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Italy should strengthen reform implementation to boost skills

MD Staff

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Recent reforms of Italy’s education system (“Buona Scuola”), labour market (“Jobs Act”) and industrial policy (“Industria 4.0”) have clear synergies and could reduce worrying imbalances between the supply and demand of skills on the Italian labour market, according to the new OECD report Getting Skills Right: Italy

Stefano Scarpetta (Director of Employment, Labour and Social Affairs at the OECD) has said, however, that there are still a number of unresolved issues over the effective implementation of the reforms. Speaking alongside the Italian labour minister Giuliano Poletti, Mr Scarpetta said: “Italy has done a great deal over recent years and the reforms are starting to bear fruit. There are still a number of issues which, if resolved, could lead to the effective implementation of important reforms such as a programme for alternating school and work, Industry 4.0 and active labour-market policies.

The results of the new OECD Skills for Jobs indicators, published alongside the report, provide a detailed snapshot of the most sought-after skills on the Italian labour market and differences between the various regions. The data shows high demand for skills related to knowledge of new technologies such as IT and electronics, software programming and use of digital technologies. Scarpetta said: “[Italy] still has work to do to develop the IT skills needed to confront labour-market challenges, now and in the future. Our data clearly shows major demand for digital skills across the country which, unless it is met, could have negative consequences for Italy’s growth and competitiveness.” Professionals with good knowledge of IT, new digital technologies, and medical and engineering technologies are highly prized in the Italian job market, with employability and salaries well above the average.

Even so, demand for these skills – and high-level skills in general – remains too weak and is confined to the needs of large Italian corporations. The rest of the Italian economy is concentrated in traditional, low-productivity sectors where there is little demand for high-level skills, with about 85% of Italian businesses being small and mainly family-run.

Italy is therefore in a state of equilibrium, with the supply and demand of skills tending to level downwards, in a vicious cycle that has clear negative repercussions on productivity, growth and use of new technologies.

The report also shows that many Italians specialise in areas with few employment opportunities, despite the demand for technical, engineering, technological and mathematical skills, which itself remains too weak. About 35% of Italian workers are in jobs that are unrelated to their training and 21% are in jobs for which they are over-qualified. Moreover, the report shows that this situation is associated with an average salary loss of around 17% compared to those who specialise in an area with clear employment opportunities whose skills are in demand from businesses.

The report sets out a number of points for consideration, including:

  • Italy needs stronger ties between the education system and the world of work at all levels. The creation of higher technical colleges (“ITS”), based on robust links with the local economy, is a welcome innovation in Italian professional training and so far has generated brilliant results, helping to develop skills that are rapidly absorbed into the Italian labour market. The new Professional Degrees also have the potential to fill the shortfall of technical skills in Italy, but to do so they must forge strong links between universities and business from the start, aiming to develop high-level professional and technical skills, rather than primarily theoretical skills as has been the case in the past.
  • The programme for alternating school and work is a step in the right direction, but many challenges remain. On one hand, businesses need to take a greater role in designing the content of work-based learning and, on the other hand, educational managers need adequate financial and teaching resources to forge links with businesses across Italy, including in poorer areas where there is less scope for engaging with business.
  • Italy needs to strengthen high-performance working practices (HPWP) such as mentoring, job rotation or flexible responsibilities. These practices are already fairly widespread in other countries but are still too rare in Italy. The skill level of Italian managers – especially in small companies – is not always adequate and needs to be improved through targeted training programmes. This would enable small businesses to grasp the importance of new technologies and be able to benefit from their productive potential.
  • Opportunities for workers to upgrade and update their skills must be improved through the more judicious use of funds for continuous training, linking their use to the real needs and challenges of the Italian labour market. Indeed, there are still many Italian workers with poor IT skills, little knowledge of foreign languages and a shortage of a wide range of core technical skills. Often, though, a considerable proportion of continuous training funds have been channelled into developing skills in areas that are merely incidental to the challenges posed by rapid technological change, globalisation and automation.
  • Active labour-market policies are a crucial challenge for Italy. In view of current institutional arrangements, Italy needs to adopt mechanisms to strengthen cooperation between the central state and the regions, by identifying clear, shared and objective parameters to ensure that unemployed persons receive the same quality of services throughout the country.
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Asia’s Growth Outlook Steady Despite China–US Trade Conflict

MD Staff

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Economies in developing Asia and the Pacific are weathering external challenges thanks to robust domestic demand, while inflationary pressures are abating, says a new report from the Asian Development Bank (ADB).

