18, October, 2013

ELLA Expert Review: Active Labour Market Policies

Here Dr. Jürgen Weller, Senior Economic Affairs Officer at the Economic Development Division of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), offers his perspective on the ELLA knowledge materials on Active Labour Market Policies.

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ELLA Expert Reviews: As part of ongoing efforts to ensure quality in our research and communications, the ELLA team asks recognised experts to conduct reviews of the knowledge materials in a given theme and produce a short written response. The purpose is to highlight a range of distinct perspectives amongst experts in the field and link readers with additional research, cases and arguments that the original ELLA materials may not cover.

In the spirit of discussion and debate, we encourage you to share your own comments about the ELLA materials and the review in the comments section below.

To be effective, labour market institutions have to pursue two objectives: (1)  help the labour market function efficiently, which means incorporating more workers into productive jobs, stimulating productivity gains and designing mechanisms that help these markets to adjust to the ups and downs of the economic cycle; and (2) protect workers as the structurally weaker stakeholders, especially vulnerable groups who face particular difficulties in entering productive employment.

These institutions can only achieve their objectives sustainably if they are doubly embedded: firstly, within the social norms that have arisen historically in a specific country, which typically vary between countries; and secondly, within the specific economic and productive structure, which can vary over time. This double embeddedness has several implications:

  • There is no optimum set of labour institutions that is constant over time and from one place to another.
  • Labour institutions that achieve their objectives reasonably well at any given moment may cease to do so in another economic and productive structure.

The ELLA policy briefs on Active Labour Market Policies focus particularly on the second of these types of embeddedness, which is the necessary change of labour market institutions over time in reaction to transformations of productive structures and markets. They discuss how these transformations raise new challenges for training institutions and information services in Latin American countries.

Specifically, they emphasise that firms’ more diversified skill needs (due to technological change and open markets) require that training institutions assume a stronger demand-led orientation which among other things has led to a more diversified supply and, in some countries, to the development of a market for training services. The ELLA Policy Briefs highlight this new emphasis with a presentation of IDB-supported programmes and more detailed information on the ProJoven programme in Peru.

Additionally, the ELLA Brief: Labour Market Information Programmes analyses the role of these programmes for a better working of the labour market. It should be noted that improved access to information is not only a means for increased efficiency in the placement of the unemployed and the filling of vacancies. As in Latin America, the access to productive jobs frequently depends on the information made accessible by relevant personal connections and this type of social capital is unequally distributed. An increase in transparency of the labour market potentially improves the job prospects of people from underprivileged households.

The ELLA Brief: From Supply- to Demand-led: Labour Training in Latin America reviews a number of programmes that – with the exception of the Mexican PROBECAT (now BECATE) – are directed at a specific population group: unemployed youth with relatively low educational levels and a vulnerable socio-economic background. As the IDB support for training activities in Latin America has been concentrated on this type of programme and the results are well documented, this is understandable. However, it has to be taken into account that they represent only one segment of the activities of Latin American training institutions and their recent transformations.[1]

Specifically, many of the public training institutions created in previous decades continue providing training services, in some cases directly and in some cases by financing and regulating these activities. These institutions have also transformed themselves to reflect the changed economic and productive context.[2]

With regard to the programmes presented in the Briefs, it has been questioned whether they are the solution for the needs of the region’s economy and (especially young) people. Specifically the Chile Joven programme, the forerunner of this training agenda, has been closed in spite of generally positive evaluations, as it has been deemed inadequate for the structural needs of the Chilean economy and youth. Also, anecdotal evidence indicates that a possible expansion of these programmes faces not only the problem of “selling” politically the need of more investment in training, but also the limitation of the number of firms interested in participating in these schemes. Finally, as the evaluation results presented in the Policy Brief shows, the results in terms of employment and income are not uniformly positive, but rather are mixed.

Other relevant changes of Latin American labour training systems that can be observed beyond these specific youth training programmes, specifically in areas such as the training of already employed persons, a more diversified view of demand-led training, the new orientation on competencies, new trends in regulations of training activities, and links with other labour market policies, can be summarised as follows.

A relatively new aspect of firm demand-led training activities caused by frequent technological change and the corresponding modification of skill requirements consists of the varying demand for training of already employed staff (in contrast to the youth of the programmes analysed in the Briefs that are directed to a specific group of unemployed). Larger firms in particular began to assume the concept of life-long learning of their employees, using different modalities - in-house, as well as in external training facilities. Some countries (Chile being a pioneer) have established tax exemption schemes to foster this type of training, with the aim of simultaneously strengthening the market for training institutions that compete to satisfy firms’ training needs. However, critiques have been expressed about the concentration of fiscal subsidies on large firms, as well as the relevance of specific state-supported training activities of these firms.

