Kids: highest return on investment

By Jaime Vargas and Marina Bassi

Access to education throughout Latin America and the Caribbean has steadily increased over the last 20 years, particularly at the primary level. This has resulted in significant increases in measures of education attainment. However progress in terms of access, student achievement and quality continue to be an endemic problem in the region. Results from the recent international tests like PISA,(1) in which some Latin American countries participate along with OECD(2) countries, show, for example, that two thirds of secondary level students (15 year olds) can identify only basic ideas in written texts.

These low rates of educational performance are being observed in the context of a labor market that seems to require more qualified workers. The evolution of salary differentials suggests that the relative demand for workers with higher education has increased at the expense of those with primary or secondary education.

In addition, available labor market data reveal negative trends in respect to some indicators for young adults, such as the unemployment rate, the proportion working in the informal labor market, and salary levels. In Latin America the proportion of youth aged 15 to 24 years old who are unemployed increased 23 percent between 1995 and 2005 compared with an increase of 15 percent in the world as a whole and a decrease of 18 percent in developed economies. Moreover, the majority of young workers in Latin America have informal jobs and lack social benefits. Even though they represent close to 20 percent of the labor force, young workers perform one third of the low productivity and low salary jobs.(3) There is also evidence of persistent poverty among 56 percent of young workers.(4)

The fact that in spite of the efforts and advances with respect to education coverage the region is experiencing a significant increase in low salary (and, presumably, low productivity) jobs, supports the diagnosis that the quality of education is deficient and that a gap exists between the skills offered by the education system and those demanded by firms.

With the goal of contributing to knowledge and debate about the role of education in supporting entrance into the labor market, the Education Division of the IDB is developing a research agenda oriented towards analyzing and documenting the existence of a skills gap and understanding the factors that cause it. The principal objective is to develop analytical instruments for supporting proposals of policies, programs and investments in the both the secondary and higher education systems, directed to strengthening the impact and pertinence of education in the labor market.

This work will contribute to a greater understanding of the problems of employability faced by young adults and their relationship to problems related to the quality of education and the types of skills and capacities acquired by students before they leave the education system.

Results of a retrospective survey

During the second half of 2008, in the context of the research agenda on the School- Work Transition, a survey was carried out to 4,500 Chilean youth in Chile whose objective was to retrospectively analyze their education-work path. The preliminary conclusions of this study were released in June in the framework of the presentation of the proposal for reforming the technical education system requested by the Chilean Ministry of Education. The principal innovation of the survey was to incorporate questions that allow the measurement of certain cognitive and non-cognitive skills in order to relate them with the education and labor performance of youth. Included among the cognitive skills assessed are meta-cognitive strategies that permit the analysis of thought processes such as planning, evaluation and adjustment of the process of study/learning, as well as general intellectual skills. In the case of noncognitive skills, questions are included for measuring self-sufficiency and social skills.

The preliminary conclusions point to the relevance of both cognitive and non-cognitive skills for the education and labor performance of youth. In particular, the results highlight the impact of these skills on the probability of successfully concluding higher education studies; that is, youth with these skills tend to complete university studies. Similarly, the data show an important jump in the returns to education for youth who complete university studies. This indicates that the measured skills seem to be correlated with university education, which is one of the clearest means for obtaining a higher income. Although these data cannot differentiate if the skills are acquired during university studies or if the universities select those youth who already have such skills, they could be providing evidence of a signaling effect, in the sense that the employers hire university graduates as a proxy for hiring the skills that are important in the labor market (independently of how they are acquired).

These results seem to confirm similar findings from studies carried out in the United States(5) that point to high degrees of differentiation in the profiles of youth leaving the education system with highly divergent labor paths.

The subsequent studies in this agenda of research aim to confirm and deepen this analysis and to extend the survey to other countries, as well as to analyze the demand for skills on the part of employers of the region.
 

(1) Program for International Student Assessment (PISA)
(2) Organization for Economic Cooperation and Development
(3) Economic and Social Progress Report, IDB, 2008
(4) Data from the International Labor Organization.

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