BACKGROUND PAPER FOR THE

WORLD DEVELOPMENT REPORT 2013

Facilitating Labor Market

Transitions and Managing
Risks

Rita K. Almeida (World Bank and IZA),

David A. Robalino (World Bank and IZA), and
Michael Weber (World Bank)

1
 Facilitating Labor Market Transitions and Managing
Risks1
Rita K. Almeida (World Bank and IZA), David A. Robalino (World Bank and
IZA), and Michael Weber (World Bank)
October 12, 2012

Labor market transitions—between jobs, from school or inactivity to work, and in and out of
unemployment—affect income flows and household welfare, labor productivity, and social
cohesion. This paper discusses the types of market and government failures that can affect these
transitions. We use rotating panels for Brazil and Mexico in the 2000’s to describe labor market
transitions along the life-cycle and identify the types of constraints faced by different population
groups. The analysis shows that there is large heterogeneity in the mobility patterns across
employment states between and within countries. The paper then reviews the types of policies
and implementation arrangements that can be considered to facilitate welfare increasing labor
market transitions for different country contexts and sub-populations. These include social
insurance programs, as well as programs that address skills gaps, deal with limited information in
the labor market, provide access to credit, and stimulate labor demand. Looking forward, we flag
implementation challenges and lessons learned for policy makers.

JEL: J64, J65

Keywords: Labor Market Transitions, Unemployment, Social Insurance, Active Labor Market
Programs.

1
This paper was prepared as a background paper to the World Bank World Development Report on Jobs (2012). We
thank David Margolis, Alessio Brown, and Eduardo Zylberstajn for outstanding support with different parts of the
paper. We thank the excellent comments provided by several World Bank colleagues including Jesko S. Hentschel,
Dena Ringold, Kathleen G. Beegle and Johannes Koettl.
Contents
1 Introduction ........................................................................................................................... 1
2 Simple Framework ................................................................................................................ 2
3 Transitions Across Different Employment States ................................................................. 4
4 Insurance ............................................................................................................................. 12
5 Addressing Skills Gaps ....................................................................................................... 16
6 Dealing with Limited information ...................................................................................... 20
6.1 Counseling and job-search assistance ......................................................................... 20
6.2 Intermediation Services............................................................................................... 24
6.3 Skills Certification and Provider Accreditation .......................................................... 25
7 Providing Access to Capital ................................................................................................ 29
8 Stimulating labor demand ................................................................................................... 30
8.1 Wage subsidies............................................................................................................ 30
8.2 Public works................................................................................................................ 33
8.3 Public services ............................................................................................................ 35
9 Implementation Challenges................................................................................................. 37
Conclusion .................................................................................................................................. 39
References ................................................................................................................................... 40
Annex: Data and Empirical Methodology .................................................................................. 46
1 Introduction

In the developing world, individuals in working age are often transitioning between different
occupational states and jobs. Some of these transitions are voluntary: when individuals decide to
move from school to work, or change employer, or become an entrepreneur. However, other
transitions are involuntary: when individuals are dismissed from a job, a business fails, a work
accident puts them in temporary disability, or old-age forces them to stop working.

One common fact about all these transitions is that they directly affect the three transformation
axes proposed by World Bank (2012). First, they directly affect income flows and therefore the
welfare of workers and their families. For instance, long or frequent periods of unemployment
or disability can have major impacts on household’s consumption. Second, they determine which
jobs are created and destroyed and therefore the average productivity of labor. Transitions that
involve movements from low productivity agriculture into higher productivity manufacture are
good for the economy, but those that involve transitions from formal to informal jobs might not
be. Third, labor market transitions drive the evolution of social networks as well as the set of
beliefs and values that emerge from them. They affect not only interactions at work but also
interactions at home—since occupational choices often go hand in hand with choices about
where to live. Transitions that connect individuals with other workers engaged in productive
activities and rewarding jobs can improve happiness. Transitions that create networks of
unemployed youth who lack social assistance/support, or that drive the emergence of low income
neighborhoods in the outskirts of wealthy cities can reduce happiness and can create social
instability.

This paper has to objectives. First, we explore micro data for Brazil and for Mexico to illustrate
selected labor market transitions over the life cycle. This analysis simply motivates the core of
the paper that focuses on the policies that policymakers have at hands to improve these flows.
The analysis clearly shows that, even the same demographic groups, have quite different
transition patterns across different labor market states. This holds for diverse countries such as
Brazil and Mexico. We take from this analysis that the initial conditions, constraints, and social
choices are context specific and we argue against the existence of universal blue prints for
alternative policy interventions. Furthermore, we also find significant differences in the patterns
of labor market transitions for different demographic groups—most importantly youth and
women - within the same country. These differences across groups call for well-targeted and
customized policy interventions. Even though we cannot isolate the contribution of each and
every policy option in addressing the different constraints identified above, we discuss the main
policy options that governments around the world have at their disposal. We acknowledge that
this is an important limitation of this paper, which is caused by the inability to identify these take
up of these different policies in our data. Second, because we want to add new evidence
regarding the impact of the policy interventions discussed, the paper addresses the main design
and implementation issues in these policies on the ground.

We closely relate to both empirical work and policy reports produced within and outside the
World Bank. First, we relate to a broad empirical literature looking at the labor market
transitions across developing countries exploring micro data (see e.g. Ribe et al, 2012, Bosch and
Maloney 2007; Perry et al. 2007). Second, we relate to an extensive work on social insurance

1
including several review papers on the optimal design of incentive schemes (e.g., Ribe et al,
2012, Vodopivec 2004), Finally, we relate to the World Bank policy work on Activation and
Active Labor Market Policies (e.g., Almeida et al, 2012, Cunnigham et al., 2010, Brown and
Koettl, 2011) and multiple review papers on the effectiveness of active labor market programs
and youth employment interventions (e.g., Lee et al 2012, Angel-Urdinola et al. 2010,
Betcherman et al. 2000, Betcherman et al. 2004, Betcherman et al. 2007, Todd, 2010, and Kluve
et al. 2010). Our work is also directly related to other ongoing efforts within the Bank, including
the review on youth employment programs led by the World Bank Independent Evaluation
Group or Jobs World Development Report (World Bank, 2012).

