1In Greece and South Africa, more than half of young people are unemployed. Across the Middle East, one in four is jobless—in the US, about one in seven. At the same time, however, businesses complain that they cannot find the workers they need. There is, in short, a serious mismatch between what many young people have to offer and what business needs—and this problem is not going away. The McKinsey Global Institute estimates that by 2020 there will be a global shortfall of 85 million high- and middle-skilled workers, up from 75 million in 2012 (ILO, 2012).
2 Seeking to understand this phenomenon, McKinsey & Company developed two unique data sets. The first is an analysis of more than 100 education-to-employment initiatives from 25 countries, selected on the basis of their innovation and effectiveness. The second is a survey of almost 9,000 youths, education providers and employers in nine countries: Brazil, Germany, India, Mexico, Morocco, Saudi Arabia, Turkey, the United Kingdom and the United States. To get their perspectives McKinsey asked each of the three groups similar questions, revealing a key insight: these players do not see the issue the same way. In effect, they are travelling different roads.
3 In order to address youth unemployment, two fundamentals need to be in place: skill development and job creation. McKinsey’s research focused on skill development, with special attention to the mechanisms connecting education to employment. We did not look at macro- or micro-economic factors such as monetary policy, regulation or fiscal issues. Nor does the survey deal with the least-skilled youths; the respondents all have at least some high school education. Finally, it was beyond the scope of our work to do post-employment evaluations, examining factors such as turnover and length of stay. For example, while 70 per cent of the companies surveyed said they would pay more to find the right talent (an average of 22 per cent more), we did not ask if they had actually tried to do so and, if so, whether this had worked.
4 Based on our work with young people, educators and employers, we came to three conclusions:
1. There are effective individual programs, but these tend to be small; moreover, they are the exception, not the norm.
52. The most successful efforts are those where the different stakeholders interact intensively and frequently. Employers get involved in education, and educators play a bigger role in employment.
63. The infrastructure required to improve government performance does not exist. There is a glaring absence of empirical research and no mechanisms to coordinate and monitor activity.
7In Japan, an estimated 700,000 young people, known as hikikomori, have withdrawn from society, rarely leaving home. In North Africa, restless youths were at the vanguard of the demonstrations that toppled governments in Egypt and Tunisia. In the United States, the faltering economy has been so difficult on Generation Y it inspired a television show, Underemployed, about a group of college graduates forced into dead-end or unpaid jobs. It was a comedy, but of the laughter-through-tears variety.
8These examples hint at two related global crises: high levels of youth unemployment anda shortage of people with critical job skills. Leaders everywhere are aware of the possible consequences, in terms of both social and economic distress, of youths’ mass belief that their future is compromised. Still, governments have struggled to develop effective responses—or even to define what they need to know.
9Worldwide, young people are three times more likely than their parents to be out of work. In Greece, Spain and South Africa, more than half of young people are unemployed, and jobless levels of 25per cent or more are common in Europe, the Middle East and Northern Africa. In Organizationfor Economic Co-operation and Development (OECD) countries, more than one in eight of all 15- to 24-year-olds are not in employment, education or training (NEET). Globally, the International Labor Organization (ILO) estimates that 75 million young people are unemployed. If ‘underemployed’ youth were counted, this number could triple. Such figures represent not just a gigantic pool of untapped talent; they are also a source of potential social unrest and individual despair.
10 While many youths cannot find a quality job, many employers cannot find the right people to fill existing jobs. Mid-sized employers (those with 50 to 500 employees) said that they had 13 entry-level openings on average; large employers had 27. Across the nine countries included in this report (Brazil, Germany, India, Mexico, Morocco, Turkey, Saudi Arabia, the United Kingdom and the United States), only 43 per cent of employers surveyed felt they could find enough skilled entry-level workers. Thirty-six per cent reported that a lack of skills caused ‘significant problems in terms of cost, quality and time’. This is particularly pronounced in Turkey (56 per cent), India (53 per cent) and Brazil (48 per cent), though it was disturbingly high in all countries (with the notable exception of Morocco).
Graph 1 – Lack of Skills as Leading Driver for Entry-Level Vacancies
Source: McKinsey & Company
11In order to address youth unemployment, two fundamentals need to be in place: skill development and job creation. This report focuses on skill development, with special attention to the mechanisms connecting education to employment. It does not address macro- or micro-economic issues, including regulatory and/or financial reform; these are important in terms of creating a jobs-generating economy, but are beyond the scope of our research.
12Clearly, to enable students to learn the skills they need to succeed at work, employers need to work with education providers. Governments, too, have a crucial role to play. There is little clarity, however, as to which practices and interventions work, and which may be scaled up. Most skills initiatives today serve a few hundred or perhaps a few thousand young people, while the need registers in the millions.
13 Why don’t we know what works in moving young people from school to employment? Primarily, because there is little hard data on the issue. This information gap makes it difficult to even begin to understand which practices are most promising—and what it will take to train young people sufficiently that they may become productive participants in the global economy.
14 One way of looking at this problem is to consider the state of school-system reform a dozen years ago. Before 2000, policy makers, educators, parents and students had little understanding of how to improve school systems, or how school systems across the world performed in comparison with one another. That changed with the creation of the Program for International Student Assessment (PISA), administered through the OECD. PISA tested the abilities of more than 300,000 15-year-olds across 42 countries (OECD, Messages from PISA, 2000, 2004), paired with the collection of detailed and wide-ranging data on educational practices by country. The results were groundbreaking. This allowed nations to assess which interventions were successful across the board and which were dependent on the context of specific systems. School-system reform is still a work in progress, but with good information in hand, countries have a foundation from which to build.
15 With regard to education to employment, while there are some interesting efforts in the area, there is nothing comparable to PISA. There is no comprehensive data on the skills required for employment or on the performance of specific education providers in delivering those skills. Existing data is limited and cannot be compared across countries. This thus was a major challenge in conducting the current research.
16 A second challenge was the heterogeneous and fragmented nature of job-training systems. Skills training takes many different forms and is provided by many different stakeholders—including vocational schools, universities, companies, industry associations and local and national governments—often including multiple entities. In government alone, responsibility typically is shared among education, labour and industry departments. No one has a bird’s-eye view of the whole process. Trying to develop an understanding of education to employment, then, is akin to comparing apples to cherries, even within the same country.
17 But this is also precisely the kind of issue that the McKinsey Center on Government is created to address. McKinsey & Company is a global consultancy with offices in dozens of countries, serving both the public and private sectors. The McKinsey Center for Government (MCG) leads the firm’s public sector research. MCG’s mission is to help government leaders understand the forces that are driving change, and work with them to develop the tools and capabilities needed for effective policy execution. McKinsey’s global reach and on-the-ground presence made the current research project possible. McKinsey has done extensive research on jobs, labour markets and talent on a global basis, garnering a deep understanding of the ways in which these issues intersect. This project also constitutes part of our broader work on education, a subject to which McKinsey has made a sustained and on-going commitment. At the outset, we were convinced that the transition from education to employment was an important problem. Clients all over the world, from all different sectors—governments, employers and educators—have expressed their frustration with the struggle to find the right workers. As the Financial Times noted in 2012: ‘Across developed and emerging economies, the young are being left behind as never before. And once a gap emerges, it tends to be persistent and difficult to close.’
18As a business consultancy, McKinsey values data. We therefore considered it a priority to make a concerted effort to address the existing information gaps. An initial overview of the issue revealed that while many studies looked at the matter from the perspective of youths or educators or employers, none considered the subject as a whole.
