Academic Literature

Vocational Training – Playing a central role in determining the outcomes for the low-skilled, low-wage, workers

Economic integration has brought about not only benefits and opportunities but also required adjustment, especially for the youth entering the labour force. The lower growth rates characterizing the post Global Financial Crisis era and the concerns about income inequality put to the fore the degree that better targeted investment in human capital may ameliorate the challenges facing the working poor. Using cross-country data, we find the association between the income shares of the working poor, dependence on manufacturing sector, and the availability of vocational education. Conditioning on tertiary educational attainment, improved access to better vocational education will probably contribute more than large increase in regular college attainment. Comparing the US to Germany suggests that pushing more students to BA granting colleges may no longer be the most efficient way to deal with the challenges caused by the decline in manufacturing employment affecting in particular lower-income households. We also note that a tracking of technical training and educational budget, shown in the case of Vietnam in comparison to Thailand, as well as government subsidies for reskilling of labour fource throughout their career in Singapore, is a potential explanation for their relative manufacturing competitiveness.

Labour saving technological innovations probably account for the decline in manufacturing employment share more than international trade. The declining employment share in manufacturing resembles the earlier collapse of employment share in agriculture, though the speed of the adjustment has accelerated substantially. As information technology and more recently artificial intelligence impact more sectors, there is as yet no evidence that the new disruptive technologies will open up new lines of employment at a rate that will be sufficient to compensate for the disappearance of employment in old industries. Furthermore, it is not clear that the skills required for these new jobs will be matched with those workers whose jobs disappeared. This renewed need for better matching of skills between workers and new jobs will most definitely be affected, to a certain extent, by the quantity and quality of vocational training available in each country. It is this vocational training that we see as playing a central role in determining the outcomes for the low-skilled, low-wage, workers that populate the lower part of the income distribution. It is thus this vocational training that can have a large impact on income inequality.

The quantitative evidence on the role of vocational training is imperfect, but both the limited cross-country evidence analysed here, and the comparisons we made convinced us that well-resourced and well-targeted vocational training can prove to be a better long-term investment in skill acquisition and can assist in ameliorating the difficulties faced by those workers whose jobs are currently disappearing and whose prospects look, in many cases, to be quite bleak.

A key challenge for the countries on the technological frontier will therefore be to provide this vocational training and re-training that will hopefully prevent the jobless future whose consequences we do not yet quite understand. Failing to do this, countries will either have to rapidly upgrade their safety net to avoid increasing destitution, or to face the consequences of the greater political instability and the social costs associated with the hollowing-out of the middle class—political instability that is most likely associated with such anomalies as the Brexit vote, the US election of 2016, and other recent electoral surprises.

An example of government playing very active role in vocational education is Singapore. Since 2016, the government has subsidised any training courses (currently about 9,000) from educational providers, including universities and online learning, for SGD500 to Singaporean workers above the age of 25, and up to 90% for workers above the age of 40 (The Economist, January 12, 2017). While Singapore is known for its entrepot and manufacturing economy, this type of government program has a potential to help reskill and protect workers from adverse trade effects and adjustment in the global competitive market landscape.

Chosen excerpts by Job Market Monitor. Read the whole story at Vocational education, manufacturing, and income distribution: international evidence and case studies

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