The paper proceeds as follows. Section 2 briefly discusses the main constraints precluding
individuals from transitioning smoothly across different labor market states. Section 3 explores
longitudinal data to describe the transitions across employment states for different demographic
groups in both Brazil and Mexico. We then focus on the design and implementation in
developing country context of a wide set of policies that overcome the different constraints
discussed in the introduction. In section 4, we look at social insurance policies to overcome the
lack of insurance of workers are exposed to shocks (e.g., unemployment, disability, business
failure). Section 5 through 8 look respectively at programs to overcome lack of skills, lack of
information, lack of capital and stimulate labor demand. These are skills development programs,
job search assistance and counseling, skills certification and provider accreditation, public works,
wage subsidies and public services. In section 9 we discuss important challenges and policy
innovations looking forward before concluding.

2 Simple Framework

Several market and government failures often induce (preclude) transitions that are welfare
decreasing (increasing). These may include a wide range of failures including the lack of access
to insurance, lack of capital, lack of information, lack of skills, or insufficient labor demand.
Ribe et al. (2012) describe these obstacles in detail so we briefly mention them in this section.

Lack of access to Insurance. Due to myopia, adverse selection, and liquidity constraints workers
might not be able to sufficiently self-insure. (i) Without sufficient insurance workers are exposed
to shocks (e.g., unemployment, disability, business failure) that reduce welfare and create
uncertainty and anxiety. (ii) The lack of insurance can lead job-seekers to accept second-best
job-matches, or preclude transitions into self-employment and entrepreneurship, or investments
in human capital. (iii) Badly designed insurance programs could, however, also preclude
efficient labor market transition (e.g., when acquired benefits are not portable) or induce
inefficient transitions (e.g., early withdrawal from the labor force due to retirement provisions or
non-participation due to generous welfare transfers).

Lack of Information. The lack of sufficient information in the labor market also affects
transitions. (i) Workers might not know which jobs are (or will become) available and/or the
skills they require; (ii) employers might not know the skills applicants truly have particularly
when they lack work experience and would avoid hiring them—or they would hire only those
that are part of their social networks; (iii) even when workers have information about jobs and
skills they might not know which are the best providers of these skills.

2
Lack of Capital. Problems in financial markets also constraint credit, particularly for low income
individuals without collateral. Without enough capital individuals might not be able to transit
into better jobs because: (i) looking for or starting a new job is costly; it involves costs from
clothing to transportation; (ii) transiting into self-employment or entrepreneurship requires
working capital; (iii) obtaining the skills for a given job can also involve a substantial
investment.

Lack of Skills. Because of failures in education and training markets workers might not have the
skills to transit into good/better jobs: (i) good jobs have a minimum requirement in terms of
technical skills; individual who do not have them cannot transit into these jobs. (ii) individuals
might not have the behavioral skills needed to be successful searching, finding, and keeping jobs;
(iii) individuals might lack the cognitive skills needed to make rational choices about training
and career paths.

These constraints affect countries and, within countries, different groups to a varying extent. At
one end of the spectrum are the extreme poor and inactive often receiving public income support
(either cash or in-kind) in low income settings. These individuals are generally not connected to
functioning labor markets and policies aiming to support transitions into wage employment
might be less appropriate. Among this group, however, there will be some individuals with the
potential to engage in productive occupations that need support to facilitate transitions into self-
employment or micro-entrepreneurship. At the other end are formal sector workers in middle
income countries. These are, in general, more educated and have higher incomes, but they may
be temporarily unemployed. Some may have had a history of contributing to public insurance
schemes and are likely to receive some form of unemployment benefit. Policies targeting this
group should promote their reintegration into the labor market before these benefits expire and
before their skills depreciate.

There are several instruments that have the potential to facilitate labor market transitions and the
management of risks and thus improve welfare, productivity, and social cohesion. On the one
hand, there is social insurance policies which may improve labor market outcomes by promoting
workers’ transitions into employment or better jobs, while helping them manage a wide set of
risks. They cover important areas such as unemployment benefits, health insurance, as well as
old-age, disability, and survivor pensions and therefore address various risks ranging from
workplace injury, disability, to job loss. Insurance is not only important to smooth consumption
in the presence of income shocks, but also to encourage transitions into more productive, and
often higher risk, activities that generate higher earnings. For instance, workers with access to
unemployment benefits have more time and resources to find jobs that better match their skills.
The improved skills match eventually enhances overall productivity and resource allocation.
Badly designed social insurance policies can, however, have detrimental economic effects. They
can have adverse impacts on labor markets by restricting labor mobility, reducing labor demand,
and providing incentives for informality or labor force withdrawal. This happens, for instance,
when social insurance benefits are not portable, when the tax-wedge that finances the
contributory programs is too high, or when there generous early retirement provisions.

On the other hand, there is a wide portfolio of active labor market programs. The programs fall
into two general categories: (i) programs to stimulate labor demand; and (ii) programs to support
job search and improve employability. The first set of programs mainly includes public works

3
and wage subsidies, while the second brings together interventions such as intermediation,
counseling and job-search assistance, training, skills certification, and social services that
facilitate mobility (e.g., child care). The entrepreneurship promotion programs can also become
part of the portfolio when wage and salary jobs are lacking.

3 Transitions across Different Employment States

This section explores longitudinal data for, Mexico and Brazil, two middle income countries in
Latin America, to illustrate the nature of labor market transitions. The section is meant to simply
motivate the policy discussion that follows in the next sections. Unfortunately, for lack of data,
we cannot disentangle which of the constraints/obstacles listed above will be most binding to
individuals across countries or even within countries across different groups. Therefore, in the
policy discussion that follows we will try to be comprehensive and discuss the most widely used
social and labor market policy instruments to facilitate these transitions.

The data covers the 2000s and Annex 1 reports more details on the data we explore and on the
methodology adopted. Following most of the literature, we define formal workers as individuals
working and with a signed work permit (carteira de trabalho) in Brazil and individuals working
and also making contributions to social security in Mexico. The first part of the analysis looks at
employment states (inactive, unemployed, self-employed, informal employee, and formal
employee) across the life-cycle, for men and women, and skilled and unskilled workers. It
reveals important differences, indicating that different population groups might face very
different constraints in the labor market. To better understand these differences, the second part
of the analysis looks at how individual characteristics affect different transitions from non-
employment into different employment states (unpaid work; self-employment; formal
employment; informal employment).

