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Source: OECD (2013a), Activation Strategies for Stronger and More Inclusive Labour Markets in G20 Countries: Key Policy Challenges and Good Practices. Prepared for the G20 Task Force on Employment More generally, effective social protection is important for inclusive labour markets. The global economic and financial crisis has shown that effective social protection can prevent individuals and households from becoming trapped in debilitating poverty and empowers workers to seize market opportunities, while acting as an automatic stabiliser at the macroeconomic level (ILO and OECD, 2011).

It is fundamental, however, that social protection systems operate in tandem with employment policies by focusing on, for example, social benefits that are employment-related or pension reforms that raise effective retirement ages and are accompanied by measures to promote the employment of older workers.

Child-care related reforms can be particularly effective in allowing parents to remain in or re-enter the workforce. Countries like Australia and the United Kingdom have expanded the provision of early childhood education, while Korea provides subsidies to childcare for all children up to 5 years old, and Germany is significantly increasing childcare places for full-day schooling. Some policies may have shortterm costs but potentially attractive future pay-offs. This is the case of active labour market policies, especially for youth, and programmes that help to reconcile work and family life.

In developing countries and emerging market economies, labour market informality delivers flexibility at the expense of inclusiveness. The share of informal employment, even excluding agriculture, is over 50% in several countries (OECD, 2011d and Jütting, 2009). While informality allows low-skilled individuals of working age to earn a living, they are usually employed in poorly paid and precarious jobs, which leads to substantial levels of inequality in earnings. Since informal workers and the firms where they work do not pay taxes, informality shifts the burden of taxes and social security contributions to workers in the formal sector. As a result, in countries with sizeable informal sectors, governments rely more heavily on indirect taxes, and typically limit access to social insurance to workers and their dependents in the formal sector, which undermines economic efficiency and impinges on the distribution of income. The loss of employment for informal sector workers can therefore be catastrophic for both the workers themselves and their families.

Strict employment protection legislation (EPL) discourages formal sector employment in some countries and is therefore a poor social protection instrument. In these circumstances EPL can end up hurting the workers it was meant to protect. High dismissal costs and restrictive severance procedures often discourage job creation in the formal sector, which penalises those vulnerable workers who could otherwise find a job in the formal sector and end up trapped in precarious jobs (OECD 2013n). A vicious circle of exclusion, duality and low economic growth is therefore created, because firms in the informal sector – often one-man firms, or with few employees, probably family members – tend to have low levels of physical capital and productivity. Informal entrepreneurs might not be particularly skilled and resort to informal activities, because they cannot find jobs in the formal sector (Banerjee and Duflo, 2007). These firms co-exist with large, highly efficient and profitable firms in the formal sector (Bertranou, 2010), which perpetuates duality and exacerbates inequality.

Unemployment insurance schemes face particular challenges in countries with substantial informal employment. Some workers might opt for formal employment if they believe that their risk of unemployment is high, a case of adverse selection, while some workers may find work in the informal sector while receiving unemployment compensation, a case of moral hazard. In Latin America, some governments have reacted to the informal sector challenge by instituting “Unemployment Insurance Savings Accounts”, into which workers and employers contribute in periods of employment, and from which withdrawals are made when unemployed (Jütting, J. and J. de Laiglesia, 2009).

Boosting human capital for growth and equity

Education and skills are critical for growth and inclusiveness. Workers’ human capital, educational attainment and skills not only determine employment and earnings, but they also matter for health, social participation and overall living standards, which are key non-income dimensions that matter for Inclusive Growth (Chapter 1). The distribution of educational benefits early on determines in part future opportunities and successes, as well as each person’s standing later in life. People’s innate abilities differ from birth, but their opportunities to develop their talents through high-quality education and training throughout their lives vary even more, leaving some people at a disadvantage to others.