19 To build a knowledge base, we studied more than 100 education-to-employment approaches in 25 countries, developing a truly global perspective on what characterizes successful skills-training systems. To create our empirical data set, we surveyed almost 9,000 young people, employers and education providers in nine countries, covering encompassing a diverse set of geographies, labour markets and educational contexts. These countries represent nearly 40 per cent of global GDP and 30 per cent of the world’s population.
20 Five of the countries are members of the OECD, enabling us to use that organization’s research on youth unemployment. Additional data for the four non-OECD countries (Brazil, India, Morocco and Saudi Arabia) was gathered through a broader search, including sources such as the ILO, the US Bureau of Labor Statistics, the World Bank, the Manpower Group and UNESCO. We also looked at country-specific materials.
21Following our evaluation of the existing information, we designed our own the survey. As our McKinsey team brainstormed the questions, we began to think of the education-to-employment system as a highway with three critical intersections: 1) enrolling in post-secondary education; 2) building skills; and 3) finding a job. This visualization is useful because it presents education-to-employment as a complex system with lots of different places to enter and exit, not simply a straight road. Conceptualizing the journey in this way helped us to identify the key challenges at each point.
22 While McKinsey designed the survey, Lieberman Research Worldwide war responsible for recruiting the participants and administration, collecting both in-person and online responses from August to September 2012. The target sample size for each country was 500 youths, 300 employers and 100 education providers.
23 Each group was asked a set of uniform questions (about two-thirds of a given survey), as well as a group of questions designed specifically for that sector. The questionnaires consisted of approximately 30-40 questions and lasted about 15 minutes (including screening). For youths, the questionnaires included the following sections: high school education, post-high school experience, a special section for those without post-high school education, industry coordination and relations, and engagement. Employer questionnaires asked about new hires, training, industry coordination, relations with education providers, hiring factors and youth engagement. The questionnaires given to education providers had sections relating to graduation, employment factors, student support, curriculum and instruction, education financing and interactions with other education providers, employers and youth.
24In questions that asked for agreement with a given statement, respondents chose from a six-point Likert agree-disagree scale. Participants had six options: agree (‘strongly agree’ or ‘agree’); neutral (‘somewhat agree’ or ‘somewhat disagree’); and disagree (‘disagree’ or ‘strongly disagree’). In questions where respondents rated an ability or characteristic, such as competence or importance, they used an 11-point NPS scale where only the end-points were anchored (e.g., zero indicating ‘not at all’ and 10 indicating ‘extremely’). Scores of 8 or higher are considered to indicate show belief or high importance.
25 Youths: The survey questioned at least 500 youths (defined as those aged 15 to 29 who were either in the labour force or studying and expecting to look for work within six months) in each country, for a total of 4,656 participants. Youths were recruited both in public settings such as malls and school campuses, and through online panels, to ensure broad representation. In fairly equal proportions, we identified youths in five education levels: some high school, high school graduate, vocational, some college or associates degree and university/graduate degrees. The sample was then weighted to reflect the gender and age distribution for the economically-active population of 15-to-29-year-olds in each country, in accordance with statistics from the ILO. The weight of any one response was capped at aminimum of 0.3 and maximum of 3.0. As the survey related to the connection (or lack thereof) between students’ education and their employment, we did not include students with only primary school. We did, however, include high-school dropouts who entered the labour force directly.
Graph 2 – Youth Survey: Highest Education Level Achieved and Family Income Level
Source: McKinsey Center for Government, 2012, p. 108.
26Employers: The survey questioned at least 300 private-sector employers in each country, for a total of 2,832 employers. They were relatively evenly distributed across sectors, with the largest concentrations in manufacturing (19 per cent) and wholesale and retail trade (17 per cent). Three out of four respondents led small (fewer than 50) or medium enterprises (50 to 499 employees). To be included in the survey, employers had to be responsible for at least one of the following three areas: 1) defining hiring criteria, including necessary skills and qualifications; 2) implementing an employee-training agenda and process; or 3) analysing skills gaps within the company or business.
27Graph 3 – Employer Survey According to Sector and Company Size
Source: McKinsey Center for Government, 2012, p. 106.
28 Education providers: The survey questioned at least 100 providers of post-secondary education in each country, for a total of 908. Three types of providers—open-access public institutions, selective public institutions and for-profit private institutions—each accounted for slightly less than a third of the sample. Not-for-profit private institutions made up the rest (11 per cent). Nearly half of the providers had fewer than 1,000 students; a quarter had more than 5,000. Providers that focused on academics comprised just over half of the sample, while the rest focused on vocational training. (In countries with a limited number of overall providers, we treated different campuses or colleges with independent recruiting/academic programs separately). We defined eligible respondents as employees of post-secondary-school educational institutions who had significant influence in one of the following three areas: 1) admissions and enrolment criteria; 2) quality-assurance and institutional-governance processes, such as accreditation or certification; or 3) employer and recruiter relations.
Graph 4 – Provider Survey According to Type of Learning, Size of Institution and Type of Institution
Source: McKinsey Center for Government, 2012, p. 108.
29 Segmentation: The education, employment, social and political systems of these nine countries span a wide spectrum. We observed, however, that certain preferences and practices are evident across borders. By studying these commonalities and outcomes, we were able to define seven segments of global young people (five post-secondary, two secondary) and three segments of employers. This segmentation helped us to see which attitudes and behaviours mattered most. This analysis is central to understanding the issue, and represents a new way of thinking about how to best address the twin crises of youth joblessness and skills shortage. Accordingly, we segmented the youth cohort by evaluating three factors:
30Youths: Five post-secondary segments (based on how well-informed they were about their choices and how interested they are in pursuing their education/career)
31 ● Struggling to Get Ahead (26 per cent of cohort):Youths in this segment place a great deal of importance on educational factors but are not well-informed about them—a combination that leads to poor outcomes. Just over a quarter (27 per cent) of this segment is unemployed, and 16 per cent did not finish postsecondary education, primarily because they found it too demanding.
32 ● Driven (18 per cent): With an unemployment rate of 16 per cent, outcomes for this segment are stronger than for Segment 1, although almost the same portion (15 per cent) did not finish their education. (In this case, however, primarily to take jobs). This segment is willing to pay for more education if they believe that doing so will improve their educational and career chances.
33 ● Disengaged (18 per cent): This cohort is neither well-informed nor motivated to improve their outcomes; they place relatively little value on education. They have the worst outcomes. Almost 40 per cent are unemployed, and 38 per cent did not satisfactorily complete their education. This segment contains the most individuals who say that if they had another chance, they would choose a different field of study.
34 ● Disheartened (17 per cent): Frustrated, members of this group do not believe good education can overcome their socio-economic standing. They are therefore the least likely to be willing to pay for additional education. 21 per cent are unemployed, and 20 per cent did not finish their education.
35 ● Well-positioned (20 per cent): These youths are primed to succeed. Well-informed and ambitious, they care about their education and are confident that they can take advantage of the opportunities that emerge. 84 per cent report above-average incomes.
Youths: Two secondary segments (based on why they did not attend post-secondary education or training)
36 ● Too Cool for School: They do not believe that education matters for their future. Only 10 per centbelieve they lack required job skills and just 5 per cent are willing to pay for additional education. These youths face challenges, however, as more than 40 per cent are unemployed.
37 ● Too Poor to Study: The two leading reasons this segment offers for not pursuing further education were cost (37 per cent) and the need to work (22 per cent). Their rates of unemployment (42 per cent) and interim employment (40 per cent) are high. If they could afford to, however, they would take up further education.
