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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.