In a supplement to its Asian Development Outlook 2018 Update report, ADB retained its regional growth forecast for 2018 at 6.0% and for 2019 at 5.8%. Excluding the newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, the regional growth outlook is maintained at 6.5% for 2018 and 6.3% for 2019.

Lower international commodity prices and central bank action to calm market volatility means inflation in developing Asia is forecast to be 2.6% in 2018 and 2.7% in 2019, down from 2.8% previously forecast for both this year and next.

“The truce on trade tariffs agreed by the United States (US) and the People’s Republic of China (PRC) is very welcome but the unresolved conflict remains the main downside risk to economic prospects in the region,” said ADB Chief Economist Mr. Yasuyuki Sawada. “That said, we are keeping our forecasts for the region’s growth unchanged for this year with some of the biggest economies continuing to hold up well.”

Growth in the PRC, the second largest economy in the world, is still expected at 6.6% in 2018, moderating to 6.3% next year. Growth momentum continues in India on rebounding exports and higher industrial and agricultural output. Growth is predicted at 7.3% in 2018 and 7.6% in 2019.

Gross domestic product growth in Central Asia in 2019 is now forecast at 4.3%, up from the 4.2% forecast in September, as a recovery in public investment and higher output from the Shah Deniz gas field enhance prospects in Azerbaijan. South Asia’s 2019 growth is now pegged at 7.1% versus the 7.2% forecast in September. Southeast Asia is expected to grow 5.1% in 2019 versus the previous forecast of 5.2%. The Pacific is on track to expand 3.1% in 2019.

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Vietnam’s economy grows robustly, but risks intensify

MD Staff

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Economic growth in Vietnam has proven resilient despite weakening external conditions, driven mainly by strong domestic demand and a dynamic export-oriented manufacturing sector.

According to Taking Stock, the World Bank’s bi-annual economic report on Vietnam released today, the pace of expansion is forecast to remain at 6.8 percent this year, higher than the projected figure of 6.3 percent for emerging markets in the East Asia and the Pacific.

Over the medium term, in line with the global trend, Vietnam will see a slower pace – 6.6 and 6.5 percent in 2019 and 2020, respectively. Inflation will remain muted at 4 percent as the result of tightening monetary policies.

“Despite a challenging global context, Vietnam continues to achieve robust growth accompanied by moderate inflation and a relatively stable exchange rate” said Ousmane Dione, the World Bank Country Director for Vietnam. “Policy makers should take advantage of the still favorable growth dynamics to advance structural reforms to enhance private sector driven investment and growth, along with improving efficiency in public sector investment.”

Risks to the outlook have intensified and are titled to the downside, highlights the report. Given its high trade openness and limited fiscal and monetary policy buffers, Vietnam remains susceptible to external volatilities. Escalating global trade tensions could cause a falloff in export demands while tightening global liquidity could reduce capital inflows and foreign investment. Domestically, a slowdown in reforming state-owned enterprise and banking sectors could undermine growth prospects and create public sector liabilities.

Slower global growth, ongoing trade tensions and heightened financial volatility cloud on the global outlook,” said Sebastian Eckardt, the World Bank Lead Economist for Vietnam. “As an open economy, Vietnam needs to maintain a responsive monetary policy, exchange rate flexibility and low fiscal deficits to enhance its resilience against potential shocks.”