38 While these seven segments are common across countries, the breakdown differs significantly.
Graph 5 – Post-secondary Youth Segments in Different Countries
Source: McKinsey & Company
39For the 2,700 employers surveyed, we identified three distinct groups, based on how well they work with education providers and the importance they place on recruiting and hiring. Large, medium and small companies are represented similarly in each of these segments.
The ‘stalled’ segment (44 per cent of employers surveyed) are the least likely to train their talent and least willing to pay for it. Almost half (42 per cent) have never interacted with education providers.
The ‘neutral’ segment (25 per cent) is comprised of those who take recruiting and training seriously, but are not seeing particularly strong results.
The ‘racing’ segment (31 per cent) are highly engaged and generally successful; 69 per cent of this segment say they face no difficulties in finding the talent they need.
40 These surveys formed a large part of our findings, but we also conducted an extensive literature review, and followed up with 70 interviews with select employers, education providers, civil society groups and governments, most of which were working on innovative programs to tackle the skills challenges they experienced. These interviews and case studies informed our recommendations. We acknowledge, of course, that this approach is not definitive. For example, while the sample sizes are large enough to be statistically significant, they are far from universal. We did not, moreover, conduct accompanying qualitative research in the form of focus groups and so forth. Still, this study is far more extensive than anything that has been done before, a statement borne out by the insights the research uncovered. This is the topic of the next section.
Source: McKinsey Center for Government, 2012, p. 26.
41The shortage of necessary skills among the labour force is primarily an economic problem. Businesses that cannot find the workers they need suffer from lower productivity and lost opportunities. Youth unemployment, in contrast, is primarily a social problem, the side effects of which may include turmoil and general unrest. It is important to recognize, however, that economic and social problems overlap; they cannot be separated any more than it is possible to remove the blue from the sky. One of our most striking insights is thus that at each intersection, the viewpoints of the three major stakeholders diverge so significantly it becomes difficult to believe they are on the same highway. If they are, they are certainly not reading the same map—no wonder they are missing each other.
42Almost three-quarters of educational institutions surveyed (72 per cent) believe that the students they send out into the world are ‘adequately prepared’ for work. Their confidence is not shared by either employers (42 per cent) or youths (45 per cent). The gap is biggest in Germany, where 83 per cent of educators believe graduates are well prepared for work, compared to only 43 per cent of employers.
Graph 6 – Perception of Graduate Readiness for the Job Market
Source: McKinsey Center for Government, 2012, p. 40.
43In countries where the differences in perception are slighter, there is a fair amount of misalignment with regard to specific competencies. In Germany, for instance, providers are more likely than employers to consider youth to be competent in theoretical and hands-on training within a discipline. On the other hand, employers tend to rate youth leadership competencies higher than providers.
44 A similar disconnect occurs with regard to youths and education. 39 per cent of education providers believe the mainreason students drop out is that the course of study is too difficult, whereas only 9 per cent of youths say this is the case (being more apt to blame affordability). In another example, 58 per cent of youths reported that they considered hands-on learning most effective, but only 24 per cent of academic-programgraduates and 37 per cent of vocational graduatessaid that they spent most of their time in thismanner. Damningly, only half of youths surveyed believed their education improved their chances of finding a job, while the same percentage indicated reservations about choosing the same course of study if they could do it over.
Graph 7 – Students who Believe their Postsecondary Studies Improved their Employment Opportunities
Source: McKinsey Center for Government, 2012, p. 54.
45Why do the three major stakeholders fail to see the same thing? In large part, it is because they are notengaged with each other. A third of employers report that they never communicate with education providers, while ofthose that do, fewer than half believe doing so proved effective. Similarly, only two-thirds of education providers ensure that employers visit campuses to meet with students.
46Another important insight revealed by the survey is that stakeholders themselves often don’t know simple, highly relevant facts. Among educators, for example, more than a third (37 per cent) do not know the job placement rate of their graduates. Of those who said they did, a large number appear to be wrong, overestimating employment by 20 per cent when compared with what was reported by youth themselves.
Graph 8 – Provider Perspective on Job-Placement Rates and Length of Time to Find a Job
Source: McKinsey Center for Government, 2012, p. 53.
47In a sense, it is not surprising that education providers know relatively little about what happens to their graduates, as they do not consider it particularly important. When we asked educators to identify their priorities, the results were telling: helping students find employment fell to the middle of the list, coming in sixth out of ten.
48 Nor, in important ways, are youths any better informed. Most of those surveyed admit that they do not know basic information about job placement, job openings or wages. (These results varied widely by country, from 30 per cent in Morocco and the UK to 63 per cent in Saudi Arabia.) Without thisunderstanding, many students choose their courses of study somewhat blindly, without an understanding of whether there will be ademand for their qualifications upon graduation. What is more concerning is that a large number of students appear not to know what they don’t know. In Brazil and Saudi Arabia, for instance, those surveyed thought they had a good grasp of potential careers. When asked about specific occupations, however, that proved not to be the case. Only 46 per cent of youths in Saudi Arabia and 58 per cent in Brazil had a good grasp of the skills required, and wage levels earned, for schoolteachers.
49 Another area characterized by a lack of knowledge has to do with ‘soft skills’—the personal characteristics such as punctuality, communications, temperament, work ethic etc.—that are the social basis for success on the job. One of the things most striking findings of our research is how highly employers value ‘soft skills’; indeed, employers in most countries cite work ethic and teamwork as the most important skills of all. As, unfortunately, soft skills are difficult to define, distil, or measure, however, we have struggled to find relevant programs that we are confident are effective and capable of replication.
50 Part of the reason for this is that ‘soft skills’ encompasses such a wide range of concepts that the term means different things to different people. For example, when we spoke with managers from a hospitality company regarding their expectations of teamwork, they told us their focus was on whether their employees possessed the tolerant attitudes that are important in interacting with a wide range of guests. When asked the same question, an engineering executive singled out the extent to which the employees were able to work and think in cross-functional groups. As these contrasting examples illustrate, the same concept, and even the same words, easily lead to two very different interpretations. Providers and employers have improved their capabilities when it comes to describing technical tasks and competencies. When it comes to soft skills, however, they are not (yet) speaking the same language.
51Instances of positive outcomes in education to employment are the exception rather than the rule.
52Based on our survey data, we identified three distinct groups of employers. Only one, whom we termed the ‘racing’ segment, reported success in getting the talent it requires. These account for less than a third (31 per cent) of the cohort. What distinguishes these employers is that they reach out regularly to education providers and youth, offering them time, skills training and money. Of the two other segments, the first is minimally engaged (44 per cent) and experiencing the greatest struggle to find the right workers, while the second (25 per cent) is somewhat engaged but largely ineffectual.
53 As for young people, the system is not working for most of them either. Of the seven youth segments we identified, only two (the ‘well positioned’ 20 per cent and the ‘driven’ 18 per cent) have had a positive experience of the job market. These young people succeed when most do not because they actively manage their education and career. The well positioned are also the wealthiest and oldest group; the driven, interestingly, are more likely to be female, and are committed to the idea that they can create their own success. The remaining segments range from those who have become disheartened (‘I know enough to not care’) to those who are disengaged (‘I don’t care to know more’) to those who are struggling (‘I want to know more’). As a result, in all the countries surveyed, there are a significant number of unfilled entry-level jobs.
Graph 9 – Number of Unfilled Entry-Level Jobs
Source: McKinsey Center for Government, 2012, p. 47.
54Establishing the number of young people who go on to post-secondary courses (either academic or vocational) and their subsequent employment outcomes is not easy. The ways in which countries define and measure program entry rates varies widely. Moreover, national figures often do not include on-the-job apprenticeships or those who go enter the workforce directly from secondary school.
