Skills for Employability and Productivity in Indonesia Indonesia Skill Report (Emanuela di Gropello, World Bank, East Asia and Pacific Region, March 3, 2010)

Outline Motivation and conceptual framework (skills: what are they, how and where are they acquired, why are they important for Indonesia) Diagnostic (demand for skills, skill gaps, demand and supply of education and training in Indonesia) Policy recommendations

Motivation: What do we mean by skills? Workers need to be equipped with a set of skills to be employable and support firms’ competitiveness and productivity Main skills are: Academic skills: associated with subject areas (math, literacy, English) and generally measured through standardized scores Generic (or life) skills: broader set of skills transferable across jobs generally including thinking (critical and creative thinking, problem solving, etc), behavioral (typically communication, organization, teamwork, and leadership skills) and computing skills Technical skills: skills associated with one’s profession, which are generally a mix of specific knowledge and skills to perform jobs

How are skills acquired? Skills are produced in many different ways involving pre-employment education and training (formal and informal), on-the-job training (formal and informal), work and life experience, learning from peers at school and work, etc Skill acquisition is a cumulative dynamic process starting at birth with parental education and continuing through school education, training and experience While skills can grow over time, they can however also decay if possibilities for life long learning are not well developed Additionally, a share of the population can be excluded from effective skills acquisition if alternative “second-chance” skill development pathways do not exist for vulnerable youth

Where are skills acquired? Academic skills: largely in formal (and non-formal) education institutions Generic (or life) skills, from: early-childhood parental education education and training institutions through curriculum and pedagogical approaches which enhance them on the job-training (including non-formal learning through co-workers and supervisors) work experience and learning by doing Technical skills, from: upper-secondary and tertiary education and training institutions through curriculum which enhance them on the job-training (including non-formal learning from co-workers and supervisors) work experience and learning-by-doing

What should be in place? Sufficient, high quality and relevant school-based formal education and training opportunities at all levels to provide the following skills: primary: basic academic and generic skills secondary: more advanced academic and generic skills, some technical skills tertiary: higher-order academic, generic and technical skills Quality non-formal education and training: to provide academic, generic and technical skills to out of school groups to complement formal education with additional generic and/or technical skills to provide opportunities of updating academic and technical skills in time Sufficient firm training: to complement formal/non-formal education and training with additional (job-relevant) technical and generic skills to provide opportunities of keeping technical and generic skills up to date

Why are skills important for Indonesia? In Indonesia, the past two decades have been a time of great progress but also massive transformations and abrupt setbacks Re-gaining momentum will depend on many factors, but skills have a key role to play to support the further growth and competitiveness of the manufacturing sector and growing service sector, and, in general, enhance the long-term ability of the country to innovate and of workers to be meaningfully employed It is therefore essential to understand skill needs and how they can be addressed

Diagnostic: What skills are most in demand in Indonesia? Practical and theoretical knowledge of the job, acquired through schooling and experience, matter a lot And for both managers and professionals, and skilled workers

What skills are most in demand in Indonesia? Overall thinking and behavioral skills are critical for managers and professionals. Basic academic skills remain at a premium for skilled workers Employees stress the importance of communication and creative thinking skills

Where are skills most in demand in Indonesia? Behavioral skills are in higher demand in the service sector, with particular focus on communication and leadership skills All generic and academic skills are in higher demand in the exporting sector Other drivers of demand for skills include firms with high product quality standards, more competitive business environment, workplace changes such as greater client orientation, more teamwork and technology innovation adaptation (including use of computers).

Will demand for skills continue to grow? Employers all agree that demand for skills will continue to grow The increase of the service sector in terms of employment shares points to the same direction Other evidence pointing in the same direction comes from the latest IMF projections on imports and exports in terms of GDP – all growing from 2009 onwards (export/GDP will get back to 30%).

