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Technical Education and Income Distribution in Espírito Santo Ricardo Barros (SAE) Diana Coutinho (SAE) Samuel Franco (IETS) Rosane Mendonça (SAE) Andrezza Rosalém (IETS)
International Development Research Centre Centre de recherches pour le développement international
This study was presented and discussed with international experts on July 12, 2013, in Rio de Janeiro during the seminar: “Youth and Risk” organized and supported by the Institute for Applied Economic Research (IPEA), the Secretariat of Strategic Affairs (SAE), the International Development Research Centre (IDRC) from Canadá and the Centre for Distributive, Labour and Social Studies (CEDLAS).
// Technical Education and Income Distribution in Espírito Santo
Technical Education and Income Distribution in Espírito Santo ABSTRACT
Ricardo Barros (SAE) Diana Coutinho (SAE) Samuel Franco (IETS) Rosane Mendonça (SAE) Andrezza Rosalém (IETS) June 2011 This study is the result of a technical cooperation between the Jones dos Santos Neves Institute (IJSN), the Institute of Applied Economic Research (IPEA) and, subsequently, the Secretariat of Strategic Affairs (SAE), of interest to the State Committee for Vocational Education of Espírito Santo. The authors wish to acknowledge the valuable comments, feedback and suggestions provided by the technical team of the Jones Institute, in particular by Magnus de Castro and Ana Paula Vescovi. We would also like to thank the latter for her most timely encouragement and guidance in the conduct of this research. Finally, Andrezza Rosalem and Samuel Franco acknowledge the funding received as a result of a contract between the IJSN and the Institute for Studies on Labour and Society (IETS). All the remaining limitations and inaccuracies are obviously the responsibility of the authors. INTRODUction Technical education is a recurring topic in the debate on development, especially in the case of economies with intermediate levels of per-capita income and where logistics and heavy industry play a leading role, as is the case in Espírito Santo. But despite the constant, often central, presence of technical education in the debate on development, its importance remains controversial. If there is consensus that technical education should be subsidized, the same is not true for the reasons why and, let alone, how much it should be. The objective of this study is to evaluate the extent to which technical educa-
Technical Education and Income Distribution in EspĂrito Santo //
tion is an effective tool for helping workers and their families take ownership of the benefits of economic growth. 1. Impacts of technical education on employability and remuneration This section estimates the benefits of workers participating in technical education. Skills training has two effects: skilled workers receive job offers more frequently, and these offers come with a higher remuneration package. Estimating the effect of skills training would require comparing the access to work and remuneration of programme graduates with what they would get if they had not participated in the programme. However, we can have a look at only one of the sides of the comparison. We therefore chose to compare a group of skills training beneficiaries with a similar group in all respects, except for the fact that they did not participate in the skills training. The data on access to work, education and remuneration come from the 2007 PNAD (National Household Sample Survey) for the Southeast Region. Based on these data, a procedure was followed in two stages. Firstly, we estimated how the employment rate (as measured by the likelihood of being employed) and remuneration (as measured by gross wages) of workers with or without technical education vary according to observable characteristics (colour, age, gender, education, federative unit, urban or rural area) that are known to affect these results. Then, on the basis of this estimate, we estimated the employment rate and remuneration differential between workers with and without technical education that have the same observable attributes. Technical education raises the employment rate by 5 % and remuneration by 11 %. 2. Willingness to pay for technical education This section estimates the benefits of technical education against its cost. However, more risk-averse individuals value the security of access to work more and less risk-averse individuals value remuneration more. To simplify, we assume that workers are risk-neutral, concerned only with the expected remuneration. Furthermore, we assume that the worker treats the present and the future properly discounted as perfect substitutes. The indicator of the value of the benefits of technical education is measured by the difference between the present value of the expected remuneration of participants in technical education and the present value of the expected re-
// Technical Education and Income Distribution in EspĂrito Santo
muneration of non-participants in technical education, their attributes and discount rate having been set. The present values of the expected benefits range between R$7,000 and R$30,000, depending on the characteristics of the worker and the discount rate considered. Additionally, the cost of a standard skills training course lasting 18 months is approximately R$5,400 for the public sector. The results show that the costs involved in technical education account for between 40% of the value of the benefit (in the case of white urban males with a low discount rate) and 170 % of the value of the benefit (in the case of black women in the rural areas with a high discount rate). 3. Number of graduates and their position in income distribution This section estimates the number of technical education beneficiaries and how technical education affects the position of the worker in the distribution of income. For this, we need to evaluate the situation of technical education graduates if they had no access to this kind of education. We took the situation of young workers today (aged 18-35) who have completed their secondary education as representative of the situation of technical education graduates if they had had no access to that education. We weighted these workers so that they would have the same age structure as the young people enrolled today will have once they have completed the course, and it was assumed that the course is completed in 2 years. The impact of technical education depends on the position of potential technical education candidates in the distribution. It should be pointed out that aspiring technicians should have completed their secondary education, which is a schooling level well above the average in EspĂrito Santo. Therefore, aspiring technicians can hardly be found among the poorest. In fact, technical education can be expected to have a greater impact on the income of the richest 20%, where about one third of the potential beneficiaries are to be found, than on the income of the poorest 20%, where only 5.4 % of the beneficiaries are to be found, so technical education increases inequality.
