Structural change and skills: is VET an obstacle to labor reallocation?

1. Structural change and skills: is VET an obstacle to labor reallocation? Žilvinas Martinaitis, post-doc at Kaunas UniversityofTechnology

2. Researchquestionandbasicargument • NSE: • as economy develops, facilitating state should invest in up-skilling; • Does not address, how the labor is expected to move from “old“ to „new“ sectors? • Focus on: reallocation of labor during transition. • Argument in the literature: specificity of skills (VET in particular) hindered effective movement of labor. • Research question: do deep occupational skills inhibit reallocation of labor during economic restructuring? • Basic argument: • „VET hinders adjustment of labor“ is not the lesson to be learned; • Abundant occupational skills facilitate modernization / upgrading of industries that rely on task-specific work; • Abundant general / academic skills facilitate movement of labor to sectors that rely on non-specific tasks.

3. Thehopesof L1=L2literature Expectations of early transition literature: • Transition economies with some of the human capital indicators higher than in the OECD were well prepared for convergence with advanced capitalist countries. • Market forces should reallocate labor from less to more productive firms/industries; Labor did move: • Annual average labour turnover between 30-50 % during the first 5 years (Cazes & Nesporova, 2001); • Large movements from employment to inactivity and persistently high unemployment during the first decade of transition; • Jeong, Kejak and Vinogradov (2008) estimate that skills mismatches led to output loss between 8 and 40 percent of GDP in Czech Republic, Hungary and Poland.

4. Literature: whatwastheobstacle to adjustment? • In general: focus on narrow skills in initial education, long tenures, absence of life-long-learning systems; • Specifically: high proportion of workers with VET; Assumptions in literature on developed economies (Estavez-Abe, et. al., 2001, etc.) that were copied by students of transition: • Academic education: broad range of subjects, development of higher level skills  can be applied to perform a broad range of tasks; • VET: training linked with performance of occupation or industry-relevant tasks  difficult to adapt to structural change.

5. VET hindersreallocation: empiricalfindings(1) • Boeri (2000): returns to VET lowerthan to academiceducation; • Rashid, Rutkowski&Fretwell(2005): lessskilledand VET graduatesmorelikely to move to unemploymentandinactivity; • Lamo, Messina & Wasmer (2011): “In both countries, each additional year of education raises the probability of re-entering employment by about 10 to 11%, while holding basic vocational or secondary vocational degrees reduces it by 12 to 16%” (p. 243). BUT: does it makessende to comparetertiaryandsecondaryvocationaleducation?

6. VET hindersreallocation: empiricalfindings (2) Table 1. Unemployment rate and education in 1995.

7. VET hinders reallocation: empirical findings (3) Education, employment, unemploymentandinactivity (2010)

8. Istertiaryeducation „theanswer“?

9. An alternative interpretation of transferability of skills (extensionofStreeck, 2012) • Task-specificity understood as ease of replacing workers: • Non-specific: L1=L2 • Highly specific: requires considerable on-the-job training and learning-by-doing; • General / academic education: transferable skills to move between jobs that rely on non-specific tasks • Vocational education: transferable skills to move within a segment of jobs that rely on specific tasks. Implications: • VET graduates in jobs that require considerable further training beyond required qualification; workers with general education in jobs that do not require further training; • Countries that engaged in up-grading / modernisation of „old“ industries should gravitate towards VET-specific tasks development path; • Countries that engaged in engaged in building „new“ industries should gravitate towards general education-nonspecific tasks development path.

10. Implication 1: VET in task-specific jobs; general education in non-specific jobs. • Operationalisationoftaskspecificity: howmuchadditionaltrainingisneededbeyondrequiredqualification? • Data: EuropeanSocialSurvey (5), performedin 2010. • Countries: BG, CZ, EE, HU, LT, PL, SK and SI. • Result: statisticallysignificantdifferences, butoverallsmalltask-specificity.

11. Implication 2: explainingcross-countrydifferencesinrestructuringpaths • Restructuring as modernization of „old“ industries relies on skills to carry out specific tasks:  Should maintain high VET participation and employment in „old“ industries; • Restructuring as decline of „old“ and development of „new“ industries relies on skills to perform a range on non-specific tasks:  decline in VET participation and employment in „old“ industries. • Focus on complex manufacturing (Chemicals and chemical products (24), machinery, NEC (29), Electrical and optical equipment (30-33), transport equipment (34-35)): • Mature technologies, relying on high task-specific skills; • Relatively well development during socialist years.

12. Divergentmodernizationpathsandtypesofskills • Notes: Data for enrolment in VET: 90s refer to average of 1990-1999; 00s refer to average of 2000-2010. Source: UNESCO Institute for Statistics. • Data for Employment in complex manufacturing: 90s refer to average of 1995-1999; 00s refer to average of 2000-2007. Source: KLEMS database.

13. VET incomplexmanufacturing

14. Preliminaryconclusionsandpolicyimplications • Whattypeofeducationsystemfacilitateseconomicrestructuring? • „VET hinders adjustment of labor“ is not the lesson to be learned; • Abundant occupational skills facilitate modernization / upgrading of „old“ industries that rely on task-specific work; • Abundant general / academic skills facilitate movement of labor from „old“ to „new“ sectors that rely on non-specific tasks.