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Skills for Economic Transformation
Making technical and vocational education and training (TVET) responsive to the future needs of the economy
Agenda
The context: the Masterplan for Economic Transformation
Trends in education and job creation
Why worry about training?
A concept for improving quality and relevance of training
The Context: Masterplan for Economic Transformation
Transform Indonesian economy by 2025 to reach:
Nominal GDP of $6.4-$8.1 billion
Nominal GDP per-capita of $20,600-$25,900
Significant improvement in poverty and human development indicators
Transform the structure of Indonesian economy in 2030 by increasing secondary and tertiary economic activities:
A New Vision for Indonesia 2025
A New Master Plan for Economic Transformation
DEVELOPED COUNTRY Economic Structure 2025
INDONESIA (Lower middle income country)Economic Structure 2009
1. Agriculture
2. Mining
3. Energy
4. Industrial
5. Marine
6. Tourism
7. Telecommunication
8. Development of strategic areas
The plan is focused in 8 programs and 22 activities
Economic Transformation Master Plan
Organized in economic corridors
The programs and products are linked to 6 economic corridors
“Plantations Production and
Processing Center and National Energy
Reserve"
“Mining Production and Processng Center and National Energy
Reserve"
“National Plantation, Agriculture, and
Fisheries Production and Processing Center''Sumatera Corridor
'‘National Tourism Gate and National
Food Support''
“National Industry and Services Booster"
“Abundant Natural Resources Processing
and Prosperous Human Resources"
Kalimantan Corridor
Sulawesi Corridor
Papua Corridor
Bali Nusa Tenggara Corridor
Jawa Corridor
Each economic corridor has detailed planning Example: Java
The plans by economic activity are very detailed, for example in Java:
Manufacturing: food and beverages, textiles, transportation equipment
Service Industry: ICT, shipping industry
Defense equipment
Infrastructure and spatial planning in the greater Jakarta area
For each activity the plan identifies regulations that need to be changed, connections/infrastructure that needs to be improved and main investmentrequirements
But the typical HR strategy for each corridor / economic area reads as follows:
“Recruit qualified human resources from within Indonesia and abroad;
Improve education and training for local experts supporting the food and beverage industry.”
Investment and infrastructure needs are detailed, but HR strategies are undeveloped
Looking at recent trends: Is the system responding to the changing demands in the labor market?
More educated labor market entrants than ever (expansion in access)
Big expansion in higher education
Looking into the future:
How will the economy evolve?
How will the labor force evolve?
So how can Indonesia plan for the workforce that it will need in the future?
Accurate workforce planning in a country like Indonesia is impossible: the focus should be on the system
Planning a supply push based on the Masterplan is unreasonable:
The Indonesian economy is too large and complex to do central planning
The Masterplan is only a plan: priorities and/or market conditions might change
Even if implemented exactly, the labor intensity and skill composition within sectors may change
What this analysis does is show the magnitude of the mismatch: the current supply will need to adjust
The focus needs to be on ensuring the education and training system canrespond to the changing needs of the productive sector
Trends in Education and Job Creation
The educational composition of the labor force has improved dramatically over a generation
In 2 generations, the share of the population with primary or less from almost 70 percent to less than 25 percent
0%
10%
20%
30%
40%
50%
60%
Never School
Primary Junior Secondary
Senior Secondary
Tertiary
Pec
enta
ge o
f po
pu
lati
on
46-55 36-45 26-35 18-25
Source: Susenas, 2010
And the next generations will continue to have higher educational attainment
0%
20%
40%
60%
80%
100%
120%
ECD Primary Junior Secondary Senior Secondary
Tertiary
2001 2002 2004 2005 2006 2007 2009 2010
Net Enrollment Rate
Gross Enrollment Rate
GER in junior and senior secondary grew by 20 and 40 percent respectively
Higher education growing faster but from a very low baseline
Acceleration in the last 5 years
In the last decade, most new jobs were for graduates of more than basic education
-
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
2001 2010
Higher Education
Senior Secondary
Basic
78%
26%
17%
52%
5%
22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Share in 2001 Share of change
Higher Education
Senior Secondary
Basic
The change in employment by level of education is clear: the labor force is becoming more educated quickly
Over 75 percent of new jobs were for higher than basic education graduates
Source: Sakernas
There are signs that the influx of more educated workers may be starting to lower returns to education in recent years
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Primary Junior Secondary
Senior Secondary
Higher Ed
Wa
ge
pre
miu
m o
f co
mp
leti
ng
ea
ch l
ev
el,
com
pa
red
to
le
ss t
ha
n p
rim
ary
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-10%
0%
10%
20%
30%
40%
50%Agriculture
Blue-collar
Production
Administration / Sales
Professional
Manager
Total
Part of the explanation is a skills mismatch: graduates are going to unskilled jobs (¼ to be exact)
Some good news:
Most of the growth was
in appropriate, semi-
skilled positions
Most of the growth was
in wholesale trade (36%)
Some bad news: 24% was in
unskilled jobs: agricultural
laborers (16%) and “blue-
collar” workers (8%)
Share of job growth for senior secondary graduates
By sector and type of job
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Agriculture Wholesale Service Industry Mining
Low return High Return
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Most of the growth was in “low returns” sectors, the returns in manufacturing and mining are growing quickly
The decrease in average
returns is driven by
disproportionate job creation
in lower returns sectors:
wholesale and agriculture
The returns to senior
secondary in service sector
are decreasing rapidly
The returns in manufacturing
sector are increasing:
shortage of graduates?
