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Skills for the 21st
Century in LCR
B A N K T E A M : C R I S T I A N A E D O , I A N W A L K E R , PA B L O
A C O S TA , A N A M A R I A O V I E D O , J AV I E R L U Q U E
C O N S U LTA N T S : T I M G I N D L I N G , G U I L L E R M O C R U C E S ,
LEONARDO GASPIRINI, GREG VERAMENDI, NANCY
G U E R R A , K E N D O D G E , J O H N M I D D L E TO N
May, 2011
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
1. What has happened on education
earnings premia?
3
Education earnings premia have
declined…….
Evolution of education earnings premiums in LCR
Coefficients on years of education variable from the Mincer-style monthly earnings regressions, full-time private
sector employees, basic OLS regressions
4
0.16
…continuously for secondary; unevenly
for tertiary (kink around 2003) ….
5
… but remain high, even when
controlling for parents’ education
- Estimated earnings premiums by country, around 2008
Full-time private sector paid employees (asalariados), dependent variable is real monthly earnings.
i. OLS (not including parent's education as an explanatory variable)
Chile Brazil Costa Rica Nicaragua El Salvador Colombia Mexico Peru Uruguay
Education Level (2006) (2008) (2008) (2005) (2008) (2008) (2008) (2008) (2008)
Years of Education 0.12 0.10 0.09 0.10 0.08 0.12 0.12 0.11 0.10
Vs. primary inc.
Primary comp. 0.11 0.26 0.12 0.29 0.11 0.21 0.19 0.15 0.20
Vs. primary comp.
Secondary tech. comp. 0.39 na 0.43 0.42 na na 0.69 na 0.40
Secondary ac. comp. 0.32 0.25 0.32 0.37 0.38 0.42 0.62 0.26 0.45
Vs. Secondary ac. Comp.
Non-univ. tertiary 0.44 na 0.25 0.31 0.42 0.43 0.30 0.37 0.53
University comp. 1.12 0.92 0.71 0.77 0.99 1.21 0.79 0.94 1.07
ii. OLS (including parent's education as an explanatory variable, data only for children living with parents)
Chile Brazil Costa Rica Nicaragua El Salvador Colombia Mexico Peru Uruguay
Education Level (2006) (2008) (2008) (2005) (2008) (2008) (2008) (2008) (2008)
Years of Education 0.10 0.09 0.08 0.10 0.08 0.11 0.12 0.10 0.07
Vs. primary inc.
Primary comp. 0.07 0.21 0.07 0.30 0.14 0.16 0.21 0.16 0.18
Vs. primary comp.
Secondary tech. comp. 0.26 na 0.37 0.50 na na 0.63 na 0.26
Secondary ac. comp. 0.22 0.22 0.26 0.40 0.33 0.54 0.55 0.29 0.28
Vs. Secondary ac. comp.
Non-univ. tertiary 0.31 na 0.36 0.31 0.51 0.34 0.52 0.27 0.32
University comp. 0.93 0.71 0.66 0.72 0.78 0.97 0.77 0.78 0.73
6
Note: Regressions also control for potential experience, gender and region.
