A ‘Skilled’ Approach to Development

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These days, there is a lot of talk about skills and their importance for a country’s development. Not too long ago the Indian Prime Minister Manmohan Singh called skills and knowledge “the driving forces of economic growth and social development in any country.” Last week, President Obama in his State of the Union address mentioned, once again, the critical importance of upgrading workers skills as part of his call for ‘An America Built to Last’.

The focus on skills and skills development (ironically, once considered obscure themes, of concern only to specialists) makes sense. Our enterprise surveys show that between 20 and 40 percent of firms in most developing regions identify the lack of appropriate labor skills as a major constraint to development.

Not surprisingly many governments are rushing to fill the gap. The National Skills Development Corporation in India was set up to achieve the goal of developing the skills of 150 million people by 2022. China plans to build 1200 technical training centers and train 3.5 million technical workers and 1 million senior technicians in the next 10 years. Many other countries are embarking on similar skills development initiatives.

There’s no question there’s a gap that needs to be filled. But there’s also a knowledge gap. 

In fact, for all the rush to finance training programs, we really don’t know what the best way is to ensure that people acquire the needed skills – or what skills truly are needed. I would like to suggest that we stop and reflect about the issue before jumping to the conclusion that setting up large (government-sponsored) training programs is THE answer to the ‘skills problem.’  I propose we consider two broad questions.

First, which skills are missing? There is growing recognition that there is a range of skills (academic, life, technical, etc.) that may matter for productivity – and that there are different ways to acquire these skills (in schools, through training, on the job and at home). But there is uncomfortably little, solid, empirical evidence from developing countries on the relative returns of different skills and on the effectiveness of different methods for acquiring skills. Until recently we didn’t even know how to measure most of these skills!

Second, given the apparent high return of having the right skills, why aren’t firms and individuals investing in these skills themselves? Some basic economic thinking could be extremely helpful here. If rates of return are indeed high, what are the constraints that cause firms and individuals to under-invest in skills?  Is it enough to just blame it on ‘externalities’? Or should we consider other factors such as lack of information, credit market constraints, etc? Or perhaps the problem is that certain distortions (e.g. lack of mobility) have depressing rates of return? 

Depending on the answers to these questions, the policy conclusions may be very different – particularly if we take into account the presence of government failures.
I do not think that there are generic answers to these questions. Conditions are likely to vary significantly across countries and a ‘one-size-fits-all’ response won’t work. I believe that the critical first step would be to have a solid framework for analysis and action. At the very least, this framework must provide a system for measuring different types of skills, assessing local markets and above all, committing to experimentation and evaluation to find the ‘right’ policy responses in each case.  



Ariel Fiszbein

Education Program Director, Inter-American Dialogue

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