Education, Training, and the Low-Skill Trap

Abstract

This section examines business demand for skills from four main vantage points: 1) overall shifts in employment in the wake of market reforms, especially from manufacturing to services and commodity production; 2) weak demand for skilled labor by MNCs; 3) peculiarities of labor regulation and training programs sponsored by governments that favor in-house training; 6. Skills -4and 4) trends in returns to education. Each perspective highlights limits on business demand for skills, especially compared to other countries and to past trends. 5 Since the 1980s, the major shifts in employment in Latin America were from manufacturing to services, from the public to the private sector, from rural to urban areas, and from formal to informal employment (Stallings and Peres 2000;Palma 2005;IDB 2003;Lora 2008). Some of these were longer term secular trends, others responses to policy shifts. Trade openings forced uncompetitive manufacturers to close and many competitive ones to down size to improve productivity. Employment fell in manufacturing, and many technicians and engineers lost their jobs. Industrial employment held steady in Mexico, while it dropped throughout most of the rest of the region (Berg, Ernst, and Auer 2006, 19). In the 1990s, the greatest employment growth came in the service sector which accounted for "more than 95 percent of new net job creation" in most of the large countries (Stallings and Peres 2000, 198).Privatization, FDI, deregulation, and suppressed demand fueled booms in telecommunications, finance, insurance, and public utilities like electricity, but these sectors accounted for only about a quarter of new jobs. Other lower technology, low wage sectors like "commerce, restaurants and hotels, together with social, communal, and personal services, accounted for 74 percent of all jobs created in the region" (Stallings and Peres 2000, 198). The last major, overlapping area of growth was the informal sector which accounted for nearly 60 percent of new jobs, predominantly unskilled, in the 1990s (in one study of seven countries (Stallings and Peres 2000, 119)).The commodity boom of the 2000s buoyed growth rates but did not boost overall demand for skilled labor (exceptional demand in Brazil is considered later). After 2000, international demand boomed for raw materials and semi-processed commodities like pulp and paper, minerals, metals (steel and aluminum), oil and gas, basic agricultural goods, and agro-industrial 6.