A transition towards more Inclusive Growth requires ambitious educational and skills policies to reduce inequality of opportunity and outcomes. Measures that improve both growth and inclusiveness include, for example, increasing the quality and extending the provision of education, especially at the pre-primary, upper-secondary and post-secondary levels, raising tertiary educational attainment where upper-secondary attainment is already high, facilitating access to education by underprivileged groups, and expanding vocational and professional education training (VET).

Redistributing educational expenditure over the various stages of the life-cycle is necessary to leverage education’s contribution to Inclusive Growth. Educational expenditure per person is typically heavily concentrated at the secondary and tertiary levels, whereas spending on both early childhood education and lifelong learning, where important Inclusive Growth-oriented outcomes can be achieved, is usually much lower on average. Many countries have started to put more resources into pre-school education, but more needs to be done. Equally, lifelong learning, training and skills policies which can remediate or compensate for unequal outcomes of formal education are needed.

An early start to lifelong learning

Effective education policies need to cover a person’s whole lifespan, starting with critically important interventions in early childhood education. PISA results show that those school systems that perform the best and provide equitable learning opportunities to all students are also those that provide more inclusive access to pre-primary education. Disadvantaged students tend to have less access to preprimary education, but some countries manage to avoid this situation. For example, Estonia, Iceland, Hong Kong-China, Japan and Korea, have smaller-than-average gaps in socio-economic background between those students who had attended pre-primary school and those who had not. These gaps are even larger in developing countries and emerging market economies, where enrolment in pre-school programmes is lower than in the OECD area. Reforms are needed in these countries to expand facilities and ensure that they are affordable, identify appropriate ways to link pre-school provision with primary schools, and coordinate pre-school activities with wider early-childhood interventions (UNESCO, 2012).

Social, geographic and financial factors complicate access to primary schools. In Colombia, for example, 42% of the children from the poorest households started school one or two years late, compared to only 11% of children from the richest households. Poverty also has an impact on leaving school early. In Uganda in 2006 80% of children from the richest quintile reached grade 6, compared to only 49% of children from the poorest quintile (UNESCO, 2012). Governments can prevent school failure and reduce dropout using two parallel approaches: eliminating system level practices that hinder equity and targeting low performing disadvantaged schools. For instance, reducing the direct and indirect costs of schooling by lowering or abolishing school fees; providing free stationery, uniforms and meals; and reducing the transport costs play an important role in boosting enrolment in developing countries. Gender-sensitive awareness campaigns on the benefits of education, hiring more female teachers, creating a “girl-friendly” school environment, and ensuring safe travel to and from school can help to reduce gender gaps in education in countries where girls are left behind (OECD, 2012b).

Education up to the secondary level is important for finding and keeping good jobs Raising educational attainment up to at least lower-secondary level is likely to reduce income inequality. Individuals who reach at least the level of secondary school education are more likely to be in employment than their less educated counterparts. However, the impact of educational attainment beyond the secondary level on inequality remains ambiguous. Cross-country evidence suggests that raising the share of individuals with tertiary education in the working-age population leads to greater earnings inequality at first but then to lower inequality as the pool of low-skilled workers shrinks and the rates of return on investment in higher education falls (Knight and Sabot, 1983). By contrast, OECD analysis shows that raising the share of workers with upper-secondary education is associated with a decline in earnings inequality (Fournier and Koske, 2012).

Policies can help prevent failure and promote completion of secondary education. Approximately 20% of young adults leave school before finishing upper-secondary education in OECD countries, dramatically increasing their risk of unemployment, poverty and social exclusion. Five recommendations

are relevant here:

 Eliminate grade repetition. Alternative strategies to reduce this practice include addressing learning gaps during the school year, introducing automatic promotion or limiting repetition to subjects or modules failed with targeted support, and raising awareness to change the cultural support to repetition.

 Avoid early tracking and defer student selection to upper secondary levels. Early student selection has a negative impact on students assigned to lower tracks and exacerbates inequities without raising average performance.

