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«SKILLS MISMATCH IN LATVIAN MANUFACTURING SECTOR Authors: Ilze Zumente and Kārlis Putriņš ISSN 1691-4643 ISBN 978-9984-842-28-8 November 2011 Riga ...»

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The second part of the Concept introduces cooperation with the third parties to enhance skill matching with labor market demands. List of action include social partner and professional organization representative participation in education policy development and implementation, and assigning party responsibilities for both formal and informal education. MoES believes that by having closer cooperation with labor unions, regional development institutions, carrier centers and employers would improve education policy quality which would translate to lesser skills mismatch and ultimately lower unemployment rate (Ministry of Education and Science, 2009).

Ilze Zumente and Kārlis Putriņš 32 Concept has been in work for over a year and is planned to be finalized in 2015. The total estimated cost for it is 200 million euro of which only 65 million has been granted for now (Brante, personal communication, December 2010).

Europe 2020 Other major initiative that is being implemented by the Government of Latvia, especially with the help of Ministry of Education and Science is Europe 2020. It has been developed by European Commission and provides guidelines and suggestions that should be taken into account for every member state of European Union. Three priorities are set to be smart, sustainable and inclusive growth. Europe 2020 also provided concrete goals that should be met by 2020 acting

according to the strategy. These 6 targets are:

• 75% of population aged 20-64 in employment • 3% of EU’s GDP invested in Research & Development • Meeting climate and energy objectives • Share of early school leavers under 10% • 40% of younger generation with a tertiary degree • 20 million less people at the risk of poverty (EC Working Document, 2010) Returning to 3 top priorities, the sustainability concerns usage of nature friendly resources in competitive economies, however, both smart and inclusive growth are directly linked to labor market, thus will be explored in depth.

Smart growth priority encourages innovation, education quality enhancing, lifelong learning and digital society development. Countries are expected to invest in all level education development and study systems. Overall education level should be increased and education should be made more accessible as well as the role of education – more significant. Finally, series of activities should be developed and implemented to ease the transition from learning to working.

Inclusive growth priority aims to achieve economy with high employment rate and economic, social and territorial cohesion. Guidelines to fulfill the goal are investing in skills, battling poverty, modernizing labor market. Several suggestion overlap with the ones mentioned previously as a part of Concept initiative, such as recognition of unofficially obtained skills and cooperation with social partners in education program development.

Ilze Zumente and Kārlis Putriņš 33 Besides general Europe 2020 framework, separate stimulus has been developed as a counterpart that focuses purely on issues of professional education. In this strategy 4 priorities

are distinguished:

• Lifelong learning and mobility • Quality and efficiency • Equality • Innovation, creativity and entrepreneurship One of the presets of enabling lifelong learning is flexible access to education. The emphasis should be put on opportunities to learn while working, transitions from professional to higher education or work. Concrete suggestions are given in form of credit point system as well as consulting and advisory services.

Main points regarding quality and efficiency are development of professional education quality policy and ultimately creating quality culture with its own regulations and standards.

Competencies of teachers should also be raised and constantly improved in order for them to keep up to date with development in respective subjects. Additionally, emphasis should be put on core skill constant development and effective merging with professional skills or specializations.

Last point of emphasis is already mentioned cooperation creation with third parties to enhance education policy development (Ministry of Education and Science, 2011).

Evaluation After having introduced oneself to these robust and complex strategies one have to think whether they are the best response to current problems and if implemented, will they yield the sought results.

Authors find many perspective ideas in the strategies. To name an example, model system that uses credit points is found more effective among both teachers and students (Brante, personal communication, December 2010). Other suggestions such as e-learning development, recognizing unofficial education, making education more accessible and strengthening relationship between education establishments would also benefit the current education system and lessen skills mismatch (Troicis, personal communication, December 2010). However, there are various criticisms regarding the strategies and their implementation.

Firstly, regarding the Concept strategy, the idea of competency centers incorporate closing many existing professional schools across Latvia in order to pool their financing in fewer Ilze Zumente and Kārlis Putriņš 34 education establishments. Terminating existing schools might cause problems for students that are limited in traveling possibilities, meaning that many students will not continue studies if they will be required to travel greater distance to competency centers than previously to their schools.

Another thing this strategy is signaling is widely spread teacher layoffs. Since the number of establishments will be decreased, fewer teachers will be required to operate in them. In times when the unemployment in Latvia is already in critical condition massive layoffs would have significant consequences. Major parties involved such as association of teachers would do their best to stop these changes from happening (Ruņģis, personal communication, January 2011).

Secondly, strategy Europe 2020 provides specific targets, yet very vague suggestions how to meet them. In general, it is up to each country individually to figure out details on implementation of suggestions. What is more, even though ideology of European Union suggests equally strong economies for its entire member states, it is clear that as of today that is far from reality. Both standards of living and economic possibilities vary a lot across 27 countries. Sadly, Latvia finds itself at the bottom of the list of economic performance. This in mind, there are valid reason to doubt that Latvia might employ as effective methods as wealthier member states of EU.

All in all, authors find the guidelines of both strategies beneficial, yet express concerns about their implementation. Latvia is in a very tough position economically and thus whether ideas expressed in initiatives will be realized will greatly depend on ability to obtain extra financing. Granted that external funding is found, there is a chance to see competency centers with modern technology in them as well as to meet the targets of Europe 2020 by mid December 2020.

Ilze Zumente and Kārlis Putriņš 35


By undertaking both qualitative and quantitative methods authors have managed to explore the skills mismatch prevailing in Latvian manufacturing sector. Following are conclusions that can be drawn from analysis and thesis altogether.

