Skills and Development: Beyond the 2008-9 Crisis

Shahid YusufWorld Bank Institute

June 8th, 2009

Post Crisis Scenarios and Questions• For some, a reading of the tea leaves suggests

that recovery from the current crisis could be a slow process.

• Others see green shoots and believe that the world economy could revert to recent trend rates of growth within the next 18 months.

• Is such a rebound likely? Even if it does occur, how might it affect the demand for skills? Could skill shortages constrain growth?

• If growth is slow, can investment in skills stimulate economic performance?

International Economic Performance: 1980 - 2000 and 2001 - 2007

Region

Avg. Trade Growth Rate 1980-2000

Avg. Trade Growth Rate 2001-2007

World 7.2 12.0

Dev. countries 7.3 16.7

Region

Avg. GDP Growth Rate 1980-2000

Avg. GDP Growth Rate 2001-2007

World 2.9 3.1 Dev. countries 3.5 6.1

Region

Avg. p.c. GDP Growth Rate 1980-2000

Avg. p.c. GDP Growth Rate 2001-2007

World 1.3 1.8 Dev. countries 1.7 4.7

What Accounts for the "Golden Age of Growth"

• High levels of investment.• New general purpose technologies (computerization, the

Internet).• Low energy, food, and resource costs.• Trade liberalization and global market integration.• Rapid growth of manufactured goods trade, especially that

of electronics and electronic components.• Cycles of outsourcing production (of goods and services)

from the advanced countries starting in the 1970s.• Strong demand from the U.S. and the EU, in recent years

supported by high rates of credit creation.

Anti-growth Factors: Short term and Long

• Adjustment and higher rates of saving in the U.S. and more inward oriented development in China and possibly India.

• Excess production capacity in many industries.• 'Murky' trade restrictions and a retreat of globalization.• Costs of slowing global warming and coping with shocks

associated with climate change.• Energy and food price hikes.• Water scarcities.• No apparent “high growth” export goods and services.• Could the shortages of skills become an additional

constraint?

Is the Developing World Moving towards More Skill Intensive

Production Systems?

* denotes data is for year 2006

Manufacturing, value added (% of GDP)

Country Name 1995 2007 Bangladesh 15 18

Brazil 19 18 Egypt, Arab Rep. 17 16

Jordan 15 19 Kenya 10 11

Korea, Rep. 28 28 Malaysia 26 28 Pakistan 16 19

Singapore 27 25 Taiwan, China 25 24

Tanzania* 7 7 Thailand 30 35

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Pakistan: 1995 and 2007

Product name

Trade value 1995 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Cotton yarn 1,587 LT1 Linens and furnishing articles 2,318 LT1 Cotton fabrics, woven, bleached 557 LT1 Cotton yarn 1,406 LT1 Linens and furnishing articles 536 LT1 Cotton fabrics, woven, bleached 1,226 LT1 Cotton fabrics, woven, unbleached 516 LT1 Rice, semi-milled or wholly milled 1,145 PP Synthetic fabrics, woven 502 MT2 Commodity not classified 1,007

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of South Africa: 1995 and 2006

Product name

Trade value 1995 (millions of US$)

Tech. Class

Product name

Trade value 2006 (millions of US$)

Tech. class

Diamonds,unwork.cut/otherwise work. 2,320 RB2 Platinum and other metals 8,012 PP Other coal,whether/not pulverized 1,564 PP Other coal,whether/not pulverized 3,090 PP Ferro-alloys 1,141 MT2 Passenger motor cars 2,718 MT1 Gas oils 396 RB2 Diamonds,unwork.cut/otherwise work. 2,426 RB2 Chemical wood pulp,dissolving grade 388 RB1 Filtering & purifying mach.for liquids 2,406 MT3

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Bangladesh: 1995 and 2007Product name

Trade value 1995 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Shirts,men's,of textile 644 LT1 Under garments,knitted of cotton 2,358 LT1 Crustaceans and molluscs 283 PP Trousers,breeches etc. of textile 1,878 LT1 Trousers,breeches etc. of textile 207 LT1 Jerseys,pull-overs,twinsets, etc 1,300 LT1 Other outer garments of textile 170 LT1 Other outer garments of textile 885 LT1 Under garments,knitted of cotton 158 LT1 Shirts,men's,of textile 841 LT1

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Brazil: 1995 and 2007Product name

Trade value 1995 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Oil-cake & other residues 2,040 PP Petrol.oils & crude oils 8,910 PP Coffee, roasted or not 1,970 PP Iron ore and concentrates 7,110 RB2 Iron ore and concentrates 1,700 RB2 Soya beans 6,710 PP Sugars,beet and cane 1,450 RB1 Passenger motor cars 4,650 MT1 Chemical wood pulp, etc 1,450 RB1 Poultry,dead & edible 4,360 PP

