Revisiting Active Labor Market Policies for Skills Development Programs in Bangladesh

Mohammad Nazmul Avi Hossain

How often has human capital development been strongly termed as the driving factor of a nation? Surely, we cannot disapprove the evidences of human capital’s supremacy in making an economy robust. The macroeconomic confounding factors of a nation are “defacto” whereas human capital development acts as “dejure” to disentangle the differences in country’s prosperous transformation from developing to developed nation. The journey of Bangladesh towards a developing country will unsurprisingly rely on the utilization of its human capital optimally. Hence, labor market context is pivotal in terms of policy formulation and growth generation. In addition, the success of the nation in achieving SDGs will heavily rely on its status of the workforce, especially the youth in the labor force.

As per the latest labor force survey, the youth (aged 15-29 years) participation has reached to 20.1 million from 17.8 million recorded in 2005/06, where increased participation of female youth (7.0 million) played a crucial role. These stats are promising for a country that is riding on the airbus of consistent 6 plus GDP growth rate and entering into Rostow’s take off stage of economic development. However, the road to glory is illusive with only around 4.8 percent of youths obtaining university degrees, poor quality of education and disregarded Technical and Vocational Training and Education (TVET).

In the latest LFS, unemployment was recorded highest, 14.9 percent, among the population who completed higher secondary level of education followed by 11.2 percent who completed tertiary level. This is highly alarming in understanding the signals of education as a proxy of capabilities in the job market. Moreover, the skills development training programs led by Government, private and donor organizations are suffering from lack of vision in addressing the macroeconomic constraints such as “jobless growth” and “youth unemployment/underemployment”.

Active Labor Market Policies (ALMPs) are the universal sets consisting of the skills development training programs as sub-sets. In Bangladesh, several donors are working under bilateral and multilateral approaches in providing skills development training to poor and disadvantageous groups. Most of these skills development programs are focusing on capacity building of public-private partners and facilitating the poor to participate as trainees in training centers. Results are being obtained in generating increased employment among the target groups and enabling them to earn close to minimum wages. However, these results are far away from the asymptotical convergence towards employment generation and access to labor market in ensuring skilled jobs for a large population. Mostly, supply side factors are driving the existing training programs where private training service providers get support from a project/program to train poor with the help of aid. Two-fold question arises regarding the effectiveness of these kinds of typical TVET programs. First, how do these programs ensure the sustainability? Second, without involving employers and the demand side actors, to what extent these training programs are generating decent jobs for the trainees?  These questions do not have any straight forward answers though.

However, as per Brown, A. J., & Koettl, J. (2015) skills development programs should consider few major aspects in tuning the labor market’s functionality through training programs in order to improve the macroeconomic impacts of ALMPs. First, programs must bear in mind that “the indirect deadweight effect” lowers the cost-effectiveness of ALMPs. It refers to the resources of the policy that go to beneficiaries who would have achieved the objective of the policy even in its absence. Second, the effectiveness of ALMPs can be further undermined by the cream-skimming effect, by which only workers with high employment probabilities are selected into the program which may end up providing biased results. Third, the so-called locking-in effect (also called retention effect) refers to the lower probability of finding a job of ALMP participants compared to the unemployed who are not in ALMPs. Fourth, bringing unemployed workers back into work via ALMPs will increase their employment probabilities by the transition effect. This effect is the strongest for long-term unemployed workers, who during their unemployment suffer from skill attrition and loss of work routine. Fifth, the so-called competition effects highlight ALMPs’ role in strengthening outsiders’ position in the job market relative to insiders. According to the insider-outsider theory, labor turnover costs, firing costs as well as hiring and training costs for new employees give insiders market power, which they use to their own advantage, for example, to push up their own wages. Finally, it is the country context and overall macroeconomic enduring environment that discrepant the success of a skills development program. Need based industry driven training programs will benefit the labor market more. In addition, engagement of the private sector, employers and money generating business models of training service providers can comprehensively enhance the sustainable impact of skills development program. Integration of technology and digitization in skill development programs will open the new avenues for labor market.

More specifically, government policies intended to affect publicly-provided education and training will, in effect, determine the process of growth of the whole economy, promoting increasing returns to scale for Bangladesh.

Mohammad Nazmul Avi Hossain, Manager – Private Sector Engagement (Training and Employment), B-SkillFUL, Swisscontact 

Email: nazmulavi@gmail.com