Raising inclusive growth – some
thoughts for Colombia from the OECD?
Piritta Sorsa
OECD Economics Department
Bogota, 21 April 2014
Colombia’s growth performance has been
quite good
But mainly driven by the commodity boom
The commodity sector and services have boosted the economy
Concerns of a Dutch disease and
competitiveness in non-mining?
Price inflation remains moderate but wages have grown faster
This has hidden slow productivity growth
Productivity growth has been smaller than some Latin American peers
(based on 2013)
Growth has also been quite unequal
Gini index
Gini index
0.6
0.5
0.4
0.3
0.2
0.1
0
Late-2000s
Around 2000
And unemployment has declined only slowly
(2013, source: OECD database and
DANE website).
%
Labour market regulations contribute to
informality, unemployment and productivity
The minimum wage is relatively high
Ratio of minimum wage to average wage
%
80
70
60
50
40
30
20
10
0
Non-wage labour costs are high by international standards
As per cent of labour costs, 2011 - Colombia before and after tax reform
%
60
55
50
45
40
35
30
25
20
15
10
5
0
%
80
70
60
50
40
30
20
10
0
Informality rises with the relative level of the
minimum wage
•
Inequality is also influenced by the tax system
that redistributes little
Tax revenues are low and consumption taxes dominate (2011)
And that transfers to households are small and
not progressive overall
• Pension coverage is low and social assistance is
limited, leaving many elderly in poverty. The new BEPs
are a step in the right direction
• Familias en Accion: an effective tool to reduce poverty if
well targeted
• Cross-subsidies on utilities: not well targeted and
effective
How to promote inclusive growth?
influenced by many factors that are interlinked
• Formal job creation can be enhanced by greater
flexibility of the economy (in particular through labour
reforms)
• Minimum wage? Differentiate by region?
The tax and transfer system should
redistribute more
• The government tax reform is promising in lowering
non-wage labour costs, but more may be needed
• Replace VAT exemptions and utility subsidies by better
targeted cash transfers
• Cash transfers to households should be more generous
and better targeted on those in need
• More revenue should be raised over time to meet social
needs through less distortive taxes (more green taxes,
less tax relief, more property taxes)
Productivity is also influenced by low education
quality that has produced skill shortages…
Students’ performance (PISA scores for Mathematics - 2013) remain well
below OECD average
Although there has been progress lately
progress in coverage is not enough
Source: SEDLAC.
Inadequate supply of skills is a major concern
for Colombian firms
It is a concern across a variety of sectors
Figure 2.14. Firms reporting an inadequately educated workforce as a very severe or major obstacle, by sector
60
%
50
40
30
20
10
0
Source: World Bank Enterprise Survey, 2012
Skill shortages also exacerbate inequality
Source: OECD Education at a Glance and SEDLAC.
Increasing the supply of skills will boost equity
and productivity
• Improve the overall quality of education – basic skills for all
• Reduce drop-outs in secondary school (still above 50%)
Basic education quality can be improved by
• Increase accountability of education institutions by
linking part of their resources to performance. Teacher
evaluations?
• Introduce incentives for teachers based on student
performance.
• Reduce administrative rigidities for teacher payment and
management.
• Increase ICETEX student loans and improve their
targeting
• Increase quality standards and enforcement for
education centers to register and operate.
Skill development and fixing mismatches
• Focus on skills development (including soft)
• Develop lifelong learning/training system
• Increase relevance of supply and implement mechanisms
for anticipating private-sector demands for skills
Skills can be enhanced by
• Reducing informality as discussed earlier will also raise
the incentives to invest in skills.
• Introduce outcome indicators for the SENA and the
(CERES). Conduct an external evaluation to increase
their added value.
• Speed up work to implement the national skills
certification system (SICECOL).
• Include the private sector in the governing boards of
education centres. Give more importance to regional
employment offices to detect demands for skills and
training.
Investing more in skills important
• Both in basic education and its quality
• And in specific skill strategies
• As part of inclusive growth strategy
• And to deal with challenges of dealing with the
commodity boom (skill-intensive growth)
OECD skills strategy and PIAAC
• www.oecd.org/edu/oecdskillsstrategy.htm
• www.oecd.org/site/piaac/
• http://skills.oecd.org/skillsoutlook.html
• http://www.oecd.org/countries/colombia/colombia2013.ht
m
• http://www.oecd.org/eco/economicassessmentofcolombi
a2010.htm
In sum
• Inclusive growth is an important challenge bearing on
many interlinked policies
• Informality – labour market and tax and transfer reforms
needed
• Raising productivity and equity calls for reforms to boost
quality of basic education
• Skill development policies also important
• OECD surveys and strategies can contribute to this
process – best practices