 Manage school choice to avoid socio-economic segregation. To ensure balance, options include incentives to make disadvantaged students attractive to high-quality schools, school selection mechanisms, and vouchers or tax credits.

 Make funding strategies responsive to the needs of students and schools, to ensure equity and quality across education systems, and to ensure that support goes to the most disadvantaged students and schools.

 Design equivalent upper-secondary education pathways to ensure completion. Policy options include improving the quality of vocational education and training, allowing transitions from academic to vocational studies and removing dead-ends, reinforcing guidance and counselling for students, and designing targeted measures to prevent dropout, such as creating additional pathways to obtain an upper secondary qualification or incentives to stay in school until completion.

Education policies should focus at disadvantaged students and poorly performing schools There are major benefits for countries which boost the educational attainment and skills of vulnerable social groups, equipping them to compete for better-paying jobs. Cross-country evidence shows that if Turkey, a country with over 40% of 15 year-old students performing under the 400 points benchmark in the 2006 wave of PISA, could bring all low-achievers up to that mark, it would boost its GDP by over 1000% over the lifetime of these children (OECD, 2010d). Improving educational opportunities for the populations most at risk, such as women, migrants and rural youth, could generate progress not only in economic growth, but also in poverty, health and overall development (UNESCO, 2012).

Policies also need to improve low-performing schools and classrooms by offering a quality learning experience for the most disadvantaged. Low-performing schools often lack the capacity or

support to improve. Five policy recommendations have shown to be effective:

 Strengthen and support school leadership. To attract and retain competent leaders in these schools, policies need to provide good working conditions, systemic support and incentives.

 Stimulate a supportive school climate and environment for learning. Disadvantaged schools need to focus on prioritising the development of positive teacher-student and peer relationships, as well as the use of data information systems to identify struggling students and the factors of learning disruptions. These schools may also benefit from an alternative organisation of learning time, smaller classrooms and schools.

 Attract, support and retain high-quality teachers by providing targeted teacher education and mentoring to ensure that teachers, including novice teachers, receive the skills and knowledge they need for working in schools with disadvantaged students.

 Ensure effective classroom learning strategies. Schools and teachers should use diagnostic tools, as well as formative and summative assessments to monitor children’s progress and ensure they are acquiring a good understanding and a sufficient level of knowledge. Ensuring that schools follow a curriculum promoting a culture of high expectations and success is highly relevant.

 Prioritise the communication link between schools and the communities. Building links with the communities around schools, with both business and social stakeholders, can strengthen schools and their students.

Good initial education provides the necessary learning-to-learn skills to benefit from further skills development opportunities throughout adult life. Lifelong learning is most effectively supported by the development of learning-to-learn skills and transversal skills in initial schooling, and it is further developed during later stages of life. Countries with higher levels of participation in organised adult learning activities demonstrate higher literacy and numeracy skills. The large variation in education among countries at similar levels of economic development suggests major differences in learning cultures, learning opportunities at work and adult-education structures. Policies designed to provide high-quality lifelong opportunities for learning can help to ensure that the adults of the future maintain their skills.

Individuals with poor skills, for example foreign-language immigrants, older adults and those from disadvantaged backgrounds, are unlikely to engage in education and training on their own initiative and tend to receive less employer-sponsored training. Second-chance options can offer them a way out of the low-skills/low-income trap. Innovative approaches to community engagement can identify low-skilled adults who require support and provide them with learning opportunities tailored to their needs.

All stakeholders, including governments, employers, employees, parents and students, need to establish effective and equitable arrangements as to who pays for what, when and how. Given the positive expected (private) returns to higher education, introducing tuition fees to make students pay at least part of the cost of tertiary education can lower disposable income inequality measured over the life cycle, especially in countries where income taxation is not very progressive (OECD, 2013f). The introduction of tuition fees in tertiary education may have a negative impact on disadvantaged groups, but these unintended effects can be offset through means-tested grants and income-contingent repayment schemes for student loans.

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