There are some common patters over the life cycle that these plots show across the two
countries. People of different ages face clearly different labor market challenges. The young are
more often in school and less often employed than others. For youth it takes them a while to get
into formal wage employment, self-employment, or to become an employer. In contrast, for the
more seniors, the retirements come from formal wage work. There are relatively few unpaid
workers and there are more employers among the seniors. In addition, both males and females
have a higher probability of being formal employees when they are adults but the probability of
being self-employed increases significantly over time both for males and females. This contrasts
with a decreasing probability of being an informal wage earner over the life cycle which, falls
more sharply for females over time. Consistent with the evidence in Ribe et al. (2012) in Mexico,
young workers are more likely to be employed in the informal sector than in the formal sector,
and very few are self-employed.

Compared to men of similar age, women have higher probability of being out of the labor force
and of being self-employed. They are also less likely of being employers. These differences in
the gender patterns over the life cycle are likely driven, at least in part, by differences in their
human capital.

4
Figure 1: Distribution of Labor Market States for Women and Men in Brazil and Mexico

Panel A. Labor Market State for Women (Brazil) Panel B. Labor Market States for Men (Brazil)

Panel C. Labor Market States for Women (Mexico) Panel D. Labor Market States for Men (Mexico)

Source: Authors’ calculation based on PME and ENOE.

Note: For each of the birth cohorts, we computed the share of individuals that is in each of the labor
market states. We consider the following labor market states: out of the labor force, unpaid workers, self-
employed, employer and informal or formal employee. Panel A and B refer to Brazil and Panel C and D
to Mexico.

Figure 2 plots the life-cycle profiles in Brazil for two education groups. We consider individuals
with no education and those with tertiary education.2 The figures show that the least educated
people almost never become formal wage employees or employers as they age. This contrasts
with those with secondary and tertiary education graduates that even early in life are likely to
find a formal sector job. In addition, the more educated individuals are less likely to be inactive
than the less educated but this happens especially early in life. These are also the groups who can
afford to be unemployed. This evidence supports the fact that the labor market state varies more
by age than what it varies by the country’s region or income level. This shows how important it
is to have customized and well-targeted policies which depend on the beneficiaries profile over
the life cycle.

2
Similar plots are available upon request for Mexico. In work in progress we are also exploring data for other
countries.

5
Figure 2: Labor Market States for Individuals with No and with Tertiary Education, in Brazil

Panel A. Labor Market States for Individuals Without Panel B. Labor Market States for Individuals With
Education Tertiary Education

Source: Authors’ calculation based on PME.

Note: For each of the birth cohorts and for the different education groups, we computed the share of individuals that
is in each of the labor market states. We consider the following labor market states: out of the labor force, unpaid
workers, self-employed, employer and informal or formal employee. Panel A and B refer to individuals without
education and to individuals with tertiary education respectively.

Furthermore, even once individuals are employed, the dynamics for men and women differ
significantly over the life cycle. Figure 3 reports the transitions and the durations into formal
employment, into informal employment, into self-employment and into-non-employment
respectively, for Mexican men and women. The figures differentiate also the patterns for youth,
adults and senior individuals. Panel C in Figure 3 shows that young Mexican women are fairly
unlikely to enter self-employment (less than 3 percent per quarter). However, once they entered,
they stay self-employment for over 12 years on average. At any age group, men leave their jobs
after a shorter time than women. It is also harder to enter into formal employment, but once there
people stay longer than informal employment. Adults and seniors stay in their jobs about the
same length, regardless of type. Young workers leave informal work rapidly then stay slightly
longer in formal work and much longer in self-employment.

6
Figure 3: Transitions and Durations into Formal Employment, Informal Employment, Self- Employment and
Non-employment in Mexico

Panel A. Transitions and Durations into Formal Panel B. Transitions and Durations into Informal
Employment Employment

Panel C. Transitions and Durations into Self- Panel D. Transitions and Durations into Non-
Employment Employment

Source: Authors’ calculation based on ENOE.

Note: The figures were drawn using the average observed transition rates into each state, computed separately by
age and gender, and the expected duration (calculated as the inverse of the average observed transition rate out of
the same state).

Even though they share some similarities across the two countries, the experiences of Brazil and
Mexico illustrate very different frequencies of shocks and durations within each state. Figure 5
reports the risk and duration of non-employment for both Brazil and Mexico, separately for
males and for females. The scatter is computed with the mean of the observed transitions into
and from non-employment. The mean transitions were taken separately for each country/gender
by birth cohort, educational level and household size. In Brazil, the entry rate into non-
employment is low meaning that there is low probability of being affected by non-employment
but those who do become non-employed typically have high durations. In Mexico, on the
contrary, there is on average a higher probability of entering non-employment from employment
but once it happens the durations tend to be relatively low. The figure shows that these dynamics
are stronger for women, but they also hold for male individuals. Interestingly, there are also
significant differences over the life cycle (not reported but available on request). Consistent with
the patterns reported above, youth in Mexico tends to be subject to higher labor turnover with
higher entry rates into unemployment than the rest of the workforce. This is traded against
shorter unemployment spells for youth vis-à-vis the rest of the Mexican population.

7
Figure 4: Transitions and Durations into Formal Employment, Informal Employment, Self-Employment and
Non-employment in Brazil

Panel A. Transitions and Durations into Formal Panel B. Transitions and Durations into Informal
Employment Employment

Panel C. Transitions and Durations into Self- Panel D. Transitions and Durations into Non-
Employment Employment

Source: Authors’ calculation based on PME.