Graph 10 – NEET Rates Among Youth in OECD Countries, 2011
Source: McKinsey Center for Government, 2012, p. 28.
55 The above figure illustrates the data limitations we have already discussed. But it also hints at a different complexity—that the dynamics of how and why young people make their choices is not consistent across national boundaries. It is obvious but worth stating: countries need to know themselves in order to design the most effective solutions to persistent policy problems.
56 The reasons for failing to continue one’s education vary widely by country. For example, the survey shows that in Brazil, Mexico and the United States, affordability is the most important factor, while in Germany; it is a lack of capacity that is paramount. Turkish youths (and Indians, to a lesser extent), in contrast, question whether further education will provide an economic return.
Table 1 – Reasons for Not Enrolling in Post-secondary Education or Training
Source: McKinsey Center for Government, 2012, p. 28.
57In fact, as the data shows, their suspicions have a basis: the net incremental value of paying for postsecondary education in Turkey is one of the lowest in the OECD (Tansel, 2010). In the case of India, we were struck by the comparative lack of confidence in the value of further education; after all, the achievements of students from the country’s elite management schools and engineering colleges are well known. One potential explanation lies in the fact that our survey looked at students from a wide variety of backgrounds, and respondents from India are among the most likely to state that their socioeconomic background will largely determine their future.
58 Youths in Saudi Arabia showed a decided lack of interest in continuing their studies. This response might be related to the fact that many Saudis intend to work in the public sector, where post-secondary qualifications are often not required. Respondents in Morocco point to a lack of time for their studies due to their work commitments, as well as to a lack of interest in continuing their education. National conditions might well play a role here, as the country faces a severe shortage of jobs for young people.
59 The chief complaint of German youths, uniquely, is that there are not enough places to study. The numbers appear to back this up. A little more than 20 per cent of Germans aged 25 to 34 have a post-secondary degree. Not only is this among the lowest in the OECD, but the figure is unchanged in comparison with Germans aged 55 to 64. In most industrialized countries, in contrast, educational attainment has risen over the last 30 years. It is important to note, however, that Germany is particularly rich in employee apprenticeship programs, creating a highly respected alternative path for youths to enter the labour force.
60In all nine countries we studied, the road from education to employment is under constant repair.
61Signs are missing and the traffic is heavy. Drivers tend to concentrate on the patch of pavement ahead, not the long haul. The result, as the segmentation shows, is that only a minority of young people and employers reach their destination in a reasonably efficient manner. That said, the situation is not hopeless.
62We have seen inspiring education-to-employment solutions aroundthe world, driven by governments, educational institutions, industry associations, individualcompanies and nongovernmental organizations (NGOs). There are good examples of what works, and why, from countries rich and poor, and a range of industries. Some programs are costly while others deliver results for as little as USD 100 per student. The problem, then, is not that success is impossible or unknowable — it is that it is scattered and small.
63In the best initiatives, education providers and employers actively step into each other’s worlds, interacting early and often. Employers might help to design curricula and offer their employees as faculty, while education providers may have students spend half their time on a job site or secure them hiring guarantees. With this in mind, here are three priorities for a more effective education-to-employment system.
64To make informed choices and manage performance, stakeholders need better data. Parents and young people, for example, need data about career options and training pathways. Imagine how helpful it would be if educational institutions systematically gathered and disseminated data regarding students after they graduated, such as job-placement rates and career trajectories five years out. Young people would have a clear sense of what they could plausibly expect upon leaving a school or taking up a course of study, while schools would be incentivized to think more carefully about what they teach and how they connect their students to the job market. There are several interesting programs already in place.
65 The Colombia Labor Observatory, set up in 2005, tracks the graduation and employment rates of every education provider in the country. Young people can view this information for the national, regional, state and city levels. The data also encompasses a longitudinal dimension, meaning that the trajectory of students is tracked over time (whether they went on to further training, which institution they attended, what they studied, when they found employment, what their starting salaries were, and so on). As a result, a teenager in Medellin could look up, say, the economics course at the local university and get some idea as to the career prospects of those who went before. Usage of the database has more than quadrupled since its launch, with 190,000 unique visits in 2012, and the government is working to improve and expand the service.
66 A few governments are taking this a step further, creating a link between information and accountability. In Singapore, the Ministry of Education requires education providers to conduct an annual survey about six months after graduation (Institute of Technical Education, 2008). The Graduate Employment Survey collects and publishes information on employment status and salary to assist prospective students in making informed decisions about institutions and courses. Providers who perform well on this survey use it as a marketing tool, noting, for instance, that ‘graduates from our school have the highest starting salary of any other comparable institution’.
67 The Australian government also requires all higher-education institutions to collect information on their graduates’ employment activities four months after course completion. This information has been folded into the country’s independent university rating, the Good Universities Guide, which utilises a five-star rating system based on three graduate outcome metrics: success in getting a job, graduate starting salary, and ‘positive graduate outcomes’ (based on the proportion of graduates getting a job or enrolling in further study). By encouraging youth to consider graduate outcomes when selecting their educational institution, providers are incentivized to pay more attention to creating strong links to the job market.
68Given the scale of the problem, the solutions devised need to be similarly large. This is much easier said than done. There are three challenges to achieving scale:
69 First, there are constraints on the resources of education providers, such as finding qualified faculty and investing in expansion. This can be addressed by coupling technology—the Internet and other low-cost outlets—with a highly standardized curriculum to spread consistent instruction at a modest cost.
70 Second, there are insufficient opportunities for youth to experience hands-on learning. This is typically the role of apprenticeships, but there are not enough spaces to meet demand. Technology, in the form of ‘serious games’ and other kinds of simulations, can help here, too, by offering tailored, detailed, practical experience to large numbers at relatively low cost.
71 Third, employers may be hesitant to invest in training unless it involves specialized skills whose value they can fully capture. Understandably, they do not want to spend money training employees who might take their expertise elsewhere. For providers, however, it is expensive to develop solutions for every employer. An approach that has proven successful in addressing this disconnect is the combination of customization and scale through the use of a standard core curriculum subsequently complemented by employer-specific top-ups.
72Employers are often cautious about investing in training. They often feel that such training is not their responsibility, too costly, or a poor investment in employees that will then leave for the competition. Even so, we found a number of companies that have developed ways of mitigating some of these risks and, in the process, built a positive case for doing more. These companies typically have a dire need for talent—whether due to the highly specialized demands of the work, an overall lack of talent in the region and/ or the sheer volume of people required.
73 When Egypt’s Americana Group, a restaurant, food-processing, distribution and retail company recognized that it was not getting the talent it needed, it partnered with the Ministries of Education and Higher Education to train people to work in their restaurants and food operations. Students spend up to half of their time working (and earning wages) at Americana during the program. Americana also pays for their tuition and guarantees graduates a position at the end of the program. Given the dearth of skilled labour in the region and the generally high turnover rate in the industry, Americana reports the program is ‘absolutely worth it’, as it provides them with a steady stream of talent.
74 The most transformative solutions are those that involve multiple providers and employers working within a particular industry or field. These collaborations address the skill gap at a sector level. By splitting costs among multiple stakeholders (educators, employers and trainees), investment is reduced for everyone—an incentive for increased participation. Non-poaching agreements and similar such arrangements can also boost employers’ willingness to collaborate, even in a competitive environment.