2. Understanding the trends: supply
and demand factors
7
Educational expansion is transforming
emerging cohort in LCR (25-35 non students)
8
Mean years of education
9
But other regions are doing better
Latin America and the Caribbean Eastern Europe and Central Asia
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
No educ Primary Secondary Tertiary No educ Primary Secondary Tertiary
Asian Tigers Advanced economies
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
No educ Primary Secondary Tertiary No educ Primary Secondary Tertiary
10
… and we are still miles behind
Educational attainment 1990-2010
11
10
9
8
7
6
1990 2010
Year
Latin America and the Caribbean Advanced economies
East Asian Tigers Eastern Europe and Central Asia
11
Demand shifters seem to be the main
drivers of falling wage premia (Katz-Murphy
aproach)
Changes in the Wage Premium and the Supply and Demand for Skilled (Tertiary
Educated) vs. Unskilled (Other Educational Groups) Workers
Relative demand Relative demand
Wage premium Relative supply σsu=2 σsu=3
1990s 2000s 1990s 2000s 1990s 2000s 1990s 2000s
Argentina 3.5 -2.4 4.6 2.4 11.5 -2.3 15.0 -4.7
Bolivia 7.9 -4.6 -0.2 5.1 15.6 -4.1 23.5 -8.7
Brazil -0.4 -3.2 1.6 4.4 0.8 -1.9 0.4 -5.1
Chile 0.5 -1.9 3.1 1.1 4.1 -2.7 4.6 -4.7
Colombia 2.5 -2.0 6.4 6.0 11.5 2.1 14.0 0.1
Costa Rica 0.4 -0.2 4.0 3.4 4.9 3.0 5.3 2.8
Ecuador -3.2 3.4 -3.0 -6.3
El Salvador 1.7 -0.1 5.5 -0.3 8.9 -0.4 10.6 -0.5
Honduras 0.0 -1.9 2.6 2.3 2.6 -1.4 2.6 -3.3
Mexico 1.8 -2.8 3.6 2.2 7.2 -3.5 9.0 -6.3
Nicaragua 3.5 -6.9 4.6 6.6 11.6 -7.2 15.0 -14.1
Panama 0.3 -2.3 2.3 2.4 2.9 -2.2 3.1 -4.4
Paraguay 0.8 -5.6 5.3 6.1 6.9 -5.2 7.6 -10.8
Peru 0.6 -2.8 0.2 3.8 1.3 -1.8 1.9 -4.6
Uruguay 2.2 -1.3 2.9 -0.8 7.3 -3.5 9.6 -4.8
Venezuela 1.1 -4.8 3.9 4.2 6.2 -5.4 7.3 -10.3
Mean 1.8 -2.9 3.4 3.3 6.9 -2.5 8.6 -5.4
Source: Own calculations based on microdata from household surveys. Details on sample years, survey and
methodology are available in Acosta, Cruces, Gasparini (2011).
12
in Cono Sur…
Argentina Brazil
1.60 0.25 1.20 0.30
1.40 0.20 0.25
Demand and Supply Indexes
Demand and Supply Indexes
1.00
1.20 0.15 0.20
Wage Premium Index
Wage Premium Index
0.80 0.15
1.00 0.10
0.60 0.10
0.80 0.05
0.05
0.60 0.00 0.40 0.00
0.40 -0.05 -0.05
0.20
0.20 -0.10 -0.10
0.00
0.00 -0.15 -0.15
-0.20 -0.20 -0.20 -0.20
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Relative supply Relative demand Wage premium
Relative supply Relative demand Wage premium
Paraguay Uruguay
1.00 0.15 1.60 0.45
Demand and Supply Indexes
0.10 0.40
Demand and Supply Indexes
0.80 1.40
Wage Premium Index
0.05
Wage Premium Index
1.20 0.35
0.60 0.30
0.00 1.00
0.40 -0.05 0.25
0.80
-0.10 0.20
0.20 0.60
-0.15 0.15
0.00 0.40 0.10
-0.20
-0.20 0.20 0.05
-0.25
0.00 0.00
-0.40 -0.30
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Relative supply Relative demand Wage premium Relative supply Relative demand Wage premium
13
The Andes…
Bolivia Chile
0.80 0.30 0.50 0.10
0.70 0.25 0.45
Demand and Supply Indexes
Demand and Supply Indexes
0.60 0.40 0.05
Wage Premium Index
Wage Premium Index
0.20
0.50 0.35
0.40 0.15 0.30 0.00
0.30 0.10 0.25
0.20 0.05 0.20 -0.05
0.10 0.15
0.00
0.00 0.10 -0.10
-0.10 -0.05 0.05
-0.20 -0.10 0.00 -0.15
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Relative supply Relative demand Wage premium Relative supply Relative demand Wage premium
Peru Venezuela
0.50 0.15 0.80 0.10
Demand and Supply Indexes
0.60 0.05
Demand and Supply Indexes
0.40 0.10
Wage Premium Index
0.00
Wage Premium Index
0.40
0.30 0.05 -0.05
0.20
0.20 0.00 -0.10
0.00
-0.15
0.10 -0.05 -0.20
-0.20
0.00 -0.10 -0.40 -0.25
-0.60 -0.30
-0.10 -0.15
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Relative supply Relative demand Wage premium
Relative supply Relative demand Wage premium
14
…and Central America
Costa Rica Honduras
1.40 0.20 0.80 0.05
1.20
Demand and Supply Indexes
Demand and Supply Indexes
0.60 0.00
0.15
Wage Premium Index
Wage Premium Index
1.00 0.40
-0.05
0.80 0.10 0.20
0.60 -0.10
0.05 0.00
0.40
-0.15
-0.20
0.20
0.00 -0.20
0.00 -0.40
-0.20 -0.05 -0.60 -0.25
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Relative supply Relative demand Wage premium
Relative supply Relative demand Wage premium
Mexico Panama
1.40 0.40 1.20 0.10
0.35 0.05
1.20 Demand and Supply Indexes 1.00
Demand and Supply Indexes
0.30
Wage Premium Index
0.00
Wage Premium Index
1.00 0.80
0.25 -0.05
0.80 0.20 0.60
-0.10
0.60 0.15 0.40
-0.15
0.10 0.20
0.40 -0.20
0.05
0.20 0.00 -0.25
0.00
0.00 -0.05 -0.20 -0.30
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Relative supply Relative demand Wage premium Relative supply Relative demand Wage premium
15
In both decades changes in skills demand
reflect mainly “within” sector effects
16 Source: Own calculations based on household surveys. Details on sample years, survey and methodology
are available in Acosta, Cruces, Gasparini (2011).