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4. Aggregate impacts of technical education This section evaluates how technical education has an aggregate effect on employment rate, remuneration and income distribution. The impact of technical education is enduring, influencing the entire life cycle of individuals. Thus, the number of beneficiaries to be considered is the aggregate of all the graduate cohorts from previous years. As a result, two alternatives were considered for evaluating the impact of technical education. Firstly, we analyzed the impact of a single year’s investment similar in size to what has been the case in the state in recent years, i.e., we evaluated the impact of technical training on one single cohort of graduates. Secondly, we looked into the impact of a continuing process of investments as large as what has been the case in the state in recent years. 4.1. Immediate impacts on a cohort of graduates We distributed the contingent of technical education graduates between the ages of 16 and 33 years old – estimated at 10,000 – in proportion to the number of students enrolled in each age group. Finally, we added two years to obtain the age of the graduates. In this case, we assume that students will typically enter the labour market or advertise themselves as technicians – if they are already in the market – two years after starting technical training. The study reveals that the employment rate of young beneficiaries rises by 4%, while their remuneration increases by 10%. As a cohort of beneficiaries accounts for only 2% of the 500,000 young people in the state who have completed secondary education, the employment rate of this group rises by 0.08 %, and remuneration increases by 0.2 %. In short, the study shows that although the impact of technical training is high among direct beneficiaries, the aggregate impact, even among young people, is limited due to the limited number of beneficiaries in relation to the total population of young people. The young who have completed secondary education (potential beneficiaries of technical training) are not evenly spread across the distribution of income and tend to concentrate in families with higher income levels. Therefore, the impact of any expansion in technical training should not be distributively neutral. That is to say, the expansion of technical education tends to increase the degree of remuneration inequality among the young. In particular, it brings up the ratio between the income of the richest 20% and the poorest 20% by 0.04 %.
// Technical Education and Income Distribution in EspĂrito Santo
4.2 Long-terms impacts This section examines what the labour market and income distribution outcomes would be if EspĂrito Santo had always implemented a technical education policy as bold as the policy it implements today. We set at 37% the percentage of secondary education graduates that had access to technical education in each cohort in recent years. Since about 40% of the working age population in the state has completed secondary education, the number of graduates used in evaluating the impact of a continuous policy was 15% of the working age population. We estimated that the long-term impact of a continuous policy would be a 3.8% rise in the employment rate of beneficiaries and a 0.5 % increase in the case of the working age population (aged 18-64). As regards remuneration, the estimated impact is a R$151 (10%) increase per month among beneficiaries and a R$28 increase per month for the entire working age population. Since a continuing expansion of technical training should address an estimated 15% of the working age population, the average impact on the labour force is approximately 15% in the case of direct impact on beneficiaries. Since the incomes of the beneficiaries that have completed secondary education are well above the average, the impact of the continuing expansion of technical education is an increase in inequality among workers.
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