75 There are two key requirements to making cross-industry partnerships succeed. First, there needs to be regular, intensive collaboration, on the order of weekly, or even daily, communication. Second, everyone involved needs to stipulate their requirements to a very detailed, nitty-gritty level. The Automotive Manufacturing Training and Education Collective (AMTEC), a collaboration of 30 community colleges and 34 auto plants in 12 US states, offers an example of how such a program can work, even among competitors. To develop the AMTEC curriculum, high-performing technicians (not managers) from several auto companies outlined every task they performed, and the respective competencies required. They then ranked these based on importance, developing, over several iterations, a list of tasks common to the dozens of companies. This was done for each specific activity, leaving no room for confusion. Employers and education providers then worked together to distil this information into a curriculum composed of 60 three-to-eight-week study modules spanning 110 core competencies. The partners agreed on a set of metrics to assess student performance, creating standards that are recognized and transferable across companies and states.
76 In another context, IL&FS Skills in India offers an interesting example of government-employer-provider partnership in the developing world. Founded in 2007 as a for-profit venture in skill development, it became one of approximately 50 private partners selected for support by the government-funded National Skill Development Corporation in 2011. It operates 18 skills schools (hubs) and 355 skills centres (spokes) in 24 Indian states. These offer instruction, generally one to three months in length, in 27 trades, including textiles, welding, hospitality and retail. IL&FS emphasizes serving youth from poor, rural areas and offers them a compelling proposition: finish the course and we have a job for you.
77 IL&FS Skills starts by securing commitments from more than 1,000 partner companies to provide job placements for trainees. Then it works with local governments and NGOs to recruit young people, holding informational workshops all over the country. Because enrolment is tied to the number of committed placements, trainees are guaranteed a job after graduation, typically with a starting wage of around 5,000 rupees (about USD 100) a month. Once young people decide to enrol, they undergo a series of assessments (for vision, dexterity, mechanical aptitude and so on). They are then assigned to courses, taught by instructors who have at least four to five years of relevant industry experience. The curriculum is created in cooperation with industry partners. Students live in dorms attached to the schools; their training includes instruction in the life skills they will need if they migrate to cities to take jobs. With the support of computer information technology programs created specifically for the courses, costs are kept low—often as little as USD 100 per graduate. As a result, IL&FS has grown very large, very fast. In 2012 alone, it trained 100,000 young people.
78It’s hard to know where you’re going if you can’t see the road, and in the case of education-to-employment, no one has a good view of the whole journey. Governments come closest, but even there multiple departments (such as labour, industry and education) often have overlapping responsibilities and visions, making coordination impossible. In India, for instance, 20 different federal agencies are responsible for skill development, while state governments also run their own programs. The more complex the web of stakeholders, the more difficult it is to see how the system is functioning (if at all). Getting such a perspective is critical; this is why we believe there should be a system integrator responsible for generating a high-level overview of the entire heterogeneous and fragmented education-to-employment system. These integrators may be defined by sector, region or target population. Their responsibilities should include the following:
Coordinating and integrating all activity, from research and development (R&D) to the implementation of solutions;
Catalysing stakeholder action in priority areas;
Monitoring and managing the quality of outcomes.
79The complexity of the labour and training markets in any given country may necessitate the commissioning of several integrators, one for each mini-system, be they defined by sector, region or target population. Germany’s Federal Employment Agency, for example, is an integrator for the unemployed. A self-governing institution (albeit within a legislative framework), the FEA has two primary responsibilities: finding solutions to help the unemployed re-enter the labour market and monitoring employment outcomes. Its research institute conducts studies on workforce requirements and development (Weise, 2012).
80 Similarly, Brazil’s Prominp, created in 2003, is an example of a single industry-sector integrator. Prominp has what most systems lack: an overarching, long-term vision of the industry’s labour requirements by region and skill. It then coordinates the creation of the right supply to meet this demand.
81 Brazil has rich deposits of oil and gas, but not have enough talent in the pipeline, so to speak, to open the taps. To address this problem, Petrobras, the state-owned energy giant, works closely with Prominp, a coalition of dozens of government agencies, private companies, trade associations and labour unions, whose task is to improve the operation of the nation’s oil and gas industry. Together, Petrobras and Prominp develop a detailed personnel projection. This is based on a rolling five-year analysis of industry activities, aimed at projecting future manpower needs in specific geographic and skill areas (for example, shipyard welding, pipefitting or petroleum engineering). Prominp then contracts the best available education provider to co-develop a curriculum, in coordination with selected companies, to meet those exact needs. Petrobras pays 90 per cent of the costs, while the government covers the rest. Prominp trains 30,000 students a year, and by the end of 2012, it had already qualified 90,000 individuals, in 185 different professional categories, involving around 80 educational institutions. By 2014, Prominp aims to scale up the program to bridge a projected skill gap of more than 200,000 skilled people.
82Think of the education-to-employment system as a highway, where three drivers—educators, employers and youth—all want to get to the same destination. There are three critical intersections—when young people enrol in postsecondary education, when they build skills and when they seek work. At each point, each driver needs to take account of the others to keep moving safely and efficiently. Our research, however, shows that doesn’t usually happen. As a result, too many young people are getting lost along the way.
83 Overall, today’s education-to-employment systems lack the required depth, breadth and scale. This research has sought to improve the quality of knowledge on the subject, and examine why high levels of youth unemployment coexist with significant skill shortages. By providing new information and analysis, we seek to help employers, education providers, governments and young people begin to create an improved, more responsive system. Like a stone thrown into water, our survey has created visible ripples. We have presented our findings in 15 different countries, and the Financial Times, the Economist and dozens of local news outlets covered our work. We are now expanding this work in Europe, as the topic remains a continuing priority for McKinsey.
84 Our work is not the last word on the subject; many organizations have taken it up. The World Bank (Tan, 2012), and the OECD (OECD, 2012), for example, are undertaking surveys examining the literacy and technical skills of adult populations in a range of countries, while the G-20 Group on Skills Development is drafting empirical indicators for benchmarking and comparison. We believe, however, that McKinsey’s research is unique, and a good start toward creating a useful road map for the future. Our hope is that it will inspire others to continue to investigate this crucial topic.
- 1 According to the authors, young people worldwide are three times more likely than their parents t (...)
85In their study ‘Road Work: Creating a Better Highway from Education to Employment’, Mourshed et al. seek to explain the causes underlying the mismatch between youth education and the job market, in light of the critical shortfall of high- and middle-skilled workers, paired with paradoxically striking youth unemployment rates, experienced around the globe in recent years.1
86Turning their attention to the supply side of the labour equation, the authors examine the mechanisms by which skill development in education-to-employment programs affects the observed youth employment outcomes. The difficulty, according to their findings, is that the majority of education and training opportunities lack input from the multiple relevant stakeholders in defining both focus and content. In other words, there is an information gap among the parties involved regarding their interdependent expectations. As noted in the report, ‘no one has a bird's-eye view of the whole process’ and, in turn, millions of young people are unable to find quality jobs while employers struggle to fill existing positions (Mourshed et al., 5).
87In countries like Brazil, otherwise praised for its fast-growing economy, 52 per cent of the 303 surveyed employers claimed that they could not find enough skilled entry-level workers (Mourshed et al., 3). As an emerging market, soon to become one of the world’s leading powers, the persistence of this scenario constitutes a threat to the economic and social wellbeing of its citizens. With respect to the aspects identified as key to closing the information gap in particular, Brazil faces serious challenges. Mourshed et al. reveal that ‘soft skills’ – personal characteristics such as punctuality, temperament and work ethic – are highly valued by employers worldwide and are thus crucial to success in securing a job (17). Yet, as the authors rightly indicate, soft skills are notoriously difficult to define and measure. They are, moreover, not achieved overnight, nor even in the course of two or three years. If we are looking for a long-term solution, it is important to adopt a more comprehensive approach that takes the educational chain, as a longitudinal process, into consideration.
