Latin America has the biggest skills gap in the world. Here’s how to bridge it

In these times of heated economic debate, improving skills is one of the rare consensuses worldwide. Globalization and technological progress has made productivity more dependent on a broad, complex and difficult-to-achieve set of skills.

In Latin America, the lack of an adequate pool of skilled workers is making it harder to overcome the middle-income trap. This contrasts with the experience in most European and Asian economies, which have achieved sustained increases in income per capita by improving the stock and quality of education and skills, and developing an innovation-friendly environment.

Investing in skills would also help address inequality, since large differences in productivity go hand-in-hand with large differences in wages. Without this investment, the winners – that is, the most innovative firms and their high-skilled staff – will continue to take all.

What do we know about skills in Latin America?

Over four in 10 firms in Latin America say they have difficulty finding workers with the right skills, according to ManpowerGroup surveys. Companies in Argentina are worst hit, with 59% struggling to hire staff with the right skills; in Colombia that figure is 50%, and Peru 49%. For more than a decade now – that is, during the economic boom of the 2000s, the slowdown since 2012, the recession of 2015-2016, and the present recovery – Latin America has ranked as the region with the widest skills gap in the world.

What works to fill the gap?

What should be done? Education curricula and skills-enhancing programmes should provide technical training, as well as foundational skills. These are critical throughout people’s lives, helping to switch jobs (if wanted) and adapt to changing external conditions. There should be a combination of classroom and workplace learning, of both soft and technical skills, complemented by job search services.

Re-skilling and upskilling is the new name of the game. It is the skills of today’s workforce that will drive the economy for the next two decades. For that goal, collecting information on the skills individuals possess and the skills businesses need is a must.

How should this be done? This requires the involvement of employers at all stages: collecting information for the design, implementation and evaluation of training; designing programmes; and co-funding initiatives. It must be implemented under a whole-of-government approach that involves education, employment, innovation, planning and finance ministers.

Good practices in Latin America

Admittedly, these recommendations are easier said than done. But, let’s not fall into the traditional Latin American fracasomania, or addiction to failure. Some training programmes for youth in Argentina (Jóvenes con Más y Mejor Trabajo), Colombia (Jóvenes en Acción) or Brazil and Peru (ProJoven) tick almost all the boxes, and their impact evaluations show good results on employability, reliability and earnings.

The involvement of the private sector is also growing. Take Mexico, where upskilling and reskilling programmes are spreading. In one initiative women in marketing, sales and customer services saw their wages multiplied by five times. In the car and machinery industries, which are traditionally affected by skills shortages, training programmes are being developed following the pioneering example of Volkswagen’s training institute. And public institutions in Mexico and Peru are taking steps towards co-ordination and a whole-of-government approach to skills strategies.

Looking forward? Better data for better action

Predictions for the labour market over the long-term are increasingly extreme: technology eating our jobs, robots replacing drivers, the threat of a world without work. As skill needs change ever faster, some statistics suggest employers do not always know which skills they require even 18 months from now, not just over the long-term.

That is why we need to invest in capacities to anticipate skill needs, detect future skills mismatches, and build the processes to ensure that this information is effectively used in decision making. Unfortunately, this field is even more complex and little studied, so there are few good practices.

For this reason, ManpowerGroup Latin America and the OECD Development Centre, with ANDI for Colombia, recently launched an online survey to get detailed information on the skills gap in Latin America.

Information is directly gathered from companies, by country, by company size, and by activity (agriculture, trade, communications and transport, construction, manufacturing, mining and extractives, and services). This point is crucial for the debate about a post-manufacturing economy that we will be holding at the World Economic Forum on Latin America in São Paulo this week.

Latin American companies are highlighting an even more acute skills gap than previously thought. Three in four companies (from a sample of more than 1,200 companies across Latin America) say they have problems filling vacancies, despite the availability of candidates. Interestingly enough, this shortage is bigger among large companies (of more than 250 employees), where it affects four in five.

The skills gap affects both manufacturing and services, which are key in the agenda of upgrading and diversifying Latin America’s economy, as shown in previous studies. Looking at the results by industry, four in five companies in mining and extractives, manufacturing, and in services, report skills gaps.

When companies talk about a skills gap, they are often referring to soft skills. Among the top seven ‘missing skills’, emotional intelligence, communication skills and critical thinking are mentioned three times more frequently than IT skills, and two times more frequently than financial knowledge. Speaking English ranks in the middle.

Skills is the new currency, let’s invest

Today’s economy requires increasingly complex skills. Formal education systems are struggling to provide timely solutions. This detachment between formal education and business skill demands is especially severe on soft skills, which are not usually included in formal education curricula.

The good news is that most governments, companies and citizens in Latin America and worldwide are increasingly aware of this priority. Skills have become the global currency of 21st Century economies to spur growth and reduce inequalities. Forget about bitcoin, let’s all invest in skills.