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Egypt: 1995 and 2007Product name

Trade value 1995 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Petrol.oils & crude oils 719 PP Petroleum gases etc 3,040 PP Fuel oils,n.e.s. 462 RB2 Petrol.oils & crude oils 1,050 PP Cotton yarn 306 LT1 Rice semi or wholly milled 400 PP Cotton (other than linters) 152 PP Bars & rods,of iron/steel 294 LT2 Aluminium and its alloys 150 PP Polyethylene 249 MT2

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Kenya: 1995 and 2007Product name

Trade value 1995 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Tea 362 PP Tea 698 PP Coffee, roasted or not 292 PP Cut flowers and foliage 390 PP Cut flowers and foliage 68 PP Other fresh/chilled vegetables 232 PP Sheets,plates,of iron etc 66 LT2 Coffee, roasted or not 165 PP Fruit otherwise prepared etc 54 RB1 Cigarettes 94 RB1

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Malaysia: 1995 and 2007Product name

Trade value 1995 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Electronic microcircuits 9,850 HT1 Electronic microcircuits 21,800 HT1 Parts and accessories for 7512,752 4,690 HT1 Parts and accessories for 7512,752 10,400 HT1 Palm oil 3,590 RB1 Petrol.oils & crude oils 9,760 PP Petrol.oils & crude oils 2,680 PP Petroleum gases etc 8,780 PP Parts of apparatus of division 76-- 2,330 HT1 Palm oil 8,240 RB1

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Tanzania: 1997 and 2007Product name

Trade value 1997 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Cotton (not incl. linters) 104 PP Gold,non-monetary 554 LT2 Coffee, roasted or not 101 PP Ores & concentrates of precious metals 201 RB2 Nuts edible, fresh or dried 67 PP Coffee, roasted or not 116 PP Tobacco,not stripped 49 PP Tobacco,wholly or partly stripped 86 PP Fish fillets,frozen 39 PP Fish fillets,fresh or chilled 82 PP

Are Exports from Low and Middle Income Countries Becoming More Skill Intensive?

Top 5 Exports of Thailand: 1995 and 2006Product name

Trade value 1995 (millions of US$)

Tech. class

Product name

Trade value 2006 (millions of US$)

Tech. class

Peripheral units,incl.control & adapting 2,590 HT1 Peripheral units,incl.control & adapting 8,400 HT1 Natural rubber latex; nat.rubber & 2,460 PP Electronic microcircuits 6,310 HT1 Crustaceans and molluscs 2,410 PP Natural rubber latex, etc 5,430 PP Parts and accessories for 7512,752 2,290 HT1 Parts and accessories for 7512,752 3,730 HT1 Footwear 2,090 LT1 Goods Motor vehicles 3,680 MT1

Are Exports of the Leading East Asian Tiger Economies Becoming More Skill Intensive?

Top 5 Exports of Korea: 1985 and 2006Product name

Trade value 1985 (millions of US$)

Tech. class

Product name

Trade value 2006 (millions of US$)

Tech. class

Ships,boats etc 4,949 MT3 Passenger motor cars 30,597 MT1 Footwear 1,534 LT1 Electronic microcircuits 25,392 HT1 Synthetic fabric woven 886 MT2 Ships,boats etc 19,715 MT3 Jerseys,pull-overs,twinsets etc 837 LT1 Radiotelegraphic & radiotelephonic 17,335 HT1 Electronic microcircuits 760 HT1 Parts of apparatus of division 76-- 14,648 HT1

Are Exports of the Leading East Asian Tiger Economies Becoming More Skill

Intensive?

Top 5 Exports of Taiwan: 1990 and 2007Product name

Trade value 1990 (millions of US$)

Tech. class

Product name

Trade value 2007 (millions of US$)

Tech. class

Footwear 2,501 LT1 Electronic microcircuits 41,674 HT1 Peripheral units,incl.control & adapting 2,451 HT1 Optical instruments and apparatus 15,933 HT2 Parts and accessories for 7512,752 2,261 HT1 Other elect.machinery and equipment 11,572 HT1 Miscellaneous articles of plastic 1,749 LT2 Parts and accessories for 7512,752 8,179 HT1 Other sporting goods and fairground 1,666 LT2 Printed circuits and parts thereof 5,396 MT3

Are Exports of the Leading East Asian Tiger Economies Becoming More Skill

Intensive?