88Although education-to-employment and training should be a priority for policy-makers aiming to improve current performance, the need to begin investing in long-term capacities cannot be overlooked. We must address the educational process holistically, instead of limiting the scope of our actions to partial solutions that may work in the moment, yet do not address the structural factors that produce the informational gap in the first place. Speaking solely with regard to the Brazilian context, for instance, the problem of skill development among youth can be said to derive from both insufficient access to early childhood education and the low-quality of primary schools, which are often unable to create productive learning environments for the children enrolled. Several interdisciplinary studies, led by both American and Brazilian researchers, have provided evidence to support this statement.
89In 2007, for instance, research by Nobel Prize Laureate and economist James Heckman demonstrated that investing in young children from disadvantaged environments early in their lives not only reduces inequality, but also yields high economic returns for individuals and societies at large – particularly in comparison with later interventions. Heckman claims that the dynamic nature of skill formation makes ‘remediating the effects of early disadvantages at later ages [...] prohibitively costly’ because, in the same way that advantages accumulate, ‘so do disadvantages’ (447). Psychologists have shown that significant disparities in vocabulary and language processing efficiency between infants from lower and higher socioeconomic status become evident as early as 18 months. By age two, a six-month gap in cognitive development has already accrued (Fernald, 241-243). This does not mean that post-school on-the-job-training programs are unnecessary or even wasteful; it suggests, however, that their rate of return would increase if accompanied by early childhood interventions (Heckman, 477).
- 2 Only 60 per cent of four- to six-year-old children whose mothers did not receive any formal educat (...)
90In Brazil, a country where 95.7 per cent of children between the ages of seven to fourteen had access to school as early as 1999 – a figure that exceeded 97% in 2006 (Amorim, 274; INEP, 94) – only 74.8 per cent of four- and five-year-olds attended a nursery or a pre-school as of 2009. This proportion was even lower when controlling for the educational attainment of their mothers (Ministério da Educação, 6).2 Across all municipal school districts in 2004, there were an average of 12.4 pre-schools (public or private) for every 1,000 children in this age group. However, 25 per cent had fewer than six facilities for every 1,000 children, and only 5 per cent had more than 30. The availability of educational experts was no different, with only 28.5 teachers for every 1,000 children enrolled in pre-school education (Souza, 231).
91The reality is that, despite spending close to 5 per cent of its GDP on education, a ratio comparable to the OECD average, the Brazilian government allocates most of its resources to funding post-secondary schools and universities. In 2005, 120 per cent of the country’s per capita GDP was spent on each higher education student, but only 10 per cent on each pre-schooler. On average, OECD member states do not spend more than 40 per cent of their per capita GDP on the former population and, on the other hand, countries such as Mexico and Chile devote at least 20 per cent of theirs to the latter (Souza, 235).
92 Some progress in terms of access was achieved in 2001, when the National Education Plan expanded compulsory schooling to six-year olds, thereby adding one grade to elementary education (known as ensino fundamental). By 2005, 96.6 per cent of all students aged six to fourteen were enrolled in the new nine-year track, and this number climbed to 97.6 per cent in 2009 (Ministério da Educação, 7). Despite the near universalization of attendance, however, quality remains a challenge for public education, as the effects of students’ disadvantaged backgrounds prior to enrolment in formal schooling continue to negatively affect their learning outcomes.
93Our public education system is not yet equipped to provide the learning environment required to ensure that every child who enrols in school has a chance at success. In 2006, for instance, of all students aged seven to fourteen, only 93.8 per cent had begun ensino fundamental, meaning that roughly 6 per cent were retained in pre-school. This trend is consistent with the fact that, in the same year, 16 per cent of ensino fundamental students were older than fourteen (INEP, 95). Despite improvements, grade-retention rates remain high in compulsory schooling. Between 2000 and 2003, these rates decreased from 21.7 per cent to 19.2 per cent, rising again to 20.1 per cent in 2005. Although age-grade distortion consistently fell, from 41.7 per cent in 2000 to 27.7 per cent in 2007, the reality is still alarming: one in four students is left behind. On average, it takes such students more than ten years to conclude an eight-year program. As a result, dropout rates increased from 4.9 per cent in 2000 to 6.9 per cent in 2005, resulting in a school completion rate as low as 53.5 per cent (INEP, 105-108).
94Not surprisingly, high school enrolment is far from ideal. Notwithstanding the fact that gross enrolment rates doubled from 1994 to 2000, they increased only 5.6 per cent from 2001 to 2006 and, by 2007, the system experienced net losses of more than 500,000 students per year, half of whom had repeated at least one grade (INEP, 167-168). Data from the Basic Education Assessment (SAEB) indicates that in 2003 only 6.9 per cent of third-year high school students demonstrated an ‘adequate’ level of performance in the Math portion of the national examination, and 6.2 per cent in Portuguese. Moreover, in the 2007 National High School Exam (ENEM), the average writing score was 56 out of 100, while the score on the ‘objective’ portion of the test (combining Natural and Social Sciences, Language and Literature, and Math) was 49 out of 100 (INEP, 182). Grade-retention rates, as a result, followed the same pattern as those of elementary school: they increased from 18.6 per cent in 2000 to 22.6 per cent in 2005. Dropout rates also rose from 8.05 per cent to 10.0 per cent in the same period. In 2005, it took an average of 3.8 years for students to finish the three-year program (INEP, 184).
- 3 According to the Prova ABC, a national examination conducted in 2011 by the non-governmental orga (...)
95The logic of investing in education as a holistic process is therefore clear. If nearly 60 per cent of third-graders cannot perform simple arithmetic operations (addition and subtraction) and only 53 per cent have basic reading and writing skills, what can we expect once they reach high school?3 Difficulties in language acquisition can be detrimental for children’s later mathematical and analytical development, as literacy is the gateway to other areas of knowledge that ultimately become crucial for future career success (Araújo, 3). In Brazil, it is not only youth who are being left behind; children, beginning in their early years, are also getting lost along the way. Unfortunately, however, it is these same years that are the right time to invest in the development of their future skills
96What is left for us to do? How early is enough to make a difference? Brazilian researchers from Fundação Getúlio Vargas estimated that, on average, as shown by the Basic Education Assessment (SAEB), any fifth-grade student who receives pre-school education as a toddler experiences a 0.47 standard deviation increase in mathematical proficiency, as well as a 1.2 year reduction in age-grade distortion (Souza, 239-240). Studies have demonstrated that life-long human capital development depends on early investments in developing certain abilities. Many non-cognitive skills acquired during early childhood have been demonstrated benefit people’s learning abilities through to adulthood(Souza, 233). Not only can pre-school education encourage important traits such as discipline, attention and curiosity among children, but it can also lead to a stronger ability to assimilate knowledge across different content areas. In this way pre-school education contributes not only to more regular grade progression patterns in school, but also to a broader, life-long learning journey (Souza, 236).
97Perhaps it is not just the fact that education-to-employment programs lack the ‘depth, breadth, and scale’ to create new, improved structures (Mourshed et al., 26). Regardless of the career path youth choose to follow, be it academic or vocational, their early cognitive development will allow them to enter the job market with the most important of abilities: the ability to learn. If, from their crucial early childhood years, formative processes are vigorous and consistent, it will undoubtedly prove that ‘schools will be more effective [and] firms will have better workers to employ and train. At lower cost to society, bolstered families will produce better-educated students, more trained workers, and better citizens’ (Heckman, 448). Only when such systematic and sustainable change takes place will our youth no longer be left behind
98The report ‘Road Work: Creating a Better Highway from Education to Employment’ raises a series of important concerns about the inability of educational institutions to provide youth with the skills that are necessary to gain employment in the formal manufacturing and service sectors.
