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Improving skills would drive job creation and growth in Spain

MD Staff

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Spain should boost support for the unemployed and expand vocational education and training as part of a series of reforms to promote better skills utilisation and drive job creation and growth, according to a new OECD report.

Getting Skills Right: Spain says that skills demands are more polarised in Spain than in many other OECD countries, with a high share of jobs requiring either very low or very high levels of education.

“The policies implemented in recent years are bearing fruit, highlighting the modernization of vocational training and the new model of dual work-based training. Their impact on the decline of early school leaving has been remarkable,” said Montserrat Gomendio, OECD Deputy Director for Education and Skills, launching the report in Madrid. “Improving people’s skills to face the challenges of digitalization and globalization is essential, especially for young people not in education, employment or training, the long-term unemployed and the adults with low skills. It’s also key to address the transition from the traditional educational model to lifelong learning, develop new models of training for adults, and promote a more efficient use of skills at work.”

The government and other stakeholders have taken a series of initiatives to bring skill supply in line with demand, including a national job portal, policies to help the long-term unemployed, an updated dual model of work-based training, and reforms to the professional training system.

But further challenges remain. Adults in Spain have one of the poorest performances on basic numeracy and reading skills compared to all other OECD countries. Even tertiary graduates, who perform higher than the national average, still have the lowest average literacy scores of any of their peers in OECD countries.

More could be done to match skill supply to demand. Focusing publicly-subsidised training for the employed and unemployed to skills and qualifications which are in high demand would help, as well as expanding opportunities for adults to engage in lifelong learning.

Despite high and persistent unemployment, Spain spends relatively little on training and job search assistance for the unemployed compared with other OECD countries. Public employment service workers in Spain are overburdened, with 721 jobseekers assigned to every public employment service worker, compared to fewer than 50 per worker in Germany. The government should follow through with plans to introduce a statistical profiling tool to improve the targeting of public employment services, as many other OECD countries have done.

The use of hiring subsidies should be reduced, which would free up resources for subsidies to cover necessary training provision to help overcome skill deficiencies among jobseekers, making them more employable over the longer-term. The use of the new training vouchers for the unemployed should be targeted to accredited institutions and focused on skills in demand.

Low basic skills among adults hurt their employability and not enough adult learning options are available to assist them. While free basic skills training for adults exists, participation is currently very low. Spain should consider making the offer of basic skills training for adults more flexible in order to encourage higher participation.

To introduce financial incentives for lifelong learning opportunities that are linked to individuals rather than to jobs, Spain should consider tying the Training Account (Cuenta Formación) to a system of vouchers to allow individuals to upskill and retrain as demand for skills changes. More training credits could be provided for those skills and occupations that are in shortage.

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India: Step up reform efforts to increase quality jobs and incomes

MD Staff

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India is set for a modest recovery after a loss of momentum, as reforms to simplify taxation, lighten business regulations and upgrade infrastructure start to bear fruit. Further reforms to modernise the economy are now needed to drive the creation of high-quality jobs, as well as measures to improve public services and welfare, according to a new OECD report.

The latest OECD Economic Survey of India notes that while India has greatly expanded its participation in global trade in recent years, private investment remains relatively weak, the employment rate has declined amid a shortage of quality jobs, rural incomes are stagnating, and per-capita income varies considerably across states. 

“India is now well established as a growth champion and a major player in the global economy,” said OECD Chief Economist Laurence Boone, launching the Survey in New Delhi. “However, this slower pace of growth underlines the need to fully implement existing reforms and continue lowering barriers to trade to generate the investment and jobs India needs to raise living standards across the country.”

The Survey sees India’s GDP growth recovering to 6.2% in 2020 and 6.4% in 2021 after dipping to 5.8% in 2019 following several years of robust growth. Restoring growth to the higher levels needed to provide ample jobs and ease inequality will require accelerating the pace of structural reforms to revive investment and exports.

Improving the health of the financial sector, where the share of non-performing loans has declined but remains high, will be key to supporting investment. The Survey recommends speeding up bankruptcy procedures and improving governance in the banking sector.  

India has ramped up its participation in international trade since slashing tariffs in the 1990s. Its share of global goods and services exports reached 2.1% in 2018, up from 0.5% in the early 1990s, thanks to a strong performance in sectors like information technology and pharmaceuticals. Addressing remaining infrastructure bottlenecks by modernising ports and adding roads will be key to boosting India’s competitiveness. Reducing restrictions to services trade imposed by trading partners and by India on imports would further boost trade in services, also giving a lift to manufacturing and the general economy. OECD estimates suggest India would be the biggest beneficiary of a multilateral cut in services trade restrictions. Even without a multilateral agreement, moving alone to overhaul regulations would have a positive impact.

While many millions of Indians have been lifted out of poverty in recent years, too many have no formal employment benefits and little access to finance. Doing more to simplify complex labour laws – many of which discourage hiring by becoming binding as firms grow above stated thresholds – would help raise the share of quality jobs demanded by a fast-growing and well-educated youth population in a country where the vast majority of employment is informal.

The government has made some headway improving access to electricity, drinking water and rural roads. Housing shortages, and poor access to basic amenities, remain acute, particularly in rural areas. Population growth and urbanisation will add to housing pressures already estimated to affect some 40 million households across the country. Developing the currently small rental market could help achieve a pledge to provide a house for all Indians by 2022. Finally, mobilising more revenue from property and personal income taxes could create the fiscal space to raise spending on health, education and social transfers.

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Italian Cities Can Make Doing Business Easier By Learning From Each Other

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Local companies in Italy face varying regulations and procedures for the same business activity depending on where they establish their businesses, says a new World Bank study released today. The study highlights good practices in Italian cities that underscore opportunities for the government to do more to support entrepreneurs and firms across the country.