To study further the dynamics of (non-)employment shocks, we estimate a multinomial logit

using the micro data for the two countries. The dependent variable is the labor market state at
time t+1 for each individual that was not employed at time t. Tables 1 and 2 report the marginal
effect on the transition probabilities for different covariates in the model for Mexico and Brazil,
respectively. We consider dummy variables to capture differences across individuals in gender,
age (or birth cohort), educational level, marital status and number of dwellers in the household.
Because all the independent variables are defined as dummy variables, the marginal effect
reported shows the percentage point change in the probability of moving from non-employment
to state s when the variable of interest changes from 0 to 1, holding all other variables at their
mean values.

8
Figure 5: Transitions and Durations into Non-employment, for Brazil and Mexico

Source: Authors’ calculation based on PME and ENOE.

Table 1 reports the findings for Mexico. The findings show that women consistently have lower
probabilities than men of moving out of non-employment, regardless of the new labor market
state they might move into. When comparing with widowed, divorced or married individuals,
single individuals are more likely to become unpaid workers, but are less likely to have formal
jobs or to become employers or self-employed. The findings also show that young individuals
are less likely to move into informal jobs. Furthermore, there is an inverted “U-shaped” curve for
the probability of becoming wage employee (either formal or informal). Individuals in the
middle of their life - born in the 1970’s - have higher probabilities of being wage employees,
whereas young individuals - born in the 1990’s - and older individuals - born in the 1940’s - have
the same (or even a lower) probability of moving into wage employee. Reassuringly, the
relationship between education and the transitions into formality or employer are as expected.
More educated individuals have systematically a higher probability of moving into a formal
sector job. Interestingly, the dummies capturing the number of dwellers in the household are
poorly correlated with the transitions into wage employment, either formal or informal. They
don’t seem to affect the probability of moving into informal job and have small impacts on the
formal job transitions too.

Table 2 reports a similar regression for Brazil. Interestingly, the main results on the market
transitions are quite similar across the two countries. In particular, transitions from non-
employment and into self-employment are less likely in young ages than when individuals are
older; furthermore, these tend to occur in mid-career. In addition, the likelihood of entering the
labor market through an informal sector jobs is higher earlier in life. It is noteworthy the fact that
transitions into informal jobs probabilities have its peak for workers born in the 1980’s, whereas
for formal jobs the peak is for those born in the 1970’s. In addition, women are also consistently
less likely to transit out of inactivity.

9
 Table 1: Multinomial logistic regression’s marginal effects for moving into employment (Mexico)

State at t+1: Unpaid worker Self-employed Employer Informal employee Formal employee
Variable Effect* Std. Err. P-value Effect* Std. Err. P-value Effect* Std. Err. P-value Effect* Std. Err. P-value Effect* Std. Err. P-value
Female -0.006 0.001 0.000 -0.035 0.003 0.000 -0.005 0.001 0.000 -0.080 0.005 0.000 -0.048 0.004 0.000
Married -0.006 0.002 0.000 0.017 0.002 0.000 0.001 0.000 0.003 -0.031 0.003 0.000 -0.023 0.003 0.000
Divorced -0.021 0.003 0.000 0.031 0.005 0.000 0.003 0.001 0.029 0.027 0.006 0.000 0.038 0.007 0.000
Widowed -0.019 0.003 0.000 0.047 0.006 0.000 0.003 0.002 0.043 0.002 0.006 0.695 -0.004 0.007 0.519
Birth cohort = 1950's 0.002 0.003 0.458 0.015 0.002 0.000 0.001 0.000 0.029 0.036 0.006 0.000 0.042 0.008 0.000
Birth cohort = 1960's 0.006 0.003 0.025 0.013 0.002 0.000 0.001 0.000 0.015 0.091 0.008 0.000 0.089 0.010 0.000
Birth cohort = 1970's 0.004 0.003 0.112 0.006 0.002 0.002 0.000 0.000 0.495 0.106 0.009 0.000 0.119 0.012 0.000
Birth cohort = 1980's 0.009 0.003 0.002 -0.019 0.002 0.000 -0.002 0.001 0.001 0.092 0.008 0.000 0.085 0.009 0.000
Birth cohort = 1990's 0.016 0.004 0.000 -0.041 0.003 0.000 -0.003 0.001 0.000 0.054 0.007 0.000 0.003 0.005 0.550
Years of education = [1 to 3] -0.001 0.002 0.796 0.003 0.002 0.180 0.000 0.000 0.423 0.027 0.006 0.000 0.048 0.012 0.000
Years of education = [4 to 7] -0.004 0.002 0.070 0.000 0.002 0.784 0.000 0.000 0.237 0.022 0.004 0.000 0.068 0.011 0.000
Years of education = [8 to 10] -0.007 0.002 0.001 -0.001 0.002 0.534 0.001 0.000 0.079 0.006 0.004 0.136 0.107 0.012 0.000
Years of education = [11 or +] -0.008 0.002 0.000 -0.005 0.002 0.006 0.002 0.001 0.013 -0.010 0.004 0.005 0.152 0.015 0.000
# dwellers = 2 0.011 0.004 0.008 -0.007 0.002 0.000 0.000 0.000 0.327 -0.006 0.004 0.090 0.007 0.005 0.104
# dwellers = 3 0.018 0.005 0.000 -0.011 0.002 0.000 0.000 0.000 0.322 -0.004 0.004 0.247 0.009 0.005 0.042
# dwellers = 4 0.020 0.005 0.000 -0.014 0.002 0.000 0.001 0.001 0.181 -0.006 0.004 0.104 0.010 0.005 0.034
# dwellers = 5 0.022 0.006 0.000 -0.014 0.002 0.000 0.001 0.001 0.107 -0.001 0.004 0.795 0.019 0.006 0.001
# dwellers = 6 or + 0.026 0.007 0.000 -0.013 0.002 0.000 0.001 0.001 0.146 0.003 0.004 0.545 0.023 0.006 0.000
Number of observations 127,485
Log-likelihood -116,056
Pseudo R2 0.0795
LR Chi2 20,034
Source: Authors’ calculation based on ENOE
Note: Region and time dummies were included as covariates; constants were also included in each model. * Effect: change in probability for a discrete change of dummy
variable from 0 to 1, when moving from non-employment into each reported state.

