“Regional growth is projected to gather momentum, rising to 2.0 percent in 2018 and 2.6 percent in 2019. …With the external drivers of growth for the region expected to be decreasingly supportive—the large gains in some commodity prices in 2016 are not envisaged to continue, while growth in the United States and China is projected to decelerate in 2019 and 2020—the region will need to rely on domestic sources of growth more than in the past” (World Bank 2018, Global Economic Prospects: Latin America and the Caribbean).
In the last Business Perspective (BP) article we had started with the same opening quote from the World Bank’s Global Economic Prospects, however, it is reused here because that advice remains equally relevant for this week’s continuation of that discussion. Fundamentally, in an environment where commodity prices are still no where near the highs witnessed in 2011, despite signs of stabilization, the recommendation to rely on domestic sources of growth is especially appropriate.
To that end, this week’s article picks up where we last left off, with a special focus on the need to (i) improve labor market functioning, (ii) lower informality, (iii) foster innovation, and (iv) deepen trade integration.
Speaking on the measures to improve the functioning of the labor market, there are a few recurring themes. First, and probably most significantly, there is the need to reduce the mismatch between skills and jobs. This is where we hear about the need to reduce the “Skills Mismatch”, which could be simply be defined as the gap between an individual’s actual skills for his or her job and the job market’s demands for the job that the individual has.
Whether one is referring to vertical skills mismatch—which speaks to persons’ level of skills or education that is more or less than what the job requires—or speaking of horizontal skills mismatch where the level of education is appropriate but the skills themselves are not suitable for the current job, the consensus remains that such mismatches lowers productivity and efficiency.
Closely connected to the skills mismatch matter is the need to improve the quality of the education that current and future members of the workforce receive. This also has the ability to improve the level of productivity within the economy, especially where academia and the private sector can collaborate in the design of the curricula to ensure that graduates exit the school system fully prepared to enter the workforce with the requisite skills.
Beyond the productivity conversation, the relationship between skills mismatch and unemployment levels is also conspicuous, as firms would find it difficult to sometimes find the best fit when the mismatch is high. Where the best fit cannot be found, employers may simply be forced to incur the additional costs associated with training their workers.
Secondly, there is the need to “foster innovation”. Once again, closely related to the points raised above, it is advised that the education system in LAC be designed in such a way to prepare “students to identify opportunities for innovation, supporting collaboration between institutions where innovation occurs (firms, universities, research institutes), and ensuring that financing for innovation is accessible”.
Generally speaking, the school is somewhat out on the fact that more innovative firms are known to display higher levels of labor productivity. The real question is how to incentivize more domestic firms to become innovative. The answer to this and the productivity question is especially important considering the stable but relatively subdued outlook on commodity prices moving forward. Fundamentally, Belize and other countries in this region need to look at ways to improve the way we do business.