In light of the recently ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), the special section of this Taking Stock edition focuses on streamlining non-tariff measures to help boost Vietnam’s export competitiveness. This timely analytical work is a product of the Second Australia-World Bank Group Strategic Partnership in Vietnam (ABP2).

The report observes that while tariffs are rapidly declining, the number of non-tariff measures (NTM) is increasing. Vietnam’s average preferential tariffs have fallen from 13.1 percent in 2003 to 6.3 percent in 2015. In contrast, the number of NTMs has increased by more than 20-fold during the same period. International experiences show that poorly designed and implemented NTM could restrict trade, distort prices, and erode national competitiveness.

According to this report’s assessment, the NTM system in Vietnam remains complicated, opaque, and costly, resulting in high cost of compliance. One study estimates that the equivalent tariff rate that sanitary and phytosanitary measures Vietnam are imposing on imported goods is 16.6 percent compared to the average level of 8.3 percent for ASEAN countries.

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Immigrant integration policies have improved but challenges remain

MD Staff

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Many countries have made important improvements in integrating immigrants and their children into the labour market and day-to-day life of their country. However, many challenges remain and much of the potential that migrants bring with them remains unused, hampering both economic growth and social inclusion, according to a new joint OECD-EU report.

Settling In 2018: Indicators of Immigrant Integration finds that the proportion of highly educated immigrants has grown in virtually all OECD and EU countries, rising by 7 percentage points over the past decade in both areas. At the same time, in all countries, most immigrants express a strong sense of belonging to their host-country, with more than 80% reporting feeling close or very close to this country.

“Countries have made important improvements in their policies to foster the integration of immigrants and their children into education, the labour market and the social life of their country,” said OECD Secretary-General Angel Gurría. “Nevertheless, much remains to be done to maximise the still untapped potential of migrants to contribute economically and socially to their recipient countries.”

“Making immigrant integration work is absolutely vital for our economies and societies as a whole,” said European Commissioner for Migration, Home Affairs and Citizenship, Dimitris Avramopoulos. “We need to make sure that all those who have a right to stay and live in our societies, become full and equal participants. Not only on paper but also in reality.”

Despite some improvements, immigrants have often not managed to translate higher overall education levels into better labour market outcomes. Immigrants’ relative poverty is also today more widespread than a decade ago, further widening the gaps with the native-born. Around 14% of all foreign-born people in the EU report facing discrimination on the grounds of ethnicity, nationality or race. The report also notes that almost a third of non-EU migrants in Europe state that most inhabitants of their neighbourhoods share their ethnic background.

Educational attainment levels and outcomes of youth with immigrant parents have also increased in most countries over the past decade – both in absolute terms and relative to their peers with native-born parents. This is evident in better educational outcomes and higher resilience at age 15, in lower levels of school dropout rates and higher educational attainment. However, immigrant children continue to lag behind their peers with native-born parents, notably in Europe, while the reverse is the case in only a few non-EU OECD countries such as Canada.

While immigrant men have a 3 percentage points higher employment rate than native-born men across the OECD, immigrant women have a 1 percentage point lower rate than their native-born peers, amounting to a full 6 point gap in Europe. Gaps between immigrant and native-born women are especially wide in Belgium and France, at 14 percentage points, and in the Netherlands, at almost 17 points. When employed, immigrant women are also more often in part-time and low-skilled jobs – notably in Southern Europe (except Portugal), as well as in Chile, Korea and Slovenia, where over 30% of employed immigrant women are in low-skilled jobs.

Following an overall increase in their share over the past decade, women now account for the majority of immigrants living in OECD and EU countries. The report also finds that the widespread inactivity and part-time employment of immigrant women is often involuntary, more often than for their native-born peers.

Settling In 2018: Indicators of Immigrant Integration presents a detailed international comparison of the outcomes of immigrants and their children and their evolution over time, for all European Union and OECD countries as well as selected G20 countries. 74 indicators cover key dimensions of integration, including employment, education, housing, health, civic engagement and social inclusion. There is a special focus on young people with immigrant parents and on gender issues.

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