10
 Table 2: Multinomial logistic regression’s marginal effects for moving into employment (Brazil)

State at t+1: Unpaid worker Self-employed Employer Informal employee Formal employee
Variable Effect* Std. Err. P-value Effect* Std. Err. P-value Effect* Std. Err. P-value Effect* Std. Err. P-value Effect* Std. Err. P-value
0,000 0,000 0,434 -0,021 0,001 0,000 -0,002 0,000 0,000 -0,036 0,002 0,000 -0,027 0,001 0,000
Female
0,008 0,001 0,000 -0,002 0,001 0,000 0,000 0,000 0,187 -0,018 0,001 0,000 -0,013 0,001 0,000
Married
0,006 0,001 0,000 -0,013 0,001 0,000 -0,001 0,000 0,000 -0,002 0,001 0,053 -0,010 0,001 0,000
Divorced
0,003 0,001 0,015 -0,011 0,001 0,000 -0,001 0,000 0,000 -0,003 0,001 0,024 -0,009 0,001 0,000
Widowed
0,000 0,001 0,715 0,008 0,001 0,000 0,000 0,000 0,018 0,013 0,002 0,000 0,021 0,002 0,000
Birth cohort = 1950's
-0,001 0,000 0,112 0,007 0,001 0,000 0,000 0,000 0,282 0,032 0,003 0,000 0,040 0,002 0,000
Birth cohort = 1960's
-0,001 0,000 0,000 0,000 0,001 0,908 0,000 0,000 0,008 0,047 0,003 0,000 0,049 0,003 0,000
Birth cohort = 1970's
-0,001 0,000 0,246 -0,013 0,001 0,000 -0,001 0,000 0,000 0,051 0,003 0,000 0,033 0,002 0,000
Birth cohort = 1980's
0,001 0,001 0,195 -0,023 0,001 0,000 -0,002 0,000 0,000 0,032 0,003 0,000 -0,003 0,001 0,042
Birth cohort = 1990's
0,000 0,001 0,984 0,005 0,001 0,000 0,000 0,000 0,550 0,021 0,004 0,000 0,014 0,003 0,000
Years of education = [1 to 3]
0,000 0,001 0,757 0,005 0,001 0,000 0,001 0,000 0,021 0,022 0,003 0,000 0,018 0,002 0,000
Years of education = [4 to 7]
0,001 0,001 0,303 0,003 0,001 0,003 0,001 0,000 0,012 0,023 0,003 0,000 0,031 0,003 0,000
Years of education = [8 to 10]
0,001 0,001 0,410 0,001 0,001 0,452 0,002 0,001 0,000 0,038 0,003 0,000 0,051 0,003 0,000
Years of education = [11 or +]
0,016 0,011 0,120 -0,001 0,001 0,369 0,001 0,000 0,011 -0,001 0,002 0,465 0,002 0,001 0,067
# dwellers = 2
0,019 0,011 0,098 -0,001 0,001 0,454 0,001 0,000 0,002 -0,002 0,002 0,403 0,002 0,001 0,078
# dwellers = 3
0,022 0,013 0,090 -0,001 0,001 0,242 0,001 0,000 0,003 0,000 0,002 0,869 0,002 0,001 0,102
# dwellers = 4
0,031 0,020 0,130 -0,001 0,001 0,592 0,001 0,000 0,004 0,003 0,002 0,184 0,004 0,001 0,008
# dwellers = 5
0,024 0,017 0,170 0,001 0,001 0,294 0,002 0,001 0,004 0,006 0,003 0,020 0,004 0,002 0,006
# dwellers = 6 or +
Number of observations 437,975
Log-likelihood -359,981
Pseudo R2 0.0942
LR Chi2 74,912
Source: Authors’ calculation based on PME
* Effect: change in probability for a discrete change of dummy variable from 0 to 1, when moving from non-employment into each reported state.
Note: region and time dummies were included as covariates; constants were also included in each model.

11
This section has shown how labor market transitions change along the life cycle and that
different patterns that emerge between young and adult workers, and men and women.
Transitions into self-employment are rare in young age; they tend to occur in mid-career.
Youth are more likely to enter the labor market through informal sector jobs. Women are less
likely to transit out of inactivity, particularly when young. Formal sector workers, on the other
hand, are more likely to exit the labor market prematurely relative to life expectancy—
particularly among women. The analysis also shows that the risk of unemployment or non-
employment is not-negligible across the two countries. Exiting unemployment at the same
time is more complicated. These results suggest that there are factors at play that preclude
more efficient transitions among certain population groups. For instance, in both countries,
there is room to facilitate school-to-work transitions, including movements of the young
workers from unemployment and inactivity into self-employment.3 Policies could also be
considered to support transitions out of non-employment particularly among youth and
women. Finally, similarly to the case of other middle income countries, interventions might be
needed to prolong active life and delay retirement. The high risk of becoming unemployed
also emphasizes the importance of having income protection systems for workers in place—
including workers in informal wage employment.

4 Insurance

This and the subsequent sections will focus on policies to facilitate welfare increasing labor
market transitions for various country contexts and sub-populations. These policies range
from social insurance programs, to programs that address skills gaps, deal with limited
information in the labor market, provide access to credit, and stimulate labor demand.

There are three types of instruments to provide insurance against risks such as unemployment,
disability, or old-age: savings (e.g., unemployment insurance saving accounts, defined
contribution pensions); risk-pooling (e.g., defined benefit pensions, regular unemployment or
health insurance); and transfers (e.g., social assistance for the disabled or social pensions).
Countries differ in the mix of policies that they have.

All these instruments affect the behaviors of workers and employers and thus labor market
transitions:

Savings. Mandatory savings if too high or if the interest rate paid on the deposits is too low
can act as a tax on labor (paid by the employees). In the case of unemployment benefit
systems this can lead to an increase in turnover and higher informality.

Risk pooling. Most programs (e.g., health insurance) are usually financed by employee
contributions and pay-roll taxes (paid by the employer). As the contributions paid are not
linked to benefits but earnings, the programs also generate implicit taxes (when benefits are
lower) or subsidies (when benefits are higher) to the individual. There is evidence that the
pay-roll tax can reduce incentives among employers to create formal jobs (see Ribe et al.,
2010). Workers, on the other hand, can respond by maximizing the subsidies (e.g., staying
unemployed longer or retiring earlier) and minimizing the taxes (e.g., by under-declaring
wages or reducing contribution densities). Acquired benefits in the case of risk-pools such as

3
These self-employment activities are not necessarily viewed as promising jobs for the future but at the very
least provide job experience and skills that are useful in smaller trades.

