1. Increasing the social and economic returns to education
One of the main aims of the World Bank is to reduce poverty. The problems of transition from school to work may be hitting those the hardest that come from an economically disadvantaged background. An important question in terms of school-to-work transition is, which individuals benefit more from education? It is integral to identify if the benefits of education are accruing equally to all. If education is benefiting only the elites, the education policy makers need to target policies to improve the educational quality and outcomes of the poorer population to help exploit their potential and contribute to national economic growth. In this regard, it is important to focus on two issues:
Differing returns to education amongst different individuals It is important to understand the poverty and inequality implications of the current pattern of returns to education. The fact that basic education reduces poverty, is a widely held belief, supported by the notion of diminishing returns to education and evidence that labor market returns to education are highest at the primary level of education. However, recent data strongly suggest this may have changed as recent evidence suggests increasing returns to higher levels of education. This has important implications for the understanding of the poverty-reducing role of different levels of education.
Economists have generally estimated the average of marginal returns to education assuming homogeneity of returns across individuals, in actuality different people may get different returns from the same type and level of education. This fact has serious implications on the inequality-reducing role of education. Yet in most developing countries, the distribution of returns to education across the earnings spectrum and amongst different individuals is seldom studied – even though there are considerable policy implications of such heterogeneous returns to education. For instance, do poor individuals face lower returns to the same level of education as rich individuals? If so, is this because the poor have access to poor quality of schooling? The distinction in returns to education could also be due to the fact that characteristics other than schooling, such as an individual’s ability and motivation may benefit more from education. If this is the case, the argument for emphasis on building of non-cognitive skills in schools becomes compelling. Particularly since children from low socio-economic backgrounds are more likely to lack such non-cognitive skills.
Cost of early school drop out and school failure There is a growing body of evidence that shows the high cost of early school leaving both to the individual and society as a whole. The World Bank has made attempts to estimate the cost of risky behavior of youth including early school drop-out as well as youth unemployment at a country and regional level. While a lot of work has been done in the OECD and developed countries on the cost of school failure, it remains a more challenging task for the developing countries. This is so because in developing economies, particularly those with large pervasive informal sectors, formal schooling systems may not be the only important channel for acquiring employment skills. Recent work at the World Bank shows that there are significant costs of inadequate education, not only to the individual in terms of foregone income, but also to the taxpayers and the society as a whole in terms of poorer health outcomes, lost taxes, greater crime rates among other costs. Thus, even if individuals are investing less in education simply by viewing it as an investment and optimizing their returns, policies need to be in place that can maximize the externalities of education at the optimal level of education. For instance, in a country where lack of education appears to cost the greatest in terms of HIV/AIDS infections, the curriculum may need to incorporate information on risky practices at an earlier stage. Similarly, if the transition in the labor markets can be made easier by teaching the relevant technical skills, the policy makers may chose to introduce technical and vocational subjects as an option at the secondary education level in any school system.
2. Building competencies and skills for the labor markets
With the rapid expansion of basic education in most developing countries, the emerging challenge is to identify the best ways of expansion of education services and skill formation that benefits the individuals to be competitive not only within the local labor markets, but at a global level as well. This will help countries in the development of an educated and skilled workforce which helps them grow in the global economy.
The World Bank has invested substantially in skills development in recent years. Between FY00 and FY08, following about a decade of low Bank investment in this area, an estimated US$ 915 million of World Bank investment and development policy lending targeted vocational training—of which a large share was IDA lending. Complementing the lending, a number of analytical pieces fed into Country Assistance/Partnership Strategies and informed policy-based operations and TA projects.
The role of pre-employment vocational education and training (VET) Recently demand for the pre-employment VET in developing countries has increased. With rapid universalization of primary education and consequent high demand for secondary education, many developing countries are seeking to expand their vocational education to absorb the increased demand for secondary education, to supply skilled workers, to solve unemployment problems of youth and the disadvantaged and to reduce demand for higher education.
While some recent studies show positive labor market outcome for graduates from vocational track of education, investment in pre-employment VET in developing countries in the past in general turned out to be inefficient compared to other modes of VET like employer training or general education. Therefore, client countries and the World Bank are working together to properly address and improve pre-employment VET systems and policies. Recently World Bank projects on TVET have attempted to raise the quality, relevance and cost-effectiveness of TVET systems through Private Public Partnerships (PPP), new teaching methodology (such as flexible and modular approaches), technology, career information and counseling, strengthening the capacity of the Monitoring and Evaluation, management and planning, training delivery, and labor market analysis in both the public and private sector.
The role of cognitive and non-cognitive skills in labor market return There is evidence that cognitive skills have economically large effects on individual earnings and national growth. This evidence suggests that workers’ productivity depends not only on years of education acquired but also on what is learnt at school. A growing body of literature is focusing on non-cognitive skills, emphasizing the importance of these in longer term earning and employability potentials of individuals; for instance, empirical evidence exists that perseverance and consistency are important predictors of grades in schools and that job stability and dependability are traits most valued by employers. Recent literature now differentiates between skills that can be developed in school and cognitive and non-cognitive skills that are developed outside the formal education systems.
These issues related to cognitive and non-cognitive skill development, however integral to education, have been relatively absent from the work of the World Bank. The World Bank is now focusing on a framework to better understand this relationship. In particular this is necessary for better policy making in terms of decisions regarding the type of education which benefits individuals more in the labor markets and in terms of which individuals are able to benefit more from education.