99The report draws our attention to the problems of matching educational levels to available jobs in nine countries: Brazil, Germany, India, Mexico, Morocco, Saudi Arabia, Turkey, the United Kingdom, and the United States, though there is little explanation of the selection criteria for this set. It would have been helpful to contextualise the evidence from these nine countries with the national data provided by a larger data set, such as developed and least developed countries.
100Notwithstanding this sampling shortcoming there are a number of features of the data and analysis that are worthy of further consideration, while there are also some aspects that need to be interrogated and unpicked. The implications of the findings can be more meaningful if they are located within the larger context of educational outcomes and labour markets in the world today.
101The first consideration that the report gives rise to is the question whether a theory of human capital is still an adequate basis for understanding the relationship between education and economic growth, particularly for the poorest countries in the world. The subject of studying the relationship between human capital and economic growth was promoted by Jacob Mincer in relation to labour market data in the United States and later extended to the analysis of economic returns to education across developed and developing countries. The long-term analysis of Mincerian ‘returns-to-education’ over a thirty-year period showed that the log of earnings would be related, either concavely or convexly to years of schooling. The ‘returns-to-education‘ analysis has become the established method of estimating the relationship of private individuals investing in education and the economic returns (wages) that they can obtain in the labour market. These studies of the role of human capital in driving economic growth have been based on estimating the relationship between years of schooling and increased wages in the labour market, and have become a central pillar in the field of labour economists since the 1970s.
102There is a particular curiosity that has appeared in the ‘returns-to-education’ literature regarding continued positive returns to education at the end of the twentieth century. In particular, Mincer himself was curious regarding the number of decades in which there had been an increasing investment in human capital, and no fall in the rates of returns to education. This is explained in the specialised ‘returns-to-education’ literature in labour economics by showing that as skill-biased technological change occurs, there is a resulting increased demand for human capital. This means that there will be an increased demand for those with a higher level of human capital as indicated by years of schooling and so there will be a greater skill requirement over time in any technologically dynamic economy (Mincer, 1995).
103This particular feature has become a basis for making the case that the greater investment in human capital witnessed at the end of the twentieth century and the absence of any diminishing returns to education are the consequences of continued investment in skill-biased technology that continues to generate increasing returns to education as long as there is no fall in the quality of education. The work of Romer (1989) has also provided a commentary on the need to move to a broader definition of human capital that goes beyond simple measures of literacy to improve our understanding of the relationship of education and economic growth. The conclusion of his investigation was that levels of education should not be regarded as merely the result of private decisions of individuals, as they are also positively correlated to the aggregate country (national) investment levels in the economy. This recognition of the need to examine a fuller contribution of human capital to economic growth led to a new line of labour market research into the relationship between investment in human capital and rising returns on investment.
- 4 Low-income economies are defined as those with a GNI per capita, calculated using theWorld Bank At (...)
104The overwhelming influence of the ‘returns-to-education’ literature points to the continued benefit of individual investment in education in terms of improved earnings over the lifetime of that individual. It should therefore be the case that when the number of years of schooling increases in a country, this should result in an increase in the per capita GDP. The two graphs below indicate that there is a relationship between increases in years of schooling education and per capita GDP in emerging economies (EE), low- and middle-income countries (LMI), and the lowest income group that we have indicated as (LDC).4
105The per capita GDP in emerging economies, since the 1980s, has shown an upward trend and there appears to be a positive correlation with years of schooling. In the case of LMI and LDC countries this trend, of a positive relationship between years of schooling and per capita GDP, is evident from the end of the 1990s, though at a lower rate. The difference in trends should be noted as it indicates that economically less well off regions might not see a positive correlation between education returns and economic growth until a later stage in their development.
GDP per Capita (constant 2005 USD) in Least Developped Countries (LDCs), Lower- and Middle-Income Countries (LMIs) and Emerging Economies (EEs)
Source: Data compiled from World Bank, author’s own analysis.
Avarage Years of Schooling in Least Developped Countries (LDCs), Lower- and Middle-Income Countries (LMIs) and Emerging Economies (EEs)
Source: Data compiled from World Bank, author’s own analysis.
106The second consideration that the results of the survey in the report bring to the fore is that there are a number of reasons why youth might be dissatisfied with the nature of the education that is being provided by educational establishments; particularly the two categories of ‘too cool to school’ and ‘too poor to study’ at the secondary level that are taken as a given across all the countries surveyed. While this distinction might be an attractive way of distinguishing types of secondary school students, some caveats are in order at this point.
107The most important detraction is that these distinct categories tend to be less clear-cut in the poorer countries of the world. The separation of youth into those who have completed the secondary cycle and are therefore likely to acquire jobs if they are motivated and those who will fail because they have not completed the schooling cycle is not an easy exercise to undertake. Our research in poor communities shows that even where parents in poor communities have made informed school choices for their children this has not automatically resulted in an improvement in the quality of education and the likelihood of employment. While some young people, particularly those from better socio-economic backgrounds, have completed the educational cycle, they have not been able to secure gainful employment and other young people have not been able to complete the educational cycle at all.
- 5 India, Pakistan, Bangladesh, and Nepal in South Asia, and Angola, Benin, Eritrea, Egypt, and Tanza (...)
108It should also be recognized that the poorest countries in the world do not have compulsory education for children above 14 years of age. This means that these children have already fallen outside the educational net before the point at which students are eligible for internationally comparable tests such as the Programme for International Student Testing (PISA) administered through the OECD.5 Consequently, secondary students in these countries, particularly those from poorer families, are unlikely to be entered for PISA tests and the actual skills of poorer young people may be far worse than those currently recorded in these international comparisons. This is a very sobering thought, given that the graphs above already show that least developed countries have a lower return from education than emerging economies.
109The third consideration is that there is already evidence that the number of quality jobs in developing countries does not automatically grow alongside economic growth. The recently released World of Work Report, 2014, published by the International Labour Organization, has shown that emerging economies have made significant investments to ensure an increase in highly skilled jobs.
110The consequence of dismal employment prospects is that despite households in poor communities wanting to access the education provided by new partnerships within their communities, a lack of employment opportunities could become a severe obstacle to further generations viewing the benefit of education as an instrumental good – that is to say, one that ensures higher incomes through employment (Fennell and Malik, 2012; Fennell, Malik, Agbley, and Akbazaa, 2013). The downgrading of the human capital element bodes ill for the poorest countries where discontinuities in both the supply-side aspects of educational provision and demand-side features continue to thrown up new challenges for the goal of universal education.
111Schooling youth in poor communities does not by itself become a sufficient condition for ensuring that individuals exit poverty. If the system is to be prevented from failing young people who want jobs when they complete the secondary cycle then it is imperative that structural constraints, such as inadequate information, are overcome and recuperative mechanisms are operationalized so that the schooling provided is responsive to the educational demands of poor households.
112These poor young people who have completed the secondary cycle are not able to access jobs in the formal manufacturing and service sectors today. The best they can aspire to is a vulnerable form of employment in the informal sector (ILO, 2014). The powerlessness of the poor, as witnessed by their inability to improve the quality of education received by their young people, indicates that choice alone cannot ensure more equal power relations. There is a need for public policies that so as to reduce the tenuous links to earning that poorly educated young people in the poorest countries have today (ibid.)