Are there any skill gaps in Indonesia? While demand is growing, subjective assessments of difficulties of matching needs with available skills provide evidence that skills are becoming an issue in Indonesia According to employers, this is particularly the case for English and computing skills, but also thinking and behavioral skills are at stake, as well as job-specific skills Standardized testing also shows significant room for improvement in basic academic skills

Skill gaps? Difficulties are more marked in the exporting sector A significant proportion of firms complains about difficulties to find the right skills for managers and professionals, and to a lesser extent skilled production workers Difficulties are more marked in the exporting sector

Skill gaps? Gaps in thinking, behavioral, computing and English skills Gaps in practical and theoretical knowledge of the job Young workers complain particularly about gaps in creativity, English, computing and some technical skills. Over 40% of young workers very much agree that additional skills would improve their performance Gaps in English and computer skills have higher relevance for the exporting sector Three weakest skills according to employers

Skill gaps? Basic academic skills are weak in relation to other East Asian and developed countries Supply side data provide a more accurate picture of gaps in academic skills PISA 2006 math results TIMSS 2009 math results

Reasons for skill gaps Issues with the quantity of education and training? Issues with the quality of education and training? Labor market related issues? Other?

Reasons for skill gaps Quality more important than quantity of education Job turnover and low starting wages are other significant reasons producing skill matching issues Low starting wages are an indication of wage compression and some constraints on the demand-side (bound to be more important for professionals and managers)

Quantity and quality of education and training: demand versus supply-side constraints Quantity gaps somewhat more evident in the manufacturing sector: Need for supply push to increase relevance of secondary and tertiary education to the needs of the manufacturing sector Demand for education remains sustained in Indonesia, driven by the service sector, but signs of longer term wage compression, education “over-qualification” and graduate unemployment point to some constraints in the ability of the economy to absorb educated workers, which could hamper the production of more tertiary graduates – still too few according to supply side data: Need for demand push Demand for quality of education and training is high across the board: Need for significant supply push to address quality gaps Relevance to manufacturing sector needs to be increased while maintaining relevance to the growing service sector Demand for tertiary graduates may in part may be increased through quality improvements, in part through the growing service sector

Demand for tertiary graduates Demand remains sustained but slightly decreasing trend in tertiary education return Demand for tertiary education is driven by the service the sector

Demand and supply of tertiary graduates Significant unemployment and “over-qualification” ratios for tertiary graduates …but still low tertiary GER

Quality gaps in education and training Almost one third of secondary graduates are below average or less, and the rest is just fair The majority of tertiary education graduates is only fair

Secondary education gaps Gaps in quality and relevance are particularly strong in secondary education Vocational and general secondary schools have each specific advantages and shortcomings: both tracks need to be improved Beyond gaps in generic skills, gaps between what the TVET specific curriculum is proposing and what industries really need, or, yet, in the intensity of school-industry linkages (lead to few TVET graduates employed in manufacturing) General secondary produces more rounded and flexible graduates, which however lack significantly in specificity and contacts with the productive world complicating job placement (in particular for the youth) Cost-effectiveness overall lower in vocational education

General and vocational secondary tracks: strengths and weaknesses -Curriculum coverage and quality of teaching and learning rated higher in general track -Curriculum specificity and linkages with private sector rated higher in vocational track employees employers

General and vocational secondary tracks: labor market outcomes Education premiums Declining returns in vocational education Unemployment rates This illustrates lower cost-effectiveness of SMK in particular when considering that a public general high school student costs 5.3 million Rupiah per year, while a public vocational high school student cost 6.8 million per year. Interestingly, we should also note that students attending SMK and SMA have a similar background in Indonesia, limiting this source of bias. Increasing unemployment rate for vocational graduates

Tertiary education gaps Gaps also in quality and relevance of tertiary education Universities and diplomas have each specific advantages and shortcomings: but diplomas tend to be weaker across the board suggesting relevance and quality issues at the lower end of tertiary education At the higher end, R&D capacity and higher order thinking skills for innovation are still very weak Relevance is more of an issue in relation to manufacturing

Tertiary tracks: strengths and weaknesses -Quality of facilities, curriculum coverage and research capacity rated higher in universities -Linkages with industry and adaptability to labor market needs rated higher in diplomas -Employees consider diplomas to be overall much weaker employees Note that also labor market outcomes are weaker for diploma graduates employers

Tertiary education: innovation outcomes Indonesia lags behind according to all innovation indicators R&D/GDP

Non formal education Non formal education is generally still below part with formal education Some positive evidence of responsiveness to labor market needs of vocational training and school-to-work transition programs (KPP, EYE) But formal evaluations are still rare making some of the achievements difficult to assess Promising development of a national qualification framework and national competency standard to bridge gaps between formal and non-formal components of system and set the stage for LLL Public providers of non formal vocational courses are the BLKs KPP= Kursus Para-Profesi and has trained and linked approximately 40,000 out of school youth, over two years, to domestic and overseas jobs. EYE=Education for Youth Employment (EYE) program, which supplements Paket B with life skills training, improved education management, and teacher training modules, while placing youth in jobs through networking in the industrial or business world. The evaluations found that the EYE’s training program, certification and domestic placement certified and placed 5,128 youth in formal jobs across 6 Indonesian districts. 82% of these participants (over 5,100 beneficiaries) were employed after 3 to 4 months of training.  

