1. Skills for the 21st Century in LCR May, 2011 BANK TEAM: CRISTIAN AEDO, IAN WALKER, PABLO ACOSTA, ANA MARIA OVIEDO, JAVIER LUQUE CONSULTANTS: TIM GINDLING, GUILLERMO CRUCES, LEONARDO GASPIRINI, GREG VERAMENDI, NANCY GUERRA, KEN DODGE, JOHN MIDDLETON

2. Outline  Context / motivation : LCR’s declining education earnings premia: is the education system to blame? Does it matter? What should we do about it?  Findings:  Falling earnings premia  Supply, demand and institutional factors underlying the trend  Should we worry?  Evidence on learning achievement and quality  Evidence on the skill content of work and skill shortages.  Policy take-aways  Reasons to be cheerful; Reasons for concern.  Future work 2

3. 1. What has happened on education earnings premia? 3

4. Education earnings premia have declined……. 4

5. …continuously for secondary; unevenly for tertiary (kink around 2003) …. 5

6. 6 … but remain high, even when controlling for parents’ education

7. 2. Understanding the trends: supply and demand factors 7

8. Educational expansion is transforming emerging cohort in LCR (25-35 non students) 8

9. Mean years of education 9

10. But other regions are doing better 10

11. … and we are still miles behind 11

12. Demand shifters seem to be the main drivers of falling wage premia (Katz-Murphy aproach) 12

13. in Cono Sur… 13

14. The Andes… 14

15. …and Central America 15

16. In both decades changes in skills demand reflect mainly “within” sector effects 16

17. Minimum wages likely played a role in compressing secondary skill premia 17

18. …when the MW (blue line) trends up, secondary premium (red line) trends down 18

19. 3. Should we worry? 19

20. Secondary expansion has not eroded learning attainment 20

21. Better grade-age correspondence is an important trend ….. 21

22. …linked to improved equality of educational opportunity in many countries 22

23. … and contributing to improved PISA scores, apart from Argentina and Uruguay. 23

24. Tertiary quality also appears stable, based on analysis of earnings variance 24 Comparing the coefficient of variation of real monthly earnings to earnings premiums for workers with university education

25. But there ARE reasons to worry  East Asian trends look very different  The quality gap for LAC in PISA scores remains large  LAC’s pattern of occupational expansion is not at the cutting edge  Signs of skill shortage and mismatch 25

26. Asian tigers: a contrasting pattern of increasing attainment AND premia 26

27. Based on PISA, LCR’s secondary quality gap remains big, versus OECD 27

28. and LCR under-performs, relative to income level 28 LAC

29. LCR skill quotients are inferior to USA, for high end “new economy” skills (Autor- Levy-Murnane approach) 29

30. Suggesting possibility that LCR skill use evolution reflects supply constraints…. 30

31. Home country education quality correlates to immigrant graduate skill uses in US market 31

32. Enterprise survey evidence on time to fill skilled vacancies in LCR reinforces this message… 32 Average time to fill vacancy by regions of the world

33. … as does the evidence on time taken by innovative firms: a constrained sector? 33 Average weeks to fill vacancy by firm’s innovation status

34. 3. Conclusions 34

35. Reasons to be cheerful  LCR’s large education expansion hasn’t eroded quality  Downturns in skill premia likely reflect easing of (relative) shortages (winning Tinbergen’s race) rather than erosion of quality (Katz-Murphy analysis)  Improved outcomes for children from poor backgrounds in some countries (EOI)  Reduced skill premia help reduce Ginis and poverty  Institutional factors such as minimum wages have helped, in most places  Skill premia still high enough to stimulate demand for secondary and tertiary education 35

36. Reasons to worry  Big quality gap may be constraining path of development  East Asia still has rising premia in spite of higher and faster growth of attainment: not the same thing?  LCR lags OECD by the equivalent of 2 years schooling @ age 15 (PISA).  Quality improving only slightly and due to better grade-age matches, not intra grade efficiency.  Shortage of New Economy skills may constrain growth at cutting edge: a second class continent? 36

37. Future work  Improving our understanding of skill – labor market linkages  Getting data with direct observations of skills, beyond the “Big Five”.  High end (New economy skills)  Low end (social literacy skills)….  New skills surveys in FY 12 in Bolivia, Colombia, El Salvador (MDTF, BNPP)  Improving regulatory information in TVET  Benchmarking methodology designed  Piloting underway in Argentina  Rollout next year 37

38. Thank you 38