Minimum wages likely played a role in
compressing secondary skill premia
Evolution of Real Minimum Wages, 1995-2007
300
250
Argentina
200
Brazil
Chile
Colombia
150
Costa Rica
El Salvador
100 Mexico
Peru
Uruguay
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Oficina Internacional de Trabajo (ILO), Santiago office, "Evolucion de los salarios en America Latina,"
mimeo, Santiago, October 2008
17
…when the MW (blue line) trends up,
secondary premium (red line) trends down
Comparing the real minimum wage index with secondary and university earnings premia
2.00 1.40
Brazil 1.20
Chile
1.50
1.00
0.80
1.00
0.60
0.50 0.40
0.20
0.00
0.00
1990 1992 1994 1996 1998 2000 2003 2006
University Secondary Real MW University Secondary Real MW
1.40 1.40
1.20
Colombia 1.20
Costa Rica
1.00 1.00
0.80 0.80
0.60 0.60
0.40 0.40
0.20 0.20
0.00 0.00
1997 2003 2008 1998 2000 2002 2004 2006 2008
University Secondary Real MW University Secondary Real MW
18
3. Should we worry?
19
Secondary expansion has not eroded
learning attainment
- PISA results
Math Read
2000 2009 2000 2009
Argentina 387 389 412 399
Brazil 334 386 391 412
Chile 383 421 409 450
Mexico 390 418 422 425
Peru 293 365 323 370
2003 2009 2003 2009
Uruguay 422 427 435 426
2006 2009 2006 2009
Colombia 370 381 385 413
Source:
OECD
20
Better grade-age correspondence is an
important trend …..
Average Grade Attainment in PISA
2000 2009
Argentina 9.6 9.4
Brazil 8.5 9.1
Chile 9.5 9.7
Mexico 9.4 9.5
Peru 9.3 9.8
2003 2009
Uruguay 9.5 9.4
2006 2009
Colombia 9.6 9.7
Authors´ elaboration based on OECD.
21
…linked to improved equality of
educational opportunity in many countries
22
… and contributing to improved PISA scores,
apart from Argentina and Uruguay.
Importance of Grade Attainment on PISA Mathematics scores
Country BASE YEAR (BY) YEAR 2009 ADJUSTMENT % EXPLAINED BY
GRADE
(STR_BY*SCORE_BY) (STR_09*SCORE_09) (STR_09*SCORE_BY) STRUCTURE
A B C (C-A)/(B-A)
Base year 2000
Argentina 387 388 366 -2,100%
Brazil 334 386 355 41%
Chile 383 421 398 40%
Mexico 390 418 392 7%
Peru 293 365 312 26%
Base year 2003
Uruguay 423 427 415 -200%
Base year 2006
Colombia 370 381 373 27%
STR: Estimated structure
23
Tertiary quality also appears stable,
based on analysis of earnings variance
Comparing the coefficient of variation of real monthly earnings to earnings premiums for workers with
university education
2.00
1.80 Brazil 3.00
Chile
1.60 2.50
1.40
2.00
1.20
1.00 1.50
0.80
0.60 1.00
0.40
0.50
0.20
0.00 0.00
1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 1990 1992 1994 1996 1998 2000 2003 2006
Earnings Premiums for University Complete Education (Basic
Earnings Premiums for University Complete Education (Basic
regressions, full-time paid employees)
regressions, full-time paid employees)
Coefficient of Variation (for the earnings of those with a university
Coefficient of Variation (for the earnings of those with a university
complete education)
complete education)
2.50 1.20
Colombia Costa Rica
2.00 1.00
24 0.80
1.50
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
Asian tigers: a contrasting pattern of
increasing attainment AND premia
26
Based on PISA, LCR’s secondary quality gap
remains big, versus OECD
Comparison of LAC countries and OECD in PISA*
MATH READING
550 550
500 500
450 450
400 400
350 350
300
300
2000 2003 2006 2009
2000 2003 2006 2009
OECD (Non LAC) LAC OECD (Non LAC) LAC
* LAC line represents the average performance of Argentina, Brazil, Chile, Mexico, and Peru in PISA.
