The Search for Inclusive VET in Context:

The Economic Agenda in the Western Balkans and Turkey

Will BartlettEuropean Institute

LSE

Outline

• Effects of the crisis on output and employment

• Causes of crisis – transmission factors

• Policy responses and constraints – IFIs and domestic

• New growth strategies and implications for VET

• Unanswered questions concerning VET and social

inclusion

Developments in the Western Balkans and Turkey

• Severe impact of economic crisis in 2008-09– Severe output shock followed by drop in sustainable

growth rate in the future (exception: Turkey)

– Leading to rising unemployment especially among young people

• Need for “new growth model” based on domestic resources and increased productivity– Implies new policy emphasis on education and skills

Administrative Employment data (formal sector)

2008 2009 2010 Job loss

BiH 730,604 701,284 681,656 48,948

Croatia 1,554,805 1,496,784 1,432,454 122,351

Macedonia 434,858 426,252 8,606

Montenegro 166,221 174,152 -7,931

Serbia 1,999,476 1,889,085 1,795,775 203,701

Turkey 5,134,674 4,940,818 4,951,948 182,726

TOTAL JOB LOSS 558,401Source: CPESSEC Bulletin No. 3

Transmission factors

• Export demand

• Foreign direct investment

• Remittances

• Credit crunch

IFI policy responses• 2009 IMF Stand-By Arrangements

– €3.5bn Romania; €1.1bn BiH; €402.5m Serbia

• Vienna Initiative– IFIs provide €24.5bn loans to 17 parent banks of banks in CEE/SEE region

• “Vienna Plus” proposed by EBRD– to encourage substitution of foreign borrowing by local currency borrowing

– More efficient absorption of EU structural funds

• But this solution is now not available due to eurozone crisis– Austrian Central Bank has instructed Austrian banks to focus on core domestic

capital, boosting capital reserves and limiting cross-border lending

Parent bank default risk to July 2011 (CDS index)

Domestic policy instruments• Fiscal policy

– fiscal retrenchment limits expenditure for VET

• Monetary policy –– Few options due to euroisation; currency board; euro adoption

• Trade policy – – Need to make CEFTA work; raise skill content of exports

• Growth policy– Competitiveness approach or new industrial policy?

– Raise education performance to increase productivity

Domestic policy responses to crisis• Monetary policy relaxation:– Deposit guarantees (€50,000 in 2008 SRB, HR)

– Reducing reserve requirements

– Reductions in central bank interest rate

• Fiscal policy tightening:– Initial expansionary fiscal policy raised deficits above

3% GDP in most countries in 2008-09

– In 2009-10 most governments introduced austerity programmes backed by Fiscal Councils

The new growth model for WB+T?• WB countries have been under such fiscal surveillance from

World Bank and EU accession process for years, so did not fall into Greek debt trap– actually experienced it decades earlier within former Yugoslavia

– Yet, the growth model of the 2000s based upon external finance and credit fuelled consumption cannot be repeated in the future

• Need for much greater reliance on domestic resources– Retrenchment has created some fiscal space

– Endogenous growth faces limits of low competitiveness due to low productivity

– In this context, education and VET systems are now at the top of the agenda for economic growth

Growth Model proposals from IFIs• European Commission (DG ECFIN June 2010)

– Structural reforms to boost domestic savings and investment

– “Skills mismatch” and inadequacies in education should be rectified with measures to raise skill level of workforce

• EBRD (2010) recommends export led growth– prioritising intra-regional trade and regional cooperation

• EBRD transition report (2011) – “a new eurozone recession … could result in a substantial reversal of bank

debt flows and a large contraction of credit in the region, with severe consequences for output”.

World Bank views• SEE Regular Report - November 2011

– Fiscal space exhausted (with exception of Macedonia)

– Deeper integration with EU needed

– ‘largely unfinished agenda of structural reforms’ to raise domestic productivity

• “Skills, Not Just Diplomas” November 2011– Improve knowledge about skills (surveys, tracer studies)

– “Lack of relevant data on students and their individual performance is particularly acute in the vocational sector…”

– Education reforms should focus on

• Per capita financing; • school autonomy; • accountability for learning outcomes

Conclusions: Challenges from the labour market

• Dramatic job loss from first recession; prospects of worse to come

• High youth unemployment

• High long-term unemployment– 80% in BiH and Kosovo out of work for more than 1 year

• Low employment rate especially among women– Women ‘largely excluded’ from labour market (World Bank 2011: 27)

• Skills mismatches– Graduates of vocational schools over-represented among unemployed

– Phenomenon of over-education of university graduates (e.g. Montenegro)

Challenges for VET provision• Legacy of inadequate VET schools with out-dated curricula

– though some attempts at reform

• Limited investment by employers in workforce training

• Underdeveloped adult education and life-long learning systems

• Lack of formal mechanisms for skills anticipation and forecasting – though some skills surveys being carried out e.g. in Macedonia

VET and the economic crisis

• Global economic crisis and looming double dip recession from eurozone crisis

– leading to falling demand for labour and job losses

• Workers who have lost and will lose their jobs will need access to retraining programmes to develop new skills in preparation for economic recovery

• This implies a need for improved adult education systems and incentives for employers to train workers on the job and through apprenticeships

Unanswered questions

• How to involve more long term unemployed, youth, women in employment and training?

• How to make curricula more relevant to needs of employers when recovery occurs?

– skill anticipation and forecasting through surveys and tracer studies?

• How to reform VET to make it more inclusive of marginalised groups and poor households?

– Is World Bank approach to improve efficiency through per capita financing and greater school autonomy relevant?

– Is there an alternative approach which would emphasise also equity rather than just efficiency? Community-based schooling and social planning, combined with genuine decentralisation to local authorities?