Vocational training programs and youth labor market outcomes: Evidence from Nepal

Shubha Chakravarty, Mattias Lundberg, Plamen Nikolov, Juliane Zenker
  • Journal of Development Economics, January 2019, Elsevier
  • DOI: 10.1016/j.jdeveco.2018.09.002

Can Vocational Training Programs Improve Employment Outcomes in South Asia?

Photo by Jeff Ackley on Unsplash

Photo by Jeff Ackley on Unsplash

What is it about?

In much of the developing world, unemployment among the youth is extremely high: youths (ages 16-24) comprise 40 percent of the world’s unemployed while accounting for only 17 percent of the world’s population. High unemployment is not only related to high poverty but also has a strong influence on other important social outcomes: it impacts crime rates, depression prevalence, substance abuse rates, and rates of social exclusion. In this project, I examine the effects of one of the largest youth training interventions on employment outcomes in Nepal. The training program serves almost 15,000 poor and disadvantaged young men and women annually by subsidizing skills training and employment placement services. The study reports three major findings. First, approximately twelve months after the start of the training program, the intervention generated an increase in non-farm employment of at least 10 percentage points and up to 31 percentage points, both of which are heavily driven by women starting self-employment activities inside (but not outside) their homes. The program also generated an average monthly earnings gain of at least 659 NRs (approximately 9 USD) and up to 2,113 NRs (approximately 28 USD) for women. Second, in contrast to women, men do not significantly gain from the program along the extensive margin of non-farm employment in the short run but do show an increase in earnings conditional on any employment of at least 698 NRs, which suggests that they use the program to upgrade their skills. Third, using a small subsample of the initial study population, we find suggestive evidence that 24 months after the start of the program, men have gained along the extensive margin with an increased non-farm (self)- employment rate of at least 19 percentage points, while female medium-term employment and earnings effects stay in a similar range compared to the short-term effects but, possibly due to the lower statistical power, turn insignificant.

Why is it important?

Although there are numerous determinants for high levels of unemployment and poverty, lack of skills is arguably one of the most important. One common policy response in an effort to enhance skill formation among the youth is vocational training programs. Training interventions have been hailed as one potential solution to facilitate youth transition to productive employment and higher earnings worldwide. Although previous evaluations of training programs, based on observational designs, typically show positive and statistically significant impacts of training on the probability of having a job and on labor market earnings, recent experimental interventions from middle- and high-income countries find little or no impact on employment and modest gains in earnings. In this study, I find very large positive and statistically significant effects from the training program on female employment, hours worked, and earnings. These effects, in particular, are driven by women who engage in non-farm self-employment activities carried out inside (but not outside) the house. In line with the few other existing studies on similar programs in low-income countries, our estimates of the employment effects of this training intervention are among the largest for training programs around the world. Several factors explain these stark results. Features of the low-income background, the South Asian context, and the specific training intervention likely account for the large program impacts that the study finds. First, our program impacts are likely driven by a lack of alternative employment, skill training opportunities, and by extremely low education levels. Both of these phenomena are much more pronounced in the context of Nepal when compared with the context of the most recent experimental interventions from middle-income countries (i.e., in Latin America), especially so for women.

Perspectives

Dr. Plamen Nikolov
Harvard Institute for Quantitative Social Science

The results of my study have important implications for the design and implementation of future training interventions in low-income countries. The empirical analysis presented here suggests important lessons for the successful modeling of effective labor market interventions where youth and female unemployment is a challenge. In line with the few other existing studies on similar programs in low-income countries, this study's estimates of the employment effects of this training intervention are among the largest for training programs around the world. Several factors account for these large program effects. Features of the low-income background, the South Asian context, and the specific training intervention likely account for the large program impacts that we find. First, our program impacts are likely driven by a lack of alternative employment, skill training opportunities, and by extremely low education levels. Both of these phenomena are much more pronounced in the context of Nepal when compared with the context of the most recent experimental interventions from middle-income countries (i.e., in Latin America), especially so for women. Finally, the results of my study have important implications for the design and implementation of future training interventions in low-income countries. The empirical analysis presented here suggests important lessons for the successful modeling of effective labor market interventions where youth and female unemployment is a challenge.

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http://dx.doi.org/10.1016/j.jdeveco.2018.09.002

The following have contributed to this page: Dr. Plamen Nikolov