Source: Own elaboration based on OECD.
27
and LCR under-performs, relative to
income level
2009 PISA MATH SCORE AND GDP PER CAPITA 2009 PISA READING SCORE AND GDP PER CAPITA
600
550
500
500
MATH SCORE
450
CHL
URY
CHL
MEX TTO
400
URY
MEX
COL BRA TTO
ARG
400
COL BRA
ARG
PER PAN
PER PAN
LAC
350
300
LAC
300
200
-2 0 2 4 6
-2 0 2 4 6 LOG GDP PER CAPITA
LOG GDP PER CAPITA
28
LCR skill quotients are inferior to USA,
for high end “new economy” skills (Autor-
Levy-Murnane approach)
Distribution of skills in the labor force1
Costa El
USA Brazil Rica Mexico Nicaragua Salvador
Non routine Cognitive Analytical 3.04 2.81 2.80 2.76 2.66 2.65
Non Routine Cognitive Interpersonal 3.10 2.95 2.95 2.95 2.90 2.86
Routine Cognitive 3.13 3.05 3.03 2.94 2.93 2.99
Routine Manual 2.47 2.63 2.72 2.63 2.76 2.70
Non Routine Manual Physical. 2.31 2.55 2.58 2.60 2.70 2.62
1/ Scale 1 to 5. A score of 5 denotes high importance of skill.
29
Suggesting possibility that LCR skill use
evolution reflects supply constraints….
Dynamic trends in skill distribution in Brazil, Costa Rica and Nicaragua compared with
the USA
USA BRAZIL
70 70
65 65
60 60
55 55
50
50
45
45
40
40
35
35
30
30
1980 2008
1981 2009
NRCA NRCI RC RM NRMP
NRCA NRCI RC RM NRMP
COSTA RICA NICARAGUA
70 70
65 65
60 60
55 55
50 50
45 45
40 40
35 35
30 30
2001 2009 2001 2009
NRCA NRCI RC RM NRMP NRCA NRCI RC RM NRMP
NRCA: Non Routine Cognitive Analytical, NRCI: Non Routine Cognitive Interpersonal,
30 RC: Routine Manual, NRMP: Non Routine Manual Physical
Home country education quality correlates to
immigrant graduate skill uses in US market
- Correlation of education quality in migrants’ country of origin and skill content of work
done in the USA
COGNITIVTE SKILLS AND ANALYTICAL SKILL COGNITIVTE SKILLS AND INTERPERSONAL SKILL
CONTENT OF LABOR FORCE BY COUNTRY OF ORIGIN CONTENT OF LABOR FORCE BY COUNTRY OF ORIGIN
3.25
Argentina Argentina
3.3
Panama
Interpersonal skills - scale 1 to 5
3.2
Chile Chile
3.2
Panama Cuba
Uruguay Cuba
3.15
Costa Rica
3.1
Costa Rica Uruguay
Colombia
Colombia
3.1
Brazil Brazil
3
Nicaragua Peru Peru
Ecuador Nicaragua
3.05
Dominican Republic
Ecuador
El Salvador Dominican Republic
2.9
Mexico Mexico
Guatemala El Salvador
Paraguay
3
Guatemala
2.8
Paraguay
400 450 500 550 600 650 400 450 500 550 600 650
SERCE SCORE SERCE SCORE
Includes only individuals with tertiary edu. Includes only individuals with tertiary edu.
31
Enterprise survey evidence on time to fill skilled
vacancies in LCR reinforces this message…
Average time to fill vacancy by regions of the world
32
… as does the evidence on time taken by
innovative firms: a constrained sector?
Average weeks to fill vacancy by firm’s innovation status
33
3. Conclusions
34
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
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
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
Thank you
38
