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
40.16
…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)
Education Level
Years of Education
Vs. primary inc.
Primary comp.
Vs. primary comp.
Secondary tech. comp.
Secondary ac. comp.
Vs. Secondary ac. Comp.
Non-univ. tertiary
University comp.
Chile
(2006)
Brazil
(2008)
Costa Rica Nicaragua
(2008)
(2005)
El Salvador Colombia Mexico
(2008)
(2008)
(2008)
Peru
(2008)
Uruguay
(2008)
0.12
0.10
0.09
0.10
0.08
0.12
0.12
0.11
0.10
0.11
0.26
0.12
0.29
0.11
0.21
0.19
0.15
0.20
0.39
0.32
na
0.25
0.43
0.32
0.42
0.37
na
0.38
na
0.42
0.69
0.62
na
0.26
0.40
0.45
0.44
1.12
na
0.92
0.25
0.71
0.31
0.77
0.42
0.99
0.43
1.21
0.30
0.79
0.37
0.94
0.53
1.07
Peru
(2008)
Uruguay
(2008)
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
Education Level
(2006) (2008) (2008)
(2005)
(2008)
(2008)
(2008)
Years of Education
Vs. primary inc.
Primary comp.
Vs. primary comp.
Secondary tech. comp.
Secondary ac. comp.
Vs. Secondary ac. comp.
Non-univ. tertiary
University comp.