However, an effective demand approach to training cannot restrict itself by regarding exclusively the demand originating from firms; it also must take into account the needs and preferences of workers and the unemployed. A third aspect of demand-led training consists of the needs of a trained workforce in the context of a forward looking development strategy, which requires, among other things, an effort to determine future needs.

During the eighties and nineties of the last century the weakness of wage employment generation in the context of low economic growth and structural transformation had, at least in the short term, a negative impact on employment elasticity. This led many governments to put their hopes on a surge of new entrepreneurial activities, with the double objective of, first, supporting self-employment for unemployed people and, second, creating more jobs with the expansion of these new (micro) entrepreneurial activities. An important part of the support schemes designed during this period were training activities for entrepreneurial, as well as practical skills. Many of these training activities can be interpreted as the previously mentioned second form of demand orientation, insofar as they respond to the needs of unemployed people. Sometimes the incorporation of (especially young) people into this type of schemes has been linked to specific support schemes with an emphasis on information and orientation, as described in the corresponding Policy Brief. However, the final demand for the supported activities was not always sufficiently evaluated ex-ante – the inherent risk failure always present in the different forms of economic independence, especially self-employment, not being taken into account.

The previously mentioned third aspect of demand-led labour training is a key element for a Latin American development strategy that aspires to regional economic growth based increasingly on innovation, knowledge and productivity gains, with the corresponding growth of labour income. This requires a coordinated effort of analysis of future competency needs and more effective coordination between education and professional training and the corresponding institutions, which has been tried in a number of countries, but is by no means an easy process.

A key change in the basic orientation of training consists of the reorientation from task specific training activities to the building and strengthening of competencies. In this context, in many countries the greater variety of formal and informal training opportunities, including learning by doing, has led to the establishment of the certification of competencies for specific occupations. The definition of the required competencies generally is the task of public-private councils on a sector level. This is an interesting mechanism to improve the transparency of training activities and helps to inform the hiring side (firms or individual households). In addition, it is a helpful device for experienced, especially older workers that acquired their skills mostly in practical work.

Other processes of certification affect the providers of training. The multiplication of these providers as the result of the politically desired evolution of a market for training institutions has occasionally led to questions about the quality and usefulness of the training provided. Thus, some countries have established mechanisms for regulating, registering and overseeing training firms. However, in many cases the lack of transparency still leads many people to spend scarce resources on training with doubtful usefulness.

Another new trend includes stronger links with other labour market policies. In some cases public emergency employment schemes – a traditional instrument to create income especially for low skilled people in the context of an economic slowdown – have begun to integrate training modules, in order to improve the probability of beneficiaries to be integrated into the labour market after the end of the participation in the emergency employment scheme. In some of the few Latin American countries with unemployment insurance, benefits have been linked with the requirement of assisting training activities in order to improve the chances of reinsertion and higher productivity. Also, during the recent economic and financial crisis, subsidised training activities have been used as an instrument to protect workers in especially hard hit sectors from unemployment.

In conclusion, Latin American training systems are challenged by a diversification of demand and have reacted with a diversification of supply – in terms of institutions that are providing the training, as well as in terms of content and methods. The increased use of information and communication technologies is playing an important role in this respect, as well as overcoming traditional spatial and time inflexibilities. However, in most countries a real system perspective is still missing, and a key segment of a national training system is very weak or plainly absent in many Latin American countries: technical, non university training. This is the “weak middle” between short-term training activities and university education, which plays a central role for the development of a competitive workforce in open economies.

Finally, the experience has shown that labour training cannot replace an educational system of good quality. The effects of a few months of (even good quality) training will always be relatively low, in comparison with the potential of good quality schooling – which is missing for many of Latin America’s young people.

[1] See, for example, Alejandro Vera, Los jóvenes y la formación para el trabajo en América Latina, CIPPEC, Documento de Trabajo No.25, Buenos Aires, Julio de 2009.

[2] See ECLAC / ILO, The employment situation in Latin America and the Caribbean, no. 9 (to be published in October 2013) for a brief review of the challenges these institutions face and the answers they are developing.

Jürgen Weller has studied at the Universidad de Costa Rica and holds a Master's in Politican Science and a PhD in Economics from the Freie Universität Berlin. He is a specialist in Latin American labour markets, and has conducted recent studies on youth employment, job quality, growth, employment and distribution, as well as labour market policies and institutions. He is currently Senior Economic Affairs Officer at the Economic Development Division of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). Some of his publications in English include: Economic Reforms, Growth and Employment. Labour Markets in Latin America and the Caribbean, ECLAC, 2001; “Youth employment: characteristics, tensions and challenges”, CEPAL Review No 92, August 2007; and Regulation, Worker Protection and Active Labour-Market Policies in Latin America, editor, ECLAC/Ministry of Foreign Affairs of Denmark, 2009.


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