Doing Business in the European Union 2020: Greece, Ireland and Italy measures the business environment for small and medium-size enterprises in five areas: starting a business, dealing with construction permits, getting electricity, registering property and enforcing contracts. Thirteen cities in Italy are benchmarked: Ancona, Bari, Bologna, Cagliari, Florence, Genoa, Milan, Naples, Padua, Palermo, Reggio Calabria, Rome, Turin.

“We hope that this study will empower policy-makers and practitioners at the national and local levels with data to inform their strategies and help improve the local business regulatory environment across Italy,” said Arup Banerji, World Bank Group Regional Director for the European Union.

A different city is the best performer in each of the areas measured. It is easiest to start a business in Ancona and Milan, deal with construction permits in Cagliari, get a new electricity connection in Bologna, register property in Rome, and enforce a contract in Turin. Overall, Bologna and Milan are the two cities that registered the greatest number of best practices.

“The cities measured in the study have different strengths, which means that Italy can make improvements overall if cities learn from each other and implement successful measures,” said Rita Ramalho, Senior Manager of the World Bank’s Global Indicators Group, which produces the report.

Disparity in regulatory performance are particularly significant in the areas of getting electricity, construction permits, and contract enforcement, while starting a business and registering property are more homogenous, thanks to the nationwide launch of digital tools that streamline regulatory processes.

Time is the dimension that varies the most across the five areas. For example, resolving a commercial dispute takes 860 days in Turin, thanks to efforts started in the early 2000s to reduce case backlogs, as well as the more recent development of specialized court sections, while in Reggio Calabria it takes more than twice as long. Similarly, obtaining a new electricity connection takes two months and a half in Bologna and Rome, but three times longer in Palermo, with the main driver of variance being how long it takes to obtain excavation permits from municipalities.

Despite a number of good practices documented in the study, challenges remain. Firms across Italy still face inefficient and lengthy procedures that carry a high cost. This is particularly the case for the enforcing contracts area, the only indicator where all Italian cities perform below the EU Doing Business average.

Doing Business in the European Union is a series of subnational studies being produced by theWorld Bank Group at the request of and funded by the European Commission. This edition also benchmarks 6 cities in Greece and 5 cities in Ireland, besides the 13 cities in Italy. A first edition, covering 22 cities in Bulgaria, Hungary and Romania, was released in 2017. A second edition, covering 25 cities in Croatia, the Czech Republic, Portugal and Slovakia, was released in 2018.

The work on Italy, carried out with the support of the Minister of Economic Development, is based on the same methodology as the global Doing Business study published annually by the World Bank Group.

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Sharper Focus Needed on Domestic Reforms in Russia Amid Weaker Global Outlook

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After a weak performance in the first half of 2019, economic growth in Russia picked up in the third quarter to 1.7 percent, helped by monetary easing, faster public spending and some one-off effects according to the World Bank’s latest Russia Economic Report (#42 in the series).

The outlook for Russia comes as global growth weakened substantially in 2019, reflecting a slowdown in industrial activity and global trade. Slowing external demand and the oil production cuts Russia agreed with Organization of Petroleum Exporting Countries (OPEC), weighed on the country’s export performance. Crude oil prices fell 14 percent in the January-September 2019, reflecting the downturn in the world economy. Growth is expected to pick up to 1.6 percent in 2020 and 1.8 percent in 2021. National projects are expected to contribute about 0.2 to 0.3 pp to GDP growth in 2021.

“Domestically, relatively tight monetary policy in the first half of 2019, weak real disposable-income dynamics due to higher inflation on the back of the VAT rate hike, and a slow start in the implementation of national projects dampened growth in 2019,” said Renaud Seligmann, World Bank Country Director in the Russian Federation. “A less restrictive monetary policy and increased spending on the national projects is expected to help foster growth.”

The report also suggests that the moderate poverty rate is expected to continue to decline in 2019 and through 2021, although the report urges the government to continue monitoring the needs of the most vulnerable Russians. Increasing the existing means-tested programs and expanding their reach would help to reach the goal of reducing poverty by half by 2024.

Unemployment – at 4.5 percent – has been declining and stays at historic lows. The Russian banking sector has been largely stable; however, credit expansion has been uneven, with retail lending leading this expansion. To mitigate potential risks to financial stability from the unsecured consumer lending segment, the Central Bank of Russia has been gradually introducing regulatory measures to curb household lending.

This year, the Report also examines the wealth of Russia as a nation, by comprehensively measuring produced capital, natural capital, human capital, and net foreign assets.

“The emerging findings indicate that the typical Russian citizen was 1.8 times wealthier in 2017 than in 2000 and at around 7 percent, Russia’s return on wealth is similar to upper middle and high-income countries but lower than that of certain Eastern European countries,” said Apurva Sanghi, World Bank’s Lead Economist for Russia. “We also see that the human capital, at 46 percent, comprises the largest share of wealth in Russia, with the natural capital share, standing at 20 percent. As a rough approximation, we estimate that Russia’s forests provide annual absorption of about 640 million tons of CO2 equivalent.”

The report also finds that despite its significant growth, Russia’s human capital wealth per capita is one-fifth the Organization for Economic Cooperation and Development (OECD) average and at current rates, Russia would only catch up after almost 100 years. Russia’s forests play an important carbon absorption role and underscore Russia’s importance as an ecological global donor. However, the country’s large share of carbon-based wealth faces increased risk due to future price uncertainty and large-scale attempts at global decarbonization. Mitigating the risks of such stranded assets will require Russia to diversify its wealth portfolio away from its fossil fuel sector and towards other productive capital, cautions the report.

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