Returns to education levels,
Selected low return and high return sectors
Employers consider in need of training a large share of those employed in manufacturing and service sectors
0 10 20 30 40 50
Unskilled production
Directors
Professionals
Sales workers
Permanent workers
Administrative
Skilled production
Share of staff in need of training0 10 20 30 40
Primary or less
University
SMP
Diploma
SMK
SMA
Share of staff in need of training
Source: Indonesia Skills Survey (2010)
By type of job By level of education
Employers complain that it is difficult to find workers with the right skills, especially exporters
High level of skills are very hard to find
Skilled production is hard to find for exporting firms (quality?)
Meanwhile a high share of SMK graduates is unemployed
As Indonesia moves up the value chain, finding skilled production workers will be more difficult
Share of firms identifying the task of finding workershard or very hard, by type of job
Source: Indonesia Skills Survey (2010)
Meanwhile unemployment of secondary vocational school graduates is very high
Yet very few firms provide training opportunities, especially small and medium and non-exporters
0 20 40 60 80
Domestic
Foreign (more than 10%)
Exporters (>10% of sales)
Non-exporter
Small (5-19)
Medium (20-99)
Large (100+)
Share of firms providing formal training
Indonesia
EAP
World
Source: World Bank, Enterprise Surveys 2009
That small firms don’t train is not surprising: a big driver of whether firms offer opportunity for training is the need for quality
But even large firms offer significantly less training in Indonesia than in the region
Why worry about training?
Changing the skills of the labor force through formal education will take a long time
Even achieving:
universal access to senior secondary
doubling the enrollment rates in higher education
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2020
Sha
re o
f w
ork
forc
e (
15
-55
)
HE
SMU
SMP
SD
-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
shar
e e
nro
lle
d
Age
Current
by 2020
By 2020:
Still half of labor force with less
than senior secondary
Only 15 percent with higher ed
Projections of enrollment rates Share in the labor force by level of
education
The current training system is underdeveloped, low use of the competency standards and competency-based trainings
UPTPUPTD -
Province
UPTD -
DistrictPrivate
Course 64% 74% 94% 84%
Both 33% 16% 2% 11%
Competence 3% 10% 4% 6%
0%10%20%30%40%50%60%70%80%90%
100%% Types of Certificate
Most courses in BLK offer are not competency based
Source: BLK Survey, World Bank (2011)
Of the 6,500 competency units developed in 148 occupations, less than 10% are used (for training or certification)
There are only 128 certification centers (TKU) and only 6,000 certified workers
0 1000 2000 3000 4000 5000
Other
Ship / Sailor
Agriculture / Fishing
Automotive
Administration
Technology
Tourism/Services
Education
Sewing
Beauty/Spa
Language
Computer
And concentration of non-formal training institutions in low quality, basic vocational skills
The current system is focused on very basic vocational skills
Very little Agriculture and Technology
Almost non-existent for some “priority sectors”
Source: MoEC, 2010
Number of non-formal training institutions
Responding to Challenges
In summary:Four key messages of the presentation
The advances in access to education in Indonesia are finally paying-off:
Most new labor market entrants have at least senior secondary education, many more have higher education
There are indications that the graduates do not have the right skills
About ¼ enter lower level occupations and low productivity sectors
Returns to education are starting to decrease
Employers consider a large share of them in need of retraining
Employers rarely offer training, and available training institutions focus on low quality, basic vocational skills
There is need for public sector intervention to i) ensure a stronger role from private sector, ii) coordinate across ministries, iii) credible quality assurance system, iv) subsidize demand