6
0.10
0.09
0.08
0.10
0.08
0.11
0.12
0.10
0.07
0.07
0.21
0.07
0.30
0.14
0.16
0.21
0.16
0.18
0.26
0.22
na
0.22
0.37
0.26
0.50
0.40
na
0.33
na
0.54
0.63
0.55
na
0.29
0.26
0.28
0.31
0.93
na
0.71
0.36
0.66
0.31
0.72
0.51
0.78
0.34
0.97
0.52
0.77
0.27
0.78
0.32
0.73
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
Secondary
No educ
10
Primary
Secondary
Tertiary
No educ
Secondary
2010
2005
2000
1995
1990
1985
1980
1975
1970
Primary
Tertiary
Secondary
Tertiary
2010
2005
2000
1995
1990
1985
1980
1975
1970
1955
2010
2005
0%
2000
0%
1995
20%
1990
20%
1985
40%
1980
40%
1975
60%
1970
60%
1965
80%
1960
80%
1955
100%
1950
100%
No educ
Primary
Advanced economies
1950
Asian Tigers
1965
1950
2010
Tertiary
1965
Primary
1960
No educ
2005
0%
2000
0%
1995
20%
1990
20%
1985
40%
1980
40%
1975
60%
1970
60%
1965
80%
1960
80%
1955
100%
1950
100%
1960
Eastern Europe and Central Asia
1955
Latin America and the Caribbean
… and we are still miles behind
6
7
8
9
10
11
Educational attainment 1990-2010
1990
2010
Year
11
Latin America and the Caribbean
Advanced economies
East Asian Tigers
Eastern Europe and Central Asia
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
Wage premium
1990s 2000s
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
Honduras
Mexico
Nicaragua
Panama
Paraguay
Peru
Uruguay
Venezuela
Mean
3.5
7.9
-0.4
0.5
2.5
0.4
1.7
0.0
1.8
3.5
0.3
0.8
0.6
2.2
1.1
1.8
-2.4
-4.6
-3.2
-1.9
-2.0
-0.2
-3.2
-0.1
-1.9
-2.8
-6.9
-2.3
-5.6
-2.8
-1.3
-4.8
-2.9
Relative supply
1990s 2000s
4.6
-0.2
1.6
3.1
6.4
4.0
5.5
2.6
3.6
4.6
2.3
5.3
0.2
2.9
3.9
3.4
2.4
5.1
4.4
1.1
6.0
3.4
3.4
-0.3
2.3
2.2
6.6
2.4
6.1
3.8
-0.8
4.2
3.3
Relative demand
σsu=2
1990s 2000s
11.5
15.6
0.8
4.1
11.5
4.9
8.9
2.6
7.2
11.6
2.9
6.9
1.3
7.3
6.2
6.9
-2.3
-4.1
-1.9
-2.7
2.1
3.0
-3.0
-0.4
-1.4
-3.5
-7.2
-2.2
-5.2
-1.8
-3.5
-5.4
-2.5
Relative demand
σsu=3
1990s 2000s
15.0
23.5
0.4
4.6
14.0
5.3
10.6
2.6
9.0
15.0
3.1
7.6
1.9
9.6
7.3
8.6
-4.7
-8.7
-5.1
-4.7
0.1
2.8
-6.3
-0.5
-3.3
-6.3
-14.1
-4.4
-10.8
-4.6
-4.8
-10.3
-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…
Relative demand
Wage premium
2009
2007
2005
2003
2001
1999
1997
0.20
Relative supply
Relative demand
2009
2008
2007
2006
2005
2004
2003
0.00
2002
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-0.30
1999
-0.40
1998
-0.25
1997
-0.20
0.40
2001
-0.20
2000
0.00
0.60
1999
-0.15
0.80
1998
-0.10
1997
0.20
1.00
1996
-0.05
1995
0.40
1.20
1994
0.00
1993
0.60
1.40
1992
0.05
1.60
Demand and Supply Indexes
0.80
0.10
Wage Premium Index
0.15
1996
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Wage premium
Uruguay
1.00
1995
Demand and Supply Indexes
13
1995
Relative demand
Paraguay
Relative supply
1993
Relative supply
Wage premium
0.30
0.25
0.20
0.15
0.10
0.05
0.00
-0.05
-0.10
-0.15
-0.20
Wage Premium Index
Relative demand
-0.20
2008
1992
Relative supply
0.00
1991
-0.20
0.20
1989
-0.20
0.40
1987
-0.15
0.60
1985
0.00
0.80
1983
-0.10
1.00
1981
0.20
Demand and Supply Indexes
-0.05
1.20
Wage Premium Index
0.00
0.40
2006
0.60
2004
0.05
2002
0.80
2000
0.10
1998
1.00
1996
0.15
1994
0.20
1.20
1990
1.40
1988
0.25
Wage Premium Index
Brazil
1.60
1986
Demand and Supply Indexes
Argentina
Wage premium
The Andes…
Chile
0.20
0.15
0.10
0.05
0.00
Wage Premium Index
0.25
-0.05
0.05
0.00
-0.05
-0.10
-0.15
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2007
2006
2005
2004
2003
Wage premium
Relative supply
Relative demand
Wage premium
0.10
0.60
0.05
0.40
0.00
-0.05
0.20
-0.10
0.00
-0.15
-0.20
-0.20
Relative supply
Relative demand
2006
2005
2004
2003
2002
2001
2000
1999
1998
1995
1994
1993
-0.30
1992
-0.60
1991
-0.25
1990
-0.40
Wage premium
Wage Premium Index
0.80
1989
1997
14
Relative demand
Demand and Supply Indexes
-0.15
2009
-0.10
2008
-0.10
2007
0.00
2006
-0.05
2005
0.10
2004
0.00
2003
0.20
2002
0.05
2001
0.30
2000
0.10
1999
0.40
1998
0.15
Demand and Supply Indexes
0.50
Relative supply
Wage premium
Venezuela
Wage Premium Index
Peru
1997
2002
Relative demand
0.10
1996
Relative supply
2001
2000
1999
1998
-0.10
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Wage Premium Index
0.30
Demand and Supply Indexes
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20
1997
Demand and Supply Indexes
Bolivia
…and Central America
Honduras
0.00
0.00
-0.20
-0.60
-0.25
1991
-0.05
-0.40
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-0.20
Relative supply
Wage premium
Relative demand
0.00
0.00
-0.05
15
Relative demand
Wage premium
-0.25
-0.20
-0.30
Relative supply
Relative demand
2008
0.20
Wage premium
Wage Premium Index
-0.20
0.00
2006
0.05
-0.15
0.20
2004
0.10
0.40
-0.10
0.40
2002
0.15
2000
0.60
-0.05
0.60
1998
0.20
1992
0.80
0.00
0.80
1990
0.25
0.05
1988
1.00
1.00
1986
0.30
0.10
1984
0.35
1.20
1982
1.20
Demand and Supply Indexes
0.40
Wage Premium Index
1.40
Relative supply