The first part of the research question was aimed at determining the existence of the skills mismatch affecting the workers in Latvian manufacturing sector. By applying methodology developed by Allen and van der Velden (2001) authors discover significant skills mismatch problem in the Latvian manufacturing labor market. Skills match is found only for 24% of workers in the sample. The rest 76% of workers have either insufficient skills (41%), wrong skills (17%) or exceedingly high skills level (18%). These findings are similar to the ones European Center for the development of Vocational training (CEDEFOP) published in 2008, where skills match was estimated for only 21% of Europeans. Results explain existence of both unemployment and vacancies at the same time.

Besides determining skills mismatch types for workers in the sample, analysis regarding their valuation of skill usage and eagerness to learn more was explored. It was found that people put the majority of their skills in practice, however, not always they are given the opportunity to realize the full potential of their skill sets. A promising finding was that workers wish to gain additional skills, suggesting that they understand the importance of continuous education. On contrary, employees did not express strong belief that additional skills would improve their performance.

Results for mismatch types as well as self evaluation regarding skill sets were explored in depth by dividing them between genders and across 4 age groups. This allowed for couple of interesting insights. Firstly, it was concluded that men possess greater skills match and do not lack as many skills as women, however, they are subject to greater skills mismatch in terms of skills surplus when compared to females. Secondly, older people have better skills match results.

Reasoning goes that they have had the most time to adjust their skill sets to market demands as well as find occupation that suits them best. Thirdly, youngest workers suffer from skills surplus and wrong skills mismatches significantly. They do not seem to be given the chance to put their knowledge in practice and often find their skills not suited for their occupation.

Ilze Zumente and Kārlis Putriņš 36 Analyzing for dispersion between supply and demands of specific skills it was found that skills that are not supplied in sufficient amount from workers are responsibility, technical knowledge and problem solving abilities. Findings also suggest that Russian language and time planning are significantly overprovided by employees, meaning that level of mastery in them is greater than needed by their supervisors. Not all of skills were in mismatch, for instance, mastery level of communication abilities, team work, duty planning and learning on the job for workers is adequate to the demand of employers.

In order to answer the second part of the research question and measure the possible economic wage penalty of skills mismatch, ordinary least square regression was employed. All three hypotheses are accepted thus it is concluded that regardless of the skills mismatch type, its presence results in significantly lower wage rates. Interpretation of the results suggests that people with wrong skills, skills shortage and skills surplus suffer 17%, 21% and 25% wage penalties in comparison to the skills match respectively.

Two major strategies - Concept and Europe 2020 deal with labor market issues, including skills mismatch. After analysis of these Latvian Government and European Commission incentives it can be concluded that substantial changes to Latvian education system are in process. Innovations such as credit point system, competency centers and closer cooperation between Government, education establishments and employers should improve the overall education and at the same time decrease skills mismatch. However, there are various obstacles to strategies, starting from minor ones such as opposition to terminating many existing vocational schools or ability to develop sustainable education programs to major one - funding. Obtaining financing for full realization of both initiatives is definitely the biggest challenge and as for the moment there are no guarantees that funding can be found.

All in all, authors have tried to fill the gap in the existing literature about skills mismatch in a specific sector. As the topic is of high importance and actuality, authors suggest exploring other sectors and including all levels of workers in the further research.

Ilze Zumente and Kārlis Putriņš 37


Allen, J., & van der Velden, R. (2001). Educational mismatches versus skill mismatches: effects on wages, job satisfaction and on-the-job search. Retrieved November 14, 2010, from http://arno.unimaas.nl/show.cgi?fid=10321 Allen, J., & Vries, R. d. (2004). Determinants of skill mismatches: the role of learning environment, the match between education and job and working experience. Maastricht: Research Centre for Education and the Labour Market (ROA).

Bank of Latvia. (2010). Macroeconomic Development Report. Riga: Bank of Latvia.

Berman, E., Bound, J., & Griliches, Z. (1994, August). Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing. Retrieved November 14, 2010, from NBER: http://www.nber.org/papers/w4255.pdf Bjørnstad, R. (2000, May). The Effect of Skill Mismatch on Wages in a small open Economy with Centralized Wage Setting: The Norwegian Case. Retrieved November 14, 2010, from Norway Research Department: http://www.ssb.no/publikasjoner/DP/pdf/dp270.pdf Bloomberg. (2011, March 21). Polish Growth Could Stumble on Low Employment, Skills Mismatch.

Retrieved March 31, 2011, from http://www.bloomberg.com/news/2011-03-21/polish-growth-couldstumble-on-low-employment-skills-mismatch.html CEDEFOP. (2009, May). Skill mismatch- Identifying priorities for future research. Retrieved November 5, 2010, from http://www.mkuzak.am/images/intdocuments/5_eng.pdf CEDEFOP. (2010, June). Skill Mismatch in Europe. Retrieved November 15, 2010, from http://www.cedefop.europa.eu/EN/Files/9023_en.pdf Chevalier, A., & Lindley, J. (2007, August). Over-education and the skills of UK graduatesCenter for the

Economics of Education. Retrieved November 14, 2010, from Center for the Economics of Education:

http://cee.lse.ac.uk/cee%20dps/ceedp79.pdf CSB Latvia. (2011). Central Statistics Bureau of Latvia. Retrieved November- March 2010- 2011, from http://data.csb.gov.lv/ Dolton, P., & Silles, M. (2002, November). The Effects of Over-Education on Earnings in the Graduate

Labour Market. Retrieved November 14, 2010, from University of Oxford Economics Department:

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