113In many developing countries, where the formal sector provides less than a fifth of the jobs, it will be a very steep uphill task ensuring high quality educational provision that will make it possible for poor young people to move away from a model of job seeking based on social networks to one that is based on skill recognition. The mere completion of a specified number of years of education or training will not by itself provide the realization of educational values (Brighouse and Unterhalter, 2008). While the McKinsey report is correct to look for solutions, partnerships and scaling up will not automatically provide results without a more careful and detailed look at the current difficulties in providing quality education for the poorest in least developed countries, and also taking fuller account of the difficulties faced by least developed countries in both providing universal education and creating employment.
- 6 The many writings of Jacob Mincer, Gary Becker and his Chicago colleagues have, as a background as (...)
114McKinsey has a keen ability to put its fingers on critical problems. It has done that again. Mismatches between people looking for jobs and firms looking for people with the desired profiles are one of the most stubborn problems in labour markets. For the right reasons, the paper bypasses the usual economic models, Mincer style, 6and gets its hands dirty in a varied range of figures and arguments made be people who are involved in the debate. Not an elegant approach, but the correct one for handling this problem. The main conclusion is persuasive: the more the two sides interact, the greater the chance of reducing the mismatch. Not a revolutionary finding but one that is rarely at the core of most efforts to deal with this problem.
- 7 The countries surveyed in McKinsey’s paper are: Brazil, Germany, India, Mexico, Morocco, Saudi Ar (...)
115Despite its impressive contribution, the paper has some shortcomings. International comparisons thread a delicate line between results that are too narrow, focusing only on a few countries, and generalizations based on a motley collection of societies. This one is in-between.7 It includes a broad collection of countries, belonging to the upper half of the development scale. Not the entire world, but societies that are still quite different. For instance, the countries in the economic lower end of the sample have little in common with the others. Are the conclusions still valid for Brazil, India, Morocco and Turkey? Furthermore, in the paper, training or professional preparation is mostly assumed to mean post-secondary courses. That is not always the case. In Brazil, a middle-of the-road country, net enrolment in higher education (which legally includes all post-secondary programs) is around 15%. Most skills training programs are offered to students at secondary level or with considerably less schooling. An additional source of ambiguity is that the study seems to lump together four-year programs, which tend to be broad and vague, with post-secondary two-year-courses, which, to a large extent, have replaced classical vocational training in the more advanced countries. Therefore, it suffers from the aggregation disease. Too many different situations are subsumed under the same conclusions. That being the case, the results are a lot less compelling than they could have been if they referred to more homogeneous clusters.
116To be fair, the paper points out the difficulties in comparing skills training between countries. This is indeed a serious problem. When studying East European countries, I came across UNESCO statistics that showed Romania and Russia as having very different systems of vocational training. Actually, as my visits indicated, they had the same system, but described with different words.
117Closer to the OECD, in German-speaking countries, the dual system—involving apprenticeship in a company complemented by academic education—is an alternative to secondary schools. In most other advanced nations, instead, skills preparation is mostly post-secondary. These considerations do not invalidate the conclusions of the paper. However, they make them sound a bit less forceful, at least for those countries that are outliers, compared to the majority of OECD members, with regard to the issues mentioned above.
118Several solutions are proposed to bring demand and supply closer to one another. To simplify, they can be grouped into two categories. The first is to create a kind of matchmaking authority. Some superior administrative body should help different providers to get closer to real world demand. The idea is to get more coordination into systems that tend to be scattered and disconnected. In principle, there is nothing wrong with the proposal. But in a world so saturated with bureaucracy, creating a new administrative actor may not be such a good idea. In addition, let us remember that, in the real world, one ministry cannot tell the others what to do. As we know, ministries of labour and ministries of education hardly speak each other. Cooperate and coordinate may be an impossible task. The second prescription is to ensure that schools do tracer studies, in order to inform all the actors concerned about what is happening to their graduates. This is something I have been proposing for decades. Unfortunately, only a few institutions seriously and regularly do them. The usual reasons are costs and difficulties in locating the graduates. Surely, a small country such as Singapore can do it. However, when we consider that, in big countries, many millions graduate every year, the logistical capacity required is formidable. The United States has over 4,000 institutions of higher education, enrolling above 15 million students every year. Brazil has seven and a half million students in higher education. But perhaps there is something more insidious at play. In addition to the logistical difficulties, public institutions are not too keen to find out the occupational status of their graduates. Since inertia is the strongest force in the logic of their operations, it goes against the grain to discover that students of this or that course do not get the expected jobs or get no jobs at all. Considering the political costs of closing down or downsizing courses, they often prefer not to know.
119Accepting the main finding of the paper does not necessarily lead us to the same prescriptions. In fact, my proposal is not to create some bureaucratic machinery to coordinate supply and demand, but to improve the mechanisms that make coordination an automatic outcome. In other words, it is better to redesign systems in such a way that they need no coordination. The McKinsey solution is to appoint people to direct traffic, so that people can find their destination. A better solution would be to engineer rules that make traffic flow better on its own. Incentives are needed in order to make training institutions want to adjust their courses to market demand. In the case of public institutions, such incentives do not exist or are weak. Instead, they need strong forces to make them overcome inertia and fine tune their programs, as well as help graduates to find jobs. There is an information gap, to be sure. But in most cases, institutions are not unhappy with it. Given the high political costs of changing their course portfolios, ignorance is bliss for them.
120To find suitable solutions, we may start by recapping the classic supply and demand models, so dear to economists. As the textbook goes, when the requisite competitive market conditions prevail, chances are that a much better match is achieved. And such situations do exist in the world of training. To illustrate the point, there is a huge market for unregulated training, from cooking classes to instruction on how to operate the latest version of CAD software. Profit-driven firms, working under the traditional market incentives, offer this training. They sell training to firms that need to improve the skills of their staff. They also approach individuals who perceive that they can improve their lot by enrolling in courses. The problem of mismatch is more serious when training is public or paid for by the government. As mentioned, public institutions can afford not to fine-tune their offerings to the markets. In the majority of the cases, they prefer to do nothing. To make a long story short, one line of policy—but not the only one—is to artificially create incentives that mimic competitive markets. Prizes and sanctions, carrots and sticks do wonders. In other words, the idea is to create quasi-markets.
121Let us review a few examples:
122One very interesting and robust scheme is that of the Brazilian System S. It comprises a collection of training institutions, funded from levies on the payroll and owned and operated by employers’ associations. Since firms consume the training that is offered in their schools, they have good reasons to ensure that the training meets their needs. After more than half a century, the system still works reasonably well.
123The InterAmerican Development Bank has funded a series of training programs, starting with Chile Joven. Public funds are given to public or private institutions that present a decent training proposal and a written contract with employers, committing them to hire the graduates. In cases of heavy unemployment, firms get paid to give internships – but research indicates that most are converted to more stable jobs. Evaluations have shown that the programs tend to work quite satisfactorily.
124American Community Colleges get part of their budgets from the local communities. And this budget needs to be voted by local citizens. This gives strong incentives to the colleges to offer courses that please their constituencies.
125School Boards with a powerful representation of local business are another way of bringing courses in line with market demand. The best skills training programs usually take place in schools with this kind of boards.
126In some countries, the budget of vocational schools is contingent on a good employability of the graduates. There may be a fixed budget and a variable part that depends on results.
127To sum up, the paper commented here aptly put its finger on the failures of the virtuous interaction between the supply and demand of training. However, the present author is sceptical of solutions that require coordination, in particular, those that entail the creation of additional layers of bureaucracy.
128Instead, the so-called quasi-markets, if properly engineered, can create incentives for providers to adjust their supply to the real demand.
This is not the ultimate or the complete solution but it may offer several ways to achieve a better match in an automatic or almost automatic manner.