Wage premium
Panama
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Demand and Supply Indexes
Mexico
1996
Relative demand
1994
Relative supply
-0.15
-0.20
2009
0.20
2007
0.40
-0.10
0.00
2005
0.05
-0.05
0.20
2003
0.60
0.40
2001
0.10
0.00
1999
0.80
0.60
1997
1.00
0.05
1995
0.15
Wage Premium Index
Demand and Supply Indexes
1.20
0.80
1993
0.20
Demand and Supply Indexes
1.40
Wage Premium Index
Costa Rica
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
Mexico
100
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
Chile
1.20
1.50
1.00
0.80
1.00
0.60
0.50
0.40
0.20
0.00
0.00
University
1.40
Secondary
1.40
Colombia
1.20
1990 1992 1994 1996 1998 2000 2003 2006
University
Secondary
Real MW
Real MW
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
University
18
2003
Secondary
Costa Rica
1.20
2008
Real MW
1998
2000
2002
University
2004
2006
Secondary
2008
Real MW
3. Should we worry?
19
Secondary expansion has not eroded
learning attainment
Argentina
Brazil
Chile
Mexico
Peru
Uruguay
Colombia
Source:
OECD
20
- PISA results
Math
2000
2009
387
389
334
386
383
421
390
418
293
365
2003
2009
422
427
2006
2009
370
381
Read
2000
412
391
409
422
323
2003
435
2006
385
2009
399
412
450
425
370
2009
426
2009
413
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)
% 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
YEAR 2009
ADJUSTMENT
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
Brazil
1.80
3.00
Chile
2.50
1.60
1.40
2.00
1.20
1.00
1.50
0.80
1.00
0.60
0.40
0.50
0.20
0.00
0.00
1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008
1990
Earnings Premiums for University Complete Education (Basic
regressions, full-time paid employees)
Colombia
24
1.50
1.20
1.00
2.00
1994
1996
1998
2000
2003
2006
Earnings Premiums for University Complete Education (Basic
regressions, full-time paid employees)
Coefficient of Variation (for the earnings of those with a university
complete education)
Coefficient of Variation (for the earnings of those with a university
complete education)
2.50
1992
0.80
Costa Rica
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
OECD (Non LAC)
2006
LAC
2009
2000
2003
2006
OECD (Non LAC)
2009
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 READING SCORE AND GDP PER CAPITA
TTO
ARG
COL BRA
PER PAN
450
CHL
URY
MEX
COL BRA
400
400
URY
CHL
MEX
MATH SCORE
500
500
550
600
2009 PISA MATH SCORE AND GDP PER CAPITA
TTO
ARG
PER PAN
350
LAC
200
300
300
LAC
-2
28
0
2
LOG GDP PER CAPITA
4
6
-2
0
2
LOG GDP PER CAPITA
4
6
LCR skill quotients are inferior to USA,
for high end “new economy” skills (AutorLevy-Murnane approach)
Distribution of skills in the labor force1
Costa
USA
Brazil
Rica
Non routine Cognitive Analytical
3.04
2.81
2.80
Non Routine Cognitive Interpersonal 3.10
2.95
2.95
Routine Cognitive
3.13
3.05
3.03
Routine Manual
2.47
2.63
2.72
Non Routine Manual Physical.
2.31
2.55
2.58
1/ Scale 1 to 5. A score of 5 denotes high importance of skill.
29
Mexico
2.76
2.95
2.94
2.63
2.60
El
Nicaragua Salvador
2.66
2.65
2.90
2.86
2.93
2.99
2.76
2.70
2.70
2.62
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
BRAZIL
USA
70
65
60
55
50
45
40
35
30
1980
NRCA
70
65
60
55
50
45
40
35
30
2008
NRCI
RC
RM
1981
NRCA
COSTA RICA
NRCI
RC
RM
NRMP
NICARAGUA
70
65
60
55
50
45
40
35
30
70
65
60
55
50
45
40
35
30
2001
NRCA
30
2009
NRMP
2001
2009
NRCI
RC
RM
NRMP
NRCA
NRCI
2009
RC
RM
NRCA: Non Routine Cognitive Analytical, NRCI: Non Routine Cognitive Interpersonal,
RC: Routine Manual, NRMP: Non Routine Manual Physical
NRMP
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 INTERPERSONAL SKILL
CONTENT OF LABOR FORCE BY COUNTRY OF ORIGIN
CONTENT OF LABOR FORCE BY COUNTRY OF ORIGIN
3.25
COGNITIVTE SKILLS AND ANALYTICAL SKILL
3.3
Argentina
Argentina
3
Brazil
2.9
Nicaragua
Ecuador Peru
Dominican Republic
El Salvador
3.2
3.15
Uruguay
Cuba
Colombia
Brazil
Nicaragua
Peru
Ecuador
Dominican Republic
Mexico
El Salvador
Mexico
Guatemala
2.8
Guatemala
Paraguay
Costa Rica Uruguay
3
Colombia
Costa Rica
3.1
3.1
Panama
Chile
Cuba
3.05
3.2
Chile
Interpersonal skills - scale 1 to 5
Panama
Paraguay
400
450
500
550
SERCE SCORE
Includes only individuals with tertiary edu.
31
600
650
400
450
500
550
SERCE SCORE
Includes only individuals with tertiary edu.
600
650
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




36
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?
Future work
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Improving our understanding of skill – labor
market linkages
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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
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Benchmarking methodology designed
Piloting underway in Argentina
Rollout next year
Thank you
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