average and has declined in recent years.  Inequality of opportunity, particularly education and skills, contributes to growing income inequality.

The writing is on the wall that a major revamp is needed in skills development and training. More of the same will not do in terms of policies and strategies. New thinking is required to handle a complex set of inter-related issues.

Education and training systems are not in step with the needs of the market as witnessed by the paradox of increasing demand for skills co-existing with skills shortages and skills mismatches. Assuring adequate employment is a pressing challenge as students of emerging from technical and vocational education and training are not finding jobs. On the one hand, there is a need for developing countries to increase the skill base of their work force to serve high technology industries and for moving up the value chain. On the other hand, with burgeoning tertiary education systems, problems of graduate unemployment are increasingly surfacing even in developing Asia, which bode ill for countries with youthful populations. The Arab Spring is seen as a possible precursor to more unrest if the youth unemployment issue is not tackled. In countries that are facing an aging population, skills will be the crucial determinant of people’s ability to stay in the labor market for a longer time. Fast growing sectors in Asia, are not necessarily offering growing employment opportunities as well. Employers are looking for not just technical skills but an array of soft skills that encompass problem solving and behavioral skills. The private sector is playing a dominant role in anticipating and contributing to skills development, calling for appropriate regulatory regimes and incentive structures for skills development. The large prevalence of informal markets poses unique challenges to skills training systems that support workers in small and medium enterprises and entrepreneurs. There is a need to mesh together and bring congruence between policies for economic growth and industrial development, education and skills development and labor market and social protection. All easily said than done!

This space will provide an informal platform for individuals and professionals to discuss and deliberate upon pressing challenges and possible solutions. Exchange of experiences and practices can lead to enriching the dialogue between developed and developing countries and peer exchanges within developing nations. We look forward to an active debate on key themes and issues of interest to the community of practitioners in the skills and training sector!

http://www.adb.org/news/events/skills-inclusive-and-sustainable-growth-developing-asia-pacific

http://adb.org/publications/skills-inclusive-and-sustainable-growth-developing-asia-and-pacific?ref=sectors/education/publications