12
defined benefit pensions or unemployment insurance are also less portable between jobs and
thus can reduce turn-over (see Forteza, 2010, and Holzmann and Koettl, 2011)

Transfers. The effects of transfers depend on their design. If universal -- given to all workers,
regardless of income or where they work—they do no create a wedge and have only an
income effect that depending on its size can reduce employment levels. In general, however,
small transfers such as social pensions do not seem to have had large impacts (Barrientos,
2009). Several transfers through non-contributory social insurance programs (e.g., seguro
popular in Mexico) are given only to informal sector workers. There is some evidence that
these transfers can act as a tax on formal jobs and encourage transitions into informal jobs
(Levy, 2008; Ribe et al., 2010; Ribe et al., 2012).

The challenge for the majority of low and middle income countries is to expand the coverage
of insurance programs that can then facilitate labor market transitions and improve risk
management. One of the main problems of social insurance programs in the majority of
countries is their inability to provide adequate protection to large segments of the labor force.
For example, around the world, only 30 percent of the labor force has access to social
security. In Africa and Asia, this share is below 25 percent. Even in middle-high income
countries, such as Chile and Mexico, only around 60 percent of the labor force is covered. 4
There are multiple reasons for these low coverage rates, including restricted government
budgets, low institutional capacity, fragmented schemes, widespread informality, income
inequality, poverty, and the low productivity of many small firms that cannot afford
contributing to OECD-type social insurance systems.5

To complicate the picture, even those who are enrolled in social security programs at a given
point in time are not covered throughout. Individuals continuously move in and out of the
social security system. Transition rates in and out of the social security also change over the
life-cycle. For instance, youth entering the labor market for the first time are likely to take
informal sector jobs without social security coverage. After a period where these workers
acquire experience and new skills, transitions to formal sector jobs start to occur. Eventually,
many workers move into self-employment. Overall, the average worker with access to social
security contributes less than 50 percent of his or her working life.6

To this end, it is necessary to improve the design of social security programs to expand
coverage while facilitating, not constraining, labor market transitions. A general approach that
has been presented in different forms involves:

Opening current social insurance programs to all workers—regardless of where they

work. All citizens or residents would be eligible for the same set of benefits. This, of course,
would imply adapting administrative systems (e.g., identification, registration, payment of
benefits) to respond to the needs of the self-employed and workers in the agricultural sector.
As it would be impossible to mandate and enforce enrollment, the programs would need to
rely on voluntary participation. Therefore, it is important to facilitate enrollment and the
collection of contributions. Also, adverse selection issues of insurance programs that are not
mandated and other obstacles for acceptable take-up rates of voluntary schemes need to be
addressed. These challenges may be met or mitigated by specifically designed measures and

4
See Holzmann et al. (2009).
5
See Ribe et al. (2010). For example, the applicability of the OECD-style unemployment benefit system in
countries with large informal markets and weak institutional capacities has been questioned by Reyes Hartley et
al. (2010), or Vodopivec (2009).
6
See Forteza et al. (2010).

13
program provisions as well as incentives to support beneficial behaviors. For example,
commitment building, risk reminders, default options, or self-control facilitating measures
could be taken. Likewise, setting incentives, including financial incentives can help increase
take-up and commitment (see Palacios and Robalino, 2009).

Having more flexibility when setting the mandates of various programs. The idea here would
be to harmonize the mandates of various programs (or integrate them) while introducing more
individual choices. The various insurance and savings programs could offer a basic set of
benefits as a default and then allow individuals to purchase additional insurance or to save
more. Savings plans could also come with a default-portfolio of investments than individuals
can then adjust after participating in information, training, counseling programs (see Kaplan et
al., forthcoming).

Making redistribution explicit and targeted on the basis of means -- not occupation. Subsidies
are necessary to expand coverage to individuals with low or no savings capacity. It is
important, however, to make these subsidies explicit in order to allocate them to those that
need them the most; better control negative effects on labor supply; and rely on more flexible
financing mechanisms. To this end, all programs would link contributions to benefits. An
integrated system of subsidies can then be used to top-up the contributions or benefits of
eligible individuals.

Reducing tax-wedges. This is important to facilitate transitions to the formal sector. Having
more flexible mandates and linking contributions to benefits can help reducing the wedge
between the value individuals place on the bundle of insurance benefits and mandatory
contributions. The other important measure is to finance all redistribution within the system
through general revenues and not pay-roll taxes.

Looking forward, countries would need to better integrate and coordinate existing policies
into an integrated social insurance policy framework. The integration and coordination of
existing policies and programs is necessary for several reasons. Among others there are
important interactions among various social insurance programs. As an example, changes in
the public health insurance plan can affect how much (and how often) workers contribute to
the social security and, through this channel, how much savings workers accumulate in their
pension account. Similarly, a change in the unemployment benefit systems can affect
retirement ages.7 Reforming one program without looking at the effects on another can be
counterproductive. Moreover, in many countries, core social insurance benefits are bundled
together; the social security institution provides a package of health, pensions, unemployment,
and other benefits. Thus, individual behaviors, system costs, and performance are influenced
by the entire package of social insurance programs. It would be difficult, for example, to
justify having fundamentally different strategies to expand the coverage of the various
programs when the problems that need to be addressed are essentially the same. Finally, there
are gains to be made if programs are better coordinated and are able to share administrative
and information systems.

In addition, schemes should increasingly facilitate the portability of entitlements across

systems. Moving to a systemic social insurance policy approach means improving design,
aligning incentives and integration of programs, as well as paying attention to portability
across systems. In particular with respect to job transitions, the portability of social insurance

7
Robalino et al. (2009).

14
benefits is an increasing concern for individuals and policy makers. The inability to (fully)
transfer eligibilities of social insurance benefits can negatively impact the individual’s job
transition decision and therefore affect productivity, living standards, and social cohesion.
Provisions to facilitate the portability of entitlements to social insurance across systems are
therefore important elements of an integrated approach to social insurance. Since labor
mobility increases not only across professions but also countries, the incorporation of
portability into the system’s design may even need to consider cross-country transitions and
transfers.8

Figure 6: Social Insurance Coverage around the World

Panel A. Social Insurance Coverage around the World (% labor force)

Panel B. Social Insurance Coverage around the World (% working age population)

Source: Authors’ calculation based on data from Pallares-Miralles et al. 2012.

