January 20, 2013 | Contribution by
CLAUDIA SEPULVEDA By Claudia Sepulveda, Lead Economist, Office of the Chief Economist, the World Bank
Day workers unload bananas in an open air market in Manaus, Brazil. Photo: © Julio Pantoja / World Bank
If you are at the prime working age of 35-55 years old and watching the 2013 South American Youth Championship (Campeonato Sudamericano Sub-20) — which is taking place in Argentina and will qualify the four South American teams to the 2013 FIFA U-20 World Cup — then you may be forgiven for thinking of trading places with a 20-year-old. Young people are healthier and stronger, and they don't worry about waistlines and other signs of age. But one thing would worsen as a result of the trade: your labor market prospects. Young workers almost invariably have lower wages and higher rates of unemployment than older workers. Most countries have instituted programs to help youth in the jobs market. On the supply side, programs that link schooling to work or attempt to improve skills. On the demand side, those that raise youth wages or direct employment opportunities toward young people. At the recent Latin American Economic Association Meetings (LACEA)–Latin American Econometrics Society (LAMES) in Peru (Nov. 1-3), two presentations shed light on the impact of youth training programs — which combine supply and demand side programs — on labor and non-labor market outcomes. Today's blog highlights these working papers that suggest that there is still a lot to learn on how to better design these programs. Training for disadvantaged youth in Dominican Republic In the Dominican Republic, the Youth and Employment Program (known as Juventud y Empleo, or JE) has been in place since 2001. It aims to improve the labor market entry of young people between 16-29 years old who haven't completed high school. But unlike earlier training programs in Latin America, it places a heavy emphasis on private sector participation. This means a wide range of training courses (administrative assistant, hair stylist, etc.) that include life skills training and technical training, followed by an internship in a private sector firm. The provision of training services is outsourced by the Ministry of Labor to private training institutions registered and approved by the national training institution. How has the JE program — one of the first to incorporate a randomized evaluation design (as did a similar program in Colombia) — fared? The first JE evaluation (Card et al., 2011) focused on a wide range of labor market outcomes (employment, hours of work, monthly earnings, and hourly wages) for applicants in early 2004. It found no significant effect on employment and only a modest impact on earnings per month. However, a second evaluation carried out by Laura Ripani (IDB) of the program — now modified to work more closely with the private sector and provide a stronger life skills component — shows better results. Moreover, unlike previous evaluations, her paper focuses not only on labor market impacts but also on non-cognitive and socio-emotional skills that are supposed to improve participants' labor performance and other important outcomes (such as teen pregnancy rates) that can be attributed to training. Ripani tells the JKP that although the program had a negligible impact on employment rates, it had a significant impact on the quality of the job especially for men and on monthly earnings especially for women. Plus the program improved soft skills outcomes — such as persistency of effort and leadership –— that help labor outcomes. For young women, the program also reduced teenage pregnancy and boosted perceptions and expectations about the future. Legal incentives to hire young workers in Brazil In Brazil, a large subsidized training program (Lei do Aprendiz, Apprentice's Act) was introduced in 2000 to encourage firms to hire young workers by lowering firing costs but requiring workers to attend work skills enhancing courses — either through official qualification agencies (so called Sistema S) or at nongovernmental organizations (NGOs) that specialize in such training and are certified by the Ministry of Labor. By mid-2010 about 250,000 young people had jobs under this program, covering those aged 14-23. The payment should be at least the hourly minimum wage. But there is a payroll subsidy in the form of a lower deposit by firms — 2 percent of the basic wage instead of the 8-8.5 percent rate that applies for other workers — to the worker's FGTS account (Fundo de Garantia por Tempo de Serviço). Contracts are temporary with a maximum of length of 2 years and no firing costs for job separations by and before the end of the contract. The hope is to place participants in good (formal) first jobs, enhancing their changes of staying in the formal labor market. How did this program do? Miguel Nathan Foguel (Brazilian Institute of Applied Economic Research or IPEA) and co-authors (Carlos Henrique L. Corseuil, Gustavo Gonzaga, and Eduardo Pontual Ribeiro) provide the first evaluation of the Apprentice Act on labor outcomes. They use a huge longitudinal data set (Relaçao Annual de Informações Sociais, RAIS) based on administrative data collected by the Ministry of Labor that contains the employment histories of all formal workers between 2000 and 2005. Foguel tells the JKP that their results show that, compared to other temporary workers, the apprentices have a higher probability of getting a formal job after the program and a higher probability of getting a non-temporary contract — albeit with a lower tenure (being in the same firm over time after the apprenticeship ends). Moreover, the impact on wages is significant, although small in magnitude. * * * * *
In all, much more work is needed to understand how these programs work and the role that soft skills play in training programs for developing countries.