Human capital and skills for SMEs
Despite recent progress in the field of education and skills in Latin America, there are still challenges that should be confronted through careful analysis and new public policies. A relatively untrained workforce and management, a high dropout rate from school, and low-quality education stand in the way of increasing SMEs’ productivity. Another obstacle is the mismatch between the skills that the production sector demands and the training that the educational system provides. The technical education and vocational training systems are key factors to deal with this. These challenges have been responded to in this region through programmes that try to address the needs of the production sector and SMEs. However, many areas need government action to strengthen institutions and need policies to better align the education system with the needs of the job market, foster training paths that combine the classroom with the workplace, add new skills and abilities to training curricula, develop certification schemes for acquired skills and abilities, and establish institutional frameworks to encourage co-operation among SMEs.
The barriers to productivity growth faced by small and medium-sized enterprises (SMEs) are very diverse, as described in the previous chapters. One aspect that the literature deems essential to understanding an economy’s productivity is the production sector’s access to human capital and skills. In this sense, the low productivity of this business segment is partially explained by some of the major educational and training challenges faced by the region.
On the one hand, Latin America continues to trail other regions in access, reach and number of years of schooling completed, even with great educational advances in recent years. This lag is reflected in the educational levels of the workforce, much lower than those seen in more developed countries, and in the high dropout rate, as reflected in the number of people who enter the job market at a very young age with little training.
SMEs face problems involving the quantity and quality of human capital and skills in the region. This is a major barrier to the expansion of their productivity and to their development.
On the other hand, the region is far behind other parts of the world in the quality of education, understood as the education system’s ability to give new generations the knowledge and skills needed to enter the job market and succeed there. This gap can be seen in the comparisons outlined in the report by the Programme for International Student Assessment (PISA).
Studies of human capital and the job market agree on an additional factor that needs to be analysed in order to understand SMEs’ low productivity. That factor is the mismatch between the training that the education system provides and the skills that the production sector demands. Many SMEs in the region say they have difficulties finding workers with the skills they need, which shows there is a skills gap that acts as a barrier to increasing productivity.
This manifests itself in highly varied ways and reflects the vast spectrum of SMEs in Latin America. Depending on factors such as business size, sector and geographic location, these enterprises demand different skill sets and have greater or lesser difficulty in finding them.
This imbalance between the training that the education system supplies and the skills that the production sector demands appears to be worsening and it can be expected to continue growing. The globalised economy is characterised by fast technological change and a production dynamic that is evolving towards a knowledge-centred model. This leads to an ever greater demand for human capital trained in skills related to technical aspects and to non-cognitive dimensions of learning, yet the region’s education system does not seem to be able to adapt in order to respond satisfactorily.
In short, SMEs face problems involving the quantity and quality of human capital and skills in the region, which are a major barrier to increasing productivity. This is a key challenge for Latin America. The expansion of potential growth in the region, a greater ability to compete and innovate in the global economy, and the creation of jobs and opportunities for Latin American society require strengthening and promoting the SME sector. For these reasons it is necessary to consider the role that public policy can play in confronting this challenge.
This chapter addresses these issues using the following structure. The first section analyses the training challenge faced by the region’s SMEs by examining how this problem affects different types of SMEs, and explores the role that public policy can play in helping to overcome this challenge. The second section reviews the technical education and vocational training systems in Latin America as a main linkage mechanism between the education system and the production sector, seeking to identify lessons learned and pending challenges. Lastly, the third section proposes a set of public policy recommendations.