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4.3 The impact of economic liberalisation

Written by: International Labour Organization

Article Overview: The potential impacts of economic liberalisation on VET are twofold: change in incentives to invest in training and the availability of public funding for VET.

4.3 The impact of economic liberalisation

The potential impacts of economic liberalisation on VET are twofold: change in incentives to invest in training and the availability of public funding for VET. Early arguments in support of economic liberalisation claimed that the removal of labour market 'distortions' (in particular, minimum wages and hiring and firing restrictions) would lead to significant increases in effective demand for training by both individuals and enterprises. Moreover, with the ending of industrial policy regimes that strongly favoured large enterprises, major increases in effective training demand from a rejuvenated MSE sector were also confidently expected.

Just as with formal sector enterprises, changes in the level and type of training activities in the informal sector have to a large extent been determined by the way in which adjustment programmes have impacted on specific areas of activity, in particular those that are more skill intensive. With 'private sector development' firmly established as a key objective of all economic reform programmes, governments and donors are placing more emphasis on the need for effective skill development programmes for MSEs. This is especially so in SSA where the bulk of economic activity is accounted for by these kinds of enterprise.

The evidence is fairly scanty, but what is available suggests that micro-enterprises (i.e. those with fewer than five workers) have often been negatively affected by depressed demand, increased import competition and generally higher levels of uncertainty that have typically resulted from economic reform, at least in the short-term. Not surprisingly, therefore, the expected increases in effective demand for training have not materialised. Returns to activities among survival enterprises in SSA have declined mainly as a result of a flood of new entrants unable to find employment in the formal sector. Barriers to entry remain generally low for most activities (see Dawson, 1993; Dawson and Oyekinka, 1993; Dike, 1995; Gallagher and Yunusa, 1996). Thus, "most enterprises continue hand-to-mouth as increases in demand are quickly competed away" (Steel and Webster, 1991:2).

Among small enterprises (i.e. those with 5-49 workers), much higher capital and skill requirements have tended to restrict increased competition. Consequently, the overall gap in income (and thus returns to training) between relatively high and low income activities may well have widened still further. In some countries, better educated, "middle class" entrants are capturing the more lucrative and skill intensive MSE activities and men are also taking over the relatively few higher income activities where women previously predominated.

The impact of economic liberalisation on traditional apprenticeship systems has not been extensively researched. In Nigeria, however, Gallagher and Yunusa found that fewer school leavers want to become apprentices and the capacity of MSEs to offer training has also declined (op.cit.).

It is possible that more intense competition can also undermine individual incentives for pursuing common interests and undertaking collective action. Research on 'industrial districts' in both developed and developing countries highlights the crucial importance of social and economic relationships of these kinds in achieving high levels of productivity among MSEs. However, in the context of acute economic crisis, it is just as likely that informal associations are "collapsing rather than springing-up" with households rather than the community becoming the focus of resource mobilisation and coping strategies. This clearly has major implications for the current emphasis given by both governments and NGOs to encouraging community/associational-based efforts (including skill development) to improve livelihoods among the poor.

The share of formal sector employment in the total labour force has been contracting in most developing countries. In some low income countries, particularly in Africa, the number of people in formal sector employment has also fallen significantly in absolute terms. Data is generally not available, but the resulting increase in job competition has probably made it more difficult for women to gain access to non-traditional occupations and has, consequently, limited the role of more equitable training provision in redressing gender imbalances.(11) In contrast, in the developed industrial economies, increased education and training for women has enabled them to make major in-roads into rapidly expanding occupations since the early 1980s (see Box 4). With such marked differences in labour market conditions between developed and developing countries, great care must be taken in drawing lessons from the policy experiences of OECD countries.

EMPLOYMENT AND TRAINING
PAPERS
43
Learning to change: Skills
development among the
economically vulnerable and
socially excluded in
developing countries
Paul Bennell
Employment and Training Department
International Labour Office Geneva
First published 1999

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Article Tags: barriers to entry, depressed demand, economic activity, economic liberalisation, economic reform, effective training, formal sector, import competition, informal sector, labour market, market distortions, micro enterprises, minimum wages, mse, mses, policy regimes, private sector development, skill development, ssa, survival enterprises



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