Note: The map displays the percentage of active contributors to social insurance schemes as a percentage of the
labor force (Panel A) and the Working Age Population (Panel B).

8
Holzmann and Koettl (2011).

15
5 Addressing Skills Gaps

Trainings related to active labor market programs are the most widely used programs to
address skills gaps.9 They can take different forms depending on target group, how the
trainings are provided and, most importantly, depending on the employer’s orientation of the
contents provided. Training related to ALMPs cover a wide set of programs targeted to
multiple individuals, including skilled and unskilled, youth or women. The results are also
mixed and vary depending on the type of program, context, and targeted group.

Impacts on employability, wages, and the quality of jobs beneficiaries get are generally
positive, but it varies—across countries and regions, and between men and women. In
addition, the evidence from developed countries suggests that benefits of vocational trainings
are higher in the longer run due increased attachment to the labor market and significant
locking-in effects.10

Figure 7: The effects of Training on employability in Jovenes Programs, by gender

25%

20%

15%
Women
10%
Men
5%

0%

The “causal effect of training” is very much likely to fall into the category of implementation-
specific effects. The most promising results to date in developing country settings are those
of the Jovenes Programs. These are programs targeted to vulnerable youth and have proven
to have positive impacts on labor market outcomes. The effectiveness of Jovenes seems to be
conditional on design and context. There are two key-features in terms of design. First,
services should be delivered by private providers under competitive contracts that reward
performance. Second, class-room training (which focuses on life-skills) is integrated with

9
Almeida, Behrman, and Robalino (2012) discuss the broader question on how build and upgrade job relevant
skills through pre-employment technical and vocational education and training (TVET); on-the-job training
(OJT); and training-related active labor market programs (ALMP). ALMP-type of trainings are of shorter
durations and target individuals who are seeking a second chance and who do not have access to the other
trainings. These are often the low-skilled unemployed or informal workers. Contrary to the training-related
ALMPs, the pre-employment technical and vocational trainings are usually offered within the formal schooling
track and tend to be administered by the Ministry of Education. Kluve, Rother, and Sanchez Puerta (2012)
elaborate on the activation type trainings.
10
See Card et al. (2011), Hotz et al. (2006) and Lechner et al. (2005). see Kluve (2010), Sianesi (2008), and
Rodriguez-Planas and Jacob (2010).

16
other services including counseling, intermediation, and wage subsidies to finance on the job
training. Moving forward countries should invest in the evaluation of this type of programs
and on how the different treatment arms may help overcome the constraints to employability.
When targeted to at risk youth, however, there is evidence that complementing trainings with
life-skills is also a likely promising approach to develop basic skills on livelihood and social
interactions as well as work‐related practices and attitudes.11

There is also some evidence that training related to ALMPs are likely to contribute to social
cohesion by improving the trainees’ psycho-social well-being and their optimism towards the
future. For example, the evaluation of an educational reform in Tunisia shows that, when
entrepreneurship training is included in the formal curricula, it improves the participant’s
optimism towards the future.12 This is also supported with the trainees of Juventud y Empleo
in the Dominican Republic or the in NUSAF where vocational trainings is combined with life
skills and psychosocial counseling (see box 1).13 Furthermore, evidence from the reintegration
and agricultural livelihoods program for high-risk Liberian youth also shows positive impacts
on social inclusion, through improvements in social engagement, citizenship and stability. 14

One of the key features in a successful program implementation is the emphasis on the quality
of the monitoring and evaluation. Limited institutional capacities to conduct strong M&Es and
limited data collection capabilities, together with poorly designed incentives for training
providers to conduct a thorough follow up of the trainees are often binding constraints.
Moving this agenda forward, a possible strategy to evaluate the effects of a program would be
to start with a small-scale, randomized “pilot” and carefully evaluate the effects before
deciding whether to expand, make adjustments, or discontinue programs. Finally, the
development of accreditation mechanisms for training providers or facilitating the emergence
of rating agencies may also be important steps. Having a sound national system of training
providers accreditation may provide information to individuals to make better decisions about
which institutions to attend and information to potential employers about the types of skills
that an institution’s graduates should possess. 15

11
See Youth Build Model or Juventud y Empleo in the Dominican Republic. Life skills training combined with
entrepreneurship training is targeted to adolescent girls and young women in Afghanistan, Liberia, Nigeria,
Rwanda, and South Africa. The Entra 21 program led by the IYF program includes life skills such as motivation,
socio-emotional regulation, time management, and the ability to work with others and anecdotal evidence shows
an increase in responsibility and team-work skills. Program evaluations in El Salvador, the Dominican Republic,
Peru, Panama, Colombia, Paraguay, Bolivia, and Brazil have shown not only improved chances of a participant
getting a job but also a higher quality job. Similarly, the Apprenticeship Training Program and Entrepreneurial
Support for Vulnerable Youth in Malawi aims at providing training of technical sills, professional and non-
cognitive skills, mentorship, and life skills to vulnerable youth in order to enhance their employability and
earning potential, and to reduce their high risk behavior.
12
See Premand et al. (2012) for evidence on the impact evaluation of this policy reform.
13
See Blattman, Fiala and Martinez (2011) for the intermediate results from an experimental evaluation of the
Youth Opportunities Program in Northern Uganda.
14
See Blattman and Annan (forthcoming). This program is launched by the international NGO Landmine Action
(LMA, now known as Action on Armed Violence) and aims to reintegrate ex-combatants into communities away
from security hot-spots and illicit activities.
15
See Finn (2010) for a discussion on selected OECD countries.

