Overcoming Latin America’s Skills Mismatch

WASHINGTON, DC – Latin America could be on the verge of an epochal transformation. Over the next few years, middle-income jobs – particularly in the services sector – are expected to account for nearly all of the region’s employment growth. Forecasters say that countries in the region could add approximately 14-23 million well-paying jobs through 2018 – if employers can find workers with the skills they need.

And therein lies the trouble. Latin America’s education systems are struggling to produce enough skilled workers to raise productivity. More than one-third of firms in the region cite employees’ low skill levels as a major business constraint. In order to boost economic growth, Latin America must invest in a skilled workforce. By expanding access to high-quality education, from public and private educators alike, the region’s countries will increase productivity, raise living standards, and reduce inequality.

Dealing with this labor market mismatch is long overdue. The first step toward ensuring that Latin America’s students have the skills they need to take advantage of the region’s opportunities is to recognize that increasing education budgets and keeping students in class longer, though important, are not enough. Some Latin American countries have raised education spending. Mexico and Brazil spend 5-6% of GDP on education, more than many developed countries, and roughly three times more than China. But the quality of their programs does not reflect this spending, and a stronger focus on tertiary education is needed.

Overall, Latin American governments spend about one-third less on tertiary education (as a share of GDP) than advanced economies. Furthermore, from 2000 to 2010, expenditure per student in the region fell, as enrollment numbers swelled (Argentina and El Salvador are exceptions to the trend). As a result, the quality of education has suffered. A lesson from top-performing countries in Europe and Asia is that raising cognitive skills – as measured by test scores – requires better instruction, education policy reforms, and infrastructure improvements.

The second step that Latin American countries must take is to promote – and enforce – clear quality standards for public and private education. This should be accompanied with financing solutions that make quality higher education more affordable and accessible to all socioeconomic groups.

Tuition fees can be a burden, particularly for working adults and students from low-income families. Governments must ensure that the sacrifice pays off, in the form of good jobs, higher incomes, and social mobility – important issues in a region riven by inequality. The Brazilian government’s efforts to improve quality through stricter conditions on subsidized student financing is the right approach.

Third, the region should develop education programs that are more responsive to the needs of the marketplace. This is particularly important in vocational training for technical fields, where Latin America trails most other regions of the world.

Compared with public universities, private education programs tend to focus more on technical and professional qualifications. An emphasis on efficient management can make private institutions attractive to students and governments, as well as to investors. Online courses and satellite campuses, for example, are providing innovative ways to scale up education delivery at a reasonable cost.

In Chile, colleges such as Duoc UC provide excellent models of institutions that deliver value for students. Duoc UC has aligned a range of technical, vocational, and professional programs with the needs of the market for strong practical skills. It also provides extensive career services: On average, four-fifths of graduates find employment less than six months after graduation, usually in the field they studied.

Duoc UC has also shown how private institutions, in partnership with government, can expand affordable access to quality education. And it is not alone. The partnership between Colombia’s Servicio Nacional de Aprendizaje (SENA), a public educational institution funded through corporate payroll taxes, and Corporación Universitaria Minuto de Dios (Uniminuto), a private, nonprofit institution, is another example of a successful program.

Uniminuto works with government and industry to ensure its programs are relevant to the needs of employers. It has made a diverse range of academic programs accessible to working students with little time for commuting. A recent survey by the International Finance Corporation found that Uniminuto graduates – almost two-thirds of whom qualified as low-income upon enrollment – increased their incomes and job responsibilities and derived good value from their educational experience. Moreover, employers rated Uniminuto graduates’ skills as comparable to those of graduates from more prestigious universities.

In Peru, Universidad Peruana de Ciencias Aplicadas (UPC) provides high-quality education to about 46,000 students with an approach that leverages the use of technology. UPC is part of the Laureate network of private universities and professional training programs, which collectively provide education to more than 800,000 students in Latin America.

Education is an investment, a pathway to prosperity and social mobility. Students and their families across Latin America are projected to spend $176 billion per year on education between now and 2020 – slightly more than in East Asia. They are seeking good programs that will improve their skills and increase their opportunities at an affordable cost, regardless of whether the institution is public or private. Promoting value for students from public and private educators alike should be the central focus of education reform in Latin America.

Martin C. Spicer is Regional Head for Education, Services, Manufacturing, and Agribusiness in Latin America and the Caribbean at the International Finance Corporation.