The Evidence Is In: What Works for Youth Employment in Low-Income Countries

The evidence is in. Vocational training and other similar efforts in low-income countries that aim to provide youth the skills to gain wage employment aren’t always hitting the mark, especially when scaling. “The question is, what should we do now?” Louise Fox, USAID’s Chief Economist asked participants at Making Cents’ 2017 Global Youth Economic Opportunities Summit. 

During the session The Evidence Is In: What Works for Youth Employment in Low-Income Countries, Fox provided an overview of the research around economic, structural, and employment transformation and how this evidence can be applied to USAID’s work in improving youth employment in low-income countries. The research found that many of the strides made in vocational training have been linked to interventions that provide soft skills rather than the hard skills that the projects aimed to improve. That’s partly because many project implementers do not fully understand the demand side of the labor market, so the hard skills being transferred are not necessarily the skills needed for the jobs available. Moreover, youth-targeted employment interventions can end up simply redistributing job opportunities, creating what Fox referred to as displacement effects, or the shift of jobs between people as a result of interventions. And when projects only redistribute existing jobs, the cost-effectiveness and overall impact of the intervention comes into question.

To better understand the labor market, “we need to start with the diagnosis of the employment structure and then diagnose the economy and what’s going on,” Fox said. Essentially, we have to understand the potential for the country to develop. Low-income and lower-middle-income countries can be grouped into three main categories: high-potential (transforming) economies, low-potential (non-transforming) economies, and stalled potential (lower-middle-income) economies. Each category has its own distinct employment challenges that must be considered in order for employment interventions, like vocational training, to be effective. For example, stalled economies are usually linked to insiders’ unwillingness to bring in outsiders to create more productive jobs. Training programs in these contexts can fall flat if the systemic issues, such as lack of competition and innovation in the labor market, are not addressed.

Fox also highlighted the importance of understanding the theory of change on the supply side as well as on the demand side. On the supply side, the theory of change is usually built on the assumption that vacancies exist, but that the youth do not have the skills needed to fill them. Examples of supply-side interventions can include vocational training, employment services, and counselling. On the demand side, the assumption is that the business climate needs to be addressed to increase demand for youth labor and that we must change the characteristics of the economy and not that of the youth. Examples of these interventions can encompass those that provide finance for companies and public work programs. So when designing a youth-focused employment program, it’s important for project implementers to first decide which theory of change should be applied to the context.

Summarizing her findings, Fox said that we need to think about what these youth-focused employment projects are trying to achieve as well as understand how youth are behaving and how they’re making their way into employment. She also shared the executive summary of the new report The Evidence Is In: How Should Youth Employment Programs in Low-Income Countries Be Designed, which outlines “the best opportunities for supporting youth in the near term:

• Policies and projects that increase the number of modern, labor-intensive enterprises by (1) helping established firms to grow and hire more workers, and (2) encouraging new firms to enter into operation. For the first objective, addressing finance and management constraints in large firms may have the highest payoff, but this assessment should be confirmed through more research.
• Programs to help youth more rapidly enter and make money in the household production sector (farm and non-farm). Of these, addressing the financial constraint, especially in low-income settings, seems to hold the most promise as a cost-effective approach.
• Technical vocational training programs, one of the most popular interventions, clearly need to be used sparingly if at all, with a clear eye on cost-effectiveness.