Top 5 Exports of Singapore: 1985 and 2006Product name

Trade value 1985 (millions of US$)

Tech. class

Product name

Trade value 2006 (millions of US$)

Tech. class

Motor spirit and other light oils 1,861 RB2 Electronic microcircuits 56,794 HT1 Gas oils 1,722 RB2 Parts and accessories for 7512,752 18,360 HT1 Fuel oils,n.e.s. 1,587 RB2 Peripheral units,incl.control & adapting 10,237 HT1 Electronic microcircuits 943 HT1 Radiotelegraphic & radiotelephonic 9,250 HT1 Peripheral units,incl.control & adapting 697 HT1 Crystals, parts, nes of electronic components of 776 7,002 HT1

Is the Demand for Skilled Workers Rising in the United States?

Percent change in employment Educational requirements Network systems and data communications analysts 53.4 Bachelor's degree Personal and home care aides 50.6 Short-term on-the-job tranining Home health aides 48.7 Short-term on-the-job tranining Computer software engineers, applications 44.6 Bachelor's degree Medical assistants 35.4 Moderate-term on-the-job tranining Computer systems analysis 29 Bachelor's degree Custromer service representatives 24.8 Moderate-term on-the-job tranining Registered nurses 23.5 Associate degree Postsecondary teachers 22.9 Doctoral degree

Is Manufacturing Becoming More Skill Using?

• Not low-end light manufacturing or assembly operations. Even processing industries are marking time.

• Higher end manufacturing is becoming more skill and in particular IT and tacit knowledge intensive. But there is relatively little hard data to validate this. Not much of such advanced manufacturing has yet moved to developing countries - with the possible exception of China.

• Skill and Technology intensive manufacturing industries (and manufacturing more generally) registering steady gains in productivity and generating few jobs. In fact, the number of jobs in manufacturing is declining.

Are Services Industries Demanding More Skills?

• Business and medical services have traditionally required a high level of expertise.

• Services such as retail. wholesale and logistics have absorbed a lot of IT which has increased the demand for people with computer and associated skills but this is also increasing productivity and decreasing the labor coefficient of these activities.

• Personal services remain relatively low skill and labor intensive.

• Growth of business and commercial services will raise demand for skills, however, IT has the potential of curbing the growth of demand for workers.

Are Skill Shortages and Mismatches a Brake on Growth?

• Evidence from ICAs suggests that employers view skill shortages as a problem. However, the problem does not go away, nor is there rigorous evidence that it is holding back growth. Could this be a box all employers will routinely tick just like access to financing?

• Continuing net brain drain from many low and middle income countries suspends a question over the extent of shortages. Why are labor markets and training institutions so slow to adjust?

Could an Increase in Human Capital Raise Growth Rates?

• This is not happening in the OECD countries. The long-run growth rate of the U.S. has been surprisingly stable at 1.8% p.a. even with the increase in education attainment. Similarly for Korea.

• Findings from growth economics are mixed: Results depend upon the measure of human capital, sample of countries and time period, stage of development of countries, quality of graduates and other considerations. Results subject to nonlinearities.

• Growth Commission presents an equivocal message on human capital.

“Investments in human capital will generate opportunities for growth, but these do not translate mechanically to growth. Other factors can intervene.”

Per Capita GDP Growth and Labor Force with Tertiary Education, US

1020

3040

50

$2500

$5000

$10000

$15000

$20000$25000

1860 1880 1900 1920 1940 1960 1980 2000year

real per capita GDP

predicted GDP% of population with some post-secondary education% of population with finished post-secondary education

Per Capita GDP Growth and Labor Force with Tertiary Education, Korea

05

1015

2025

$2500

$5000

$10000

$15000

$20000$25000

1960 1980 2000year

real per capita GDP

predicted GDP% of population with some post-secondary education% of population with finished post-secondary education

Quality Might be More Important than Quantity

• Causality running from quality of secondary education to growth strongly supported by some research.

• Quality likely to influence productivity, the upgrading of products, technology absorption and innovation.

How Can the Quality of Education and Training be Raised?

• There are two not mutually exclusive approaches;– Tackle the entire education production system from early childhood nutrition

through schooling to tertiary education, by strengthening each link in the chain. This is an expensive and time consuming. Few success stories.

– Adopt a highly selective and tiered approach starting with upper secondary schooling and university education. Devote resources to raise quality through a coordinated application of policies, e.g. public provision of only STEM skills at tertiary level, autonomy of institutions, competition between institutions, teacher incentives, smaller class size, partnerships with employers and design of curricula in consultation with employers etc.

• Will this be easy? No. And politically, limiting access to public institutions is a hard sell. However, is there a viable alternative given resource constraints in all countries and also the fact that social returns are no higher than private returns for tertiary education? Diversified upper secondary and tertiary education sector provided by the private sector is one option to accommodate the rising demands for education services.

Thank You