Non Formal Education: strengths and weaknesses Non formal options still below par with formal ones according to employers , although they do rather well in specific skills Employees are fairly happy with curriculum coverage, but stress big gaps in the quality of teaching and learning employees employers

Firm training Facts: Issues: Formal training programs offered to their employees by firms constitute an important source of practical ‘on the job’ skills: training is targeted first and foremost at relatively skilled and young workers And focused on job-specific training in manufacturing and generic skills in services Issues: Share of firms offering formal training is on the low side at the regional level Related to this, few financial incentives are in place, in particular in the manufacturing and exporting sectors As a consequence, focus is on short-term skill development remedial actions, rather than on a life long learning approach, capable of keeping skills up to date and/or making professionals and managers more competitive and innovative over time

Firm Training: some facts -Training targeted to youth and skilled production workers -Low share of financial incentives from GOV

Policies: overall policy priorities for Indonesia Skill measurement (employer/employee skill surveys; participation in PIAAC) Quality and relevance of education and training Creation of multiple pathways for skill development: incentives for life long learning quality non-formal education and training system Articulation of the skill development system and relation between education and the workplace: further development of national qualification framework, including institution accreditation, skill standardization and certification, and regulating bodies financing options to fund life long learning and second-chance programs strengthening of recruitment policies further linkages between institutions and firms better and more use of firm and tracer surveys

Policy priorities for secondary education Focus on quality and relevance (including better allocation of SMK graduates across manufacturing and services) before modifying the enrollment ratio Improve academic and generic skills across the board: curriculum will need to enhance proficiency in core subjects while introducing generic skills (which may imply pedagogical changes) Exploit potential of both tracks and maintain balanced curriculum: need for more specific and practical knowledge to be included in the general secondary track but also, conversely, for vocational education to retain a solid transversal set of core academic skills (while further improving its specific curriculum)

Policy priorities for secondary education Improve design and implementation of the specific component of the curriculum in secondary vocational schools: Need for more demand-driven curriculum with industry input (also in sharing costs), more practitioners in the staff, consistent use of dual skill certification Put more emphasis on specific skills and improving linkages with industry for the general stream: Consider more applied subjects, more varied pedagogy and short internships in relevant economic sectors

Policy priorities for tertiary education Exploit potential of both university and diploma tracks and maintain balanced curriculum: Need for more practical knowledge and links with the private sector to be included in universities track but also, conversely, for diplomas to retain a solid transversal set of core academic skills Further strengthen university-industry linkages through continued management flexibility, a stronger legal framework and other incentives for technology transfer Undertake a thorough set of tracer studies to follow graduates to learn lessons about the relevance of their education Focus on lower end of tertiary education by “re-thinking” role and focus of diplomas and colleges: what should they provide? Where do they fit? Focus on higher end of tertiary education by fostering skill for innovation: Curriculum and pedagogy will need to enhance international exposure of students and creative thinking

Policy priorities for non-formal education and training Evaluate on-going programs on a systematic basis Look at variety of international experiences on school to work transition programs to learn what works Continue revitalization of vocational training to improve the quality of teaching-learning process Pursue efforts to develop the national skill-competency and qualification framework: focus on competency-based curriculum focus on skill certification including dual certification by school and professional association focus on industry participation focus on ensuring consistent quality of vocational training focus on building the framework for LLL

Policy priorities for on-the-job training Firms need to play a stronger role in both short term on the job skill upgrading and longer term skill maintenance and strengthening for competitiveness and productivity Consider innovative ways of financing firm-based training: Look at successful experiences of training funds Firms and/or Government should provide more incentives for employees to pursue outside training on their own, through: Improvement of career opportunities Reinsertion in the firm Certification of new skills acquired Training vouchers Education savings accounts