17
Table 3: Impacts of On the Job Training on Wages and Productivity: Evidence from Selected Countries
Country
Effects on wages
United States (Lynch
1992)
United States (Bartel
1995)
United States (Frazis and
Loewenstein 2005)
Republic of Korea and
Malaysia (Middleton,
Ziderman, and Van Adams
1993)
Kenya and Zambia
(Rosholm, Nielsen, and
Dabalen 2007)
Effects on productivity
United States (Barron,
Black, and Loewenstein
1989)
Ireland (Barrett and
O’Connell 2001)
Portugal (Almeida and
Carneiro 2009)
Chile, Colombia, Mexico,
and Peru (Lopéz-Acevedo
and Tan 2010)
Ghana, Kenya, and
Zimbabwe (Biggs, Shah,
and Srivastava 1995)
Source: Almeida and Cho (2012)
Magnitude of effects Data and methodology
OJT: 0.20% to 0.36% wage increase per week of Interviews with a panel of
training individuals between 14 and
Apprenticeship: 0.10 % to 0.26% wage increase 21 years of age in 1979,
per week of training observed again in 1980 and
1983; data from the National
Longitudinal Survey, youth
cohort
OJT: Increases in wage growth and a rate of return 1986 to 1990 personnel
of about 13%. records of a large
manufacturing company
Formal training: Median of 60 hours increases Panel analysis using data
wages by 3% to 4% from the National
Longitudinal Survey, youth
cohort, from 1979 to 2000.
Republic of Korea: 28% rate of return Survey of previous studies
Malaysia: 21% rate of return (Cohen 1985; Lee 1985)
Formal training: 20% wage increase Matching estimation using
cross-sectional data from the
Regional Program on
Enterprise Development
10% increase in training hours resulted in a 3% Cross-sectional survey
increase in productivity collecting detailed
information on training and
wages in 1982.
Training resulted in a 3% to 4% productivity Surveys of nationally
growth representative enterprises in
1993 and 1995
6.7% to 8.6% rates of return from training Panel of large manufacturing
firms between 1995 and1999
Effects of SME program participation on Panel data of firms
productivity (measured as sales, profits, or output): participating SME programs
Chile, 7% to 9%; Colombia, 5%; Mexico, 5% to
6%; and Peru, 21% to 26%
49% increase in output after training Ordinary least squares
estimation from cross-
sectional data of the Regional
Program on Enterprise
Development
18
Table 4: Effectiveness of Comprehensive Training Programs targeted to Youth in Latin America

Program/Country Number of Effect of Program Effect of Program Effect of Program

/ Implementation Beneficiaries on Employability on Wages on Job Quality
Period

Argentina 100,000 and 0% and 11%, 10-30% No significant 0 -3%; 6-9% for
Proyecto Joven 180,000 for those less than 21 pattern. youngest in one
1994-1998 years old). cohort.

Chile Joven 1992- 100,000 18-22%; effect is 22-25% but 15-23% larger for
1997 larger for youngest imprecisely youngest groups.
groups. estimated.

Colombia Jóvenes 100,000 5 % for women; no 20% for women; no 5.3-6.6 percentage
en Acción 2000- reliable effect for reliable effect for points
2005 men. men.

Dominican 30,000 No effect; approx. 17%; larger for Health insurance 9%

Republic Juventud (through 5% but not males under 19 years higher for men than
y Empleo 2006) significant in the East old. for women (43% vs.
and Santo Domingo. 34%).
1999-ongoing

Panama 11,400 No effect; between Little or no effect; Positive effects (10-

PROCAJOVEN 10% and 12% for 38% for women; 20%) since 2002.
2002 women and in 25% in Panama City.
Panama City.

Peru Projoven 160,000 13%; 20% for women Between 12% and Overall not
1996 and no effects for 30%. significant.
men.

Source: Almeida et al. (2012); Adaptation from Ibarraran and Rosas (2009). Note: The table reports the effect of
participation on the likelihood of being employed, having a high quality job, and average labor earnings. Job
quality is measured by whether the program promoted the integration into a formal job as defined by receiving a
contract and/or receiving health insurance. Estimated impacts are expressed in percentage changes

19
 Box 1: Promoting Entrepreneurship among Youth in Uganda: NUSAF
Youth Opportunities Program (YOP) was launched by the Government of Uganda in 2005 as a component of
the Northern Uganda Social Action Fund (NUSAF). The YOP currently provides trainings to unemployed
youth through vocational skills, trade skills, leadership abilities, community reconciliation, and conflict
resolution. The program is targeted to the most vulnerable unskilled youth (aged 15-35 years old) who are
unemployed or under-employed. The Program covers 29 of the most vulnerable districts of Northern Uganda,
facing low access to education and health services, physical insecurity, political instability, and geographical
constraints to reach the area of commercial activities.
The vocational trainings focus on skills that are relevant to start small business. The youth are asked to gather
into small groups and identify a common vocational skill of interest, a vocational training institute, and apply
for cash transfer up to USD 10,000. The cash is directed to a community bank account. These funds are used to
enroll in vocational training, buy training materials, and provide tools and start-up costs to start trading after
graduation. Other activities offered are life skills (family/kin support, self-esteem, depression & stress
management, and self-reported health) and psychosocial counseling, and monitoring services through the
provision of additional payment assigned to groups to hire a monitoring advisor. The advisor is expected to
provide guidance on monitoring services in order to improve the capacity, and maintain empowerment to youth.
The World Bank is currently supporting the evaluation of this program.
Preliminary results show a positive impact of the YOP program on Vocational Training and Business Inputs in
the beneficiaries as opposed to the control group. Nearly 80% of those receiving the cash transfer used the
access to capital to enroll in vocational training and they spent also more on business materials. Beneficiaries
were more likely to be doing skilled work and had 50% higher net incomes.
Furthermore, the program has caused a positive impact in the participation of youth in the number of group
memberships (35%) and in social support (43%). A different evaluation reports modest reductions in alienation,
with measures of social cohesion and community participation improving by 5 to 10% as well as a 50% fall in
male aggression and disputes with authorities among males. It is though unclear whether these improvements
result from the employment and earnings improvement or other program impacts
For gender disaggregated impacts, the impact of the YOP total profits increased in 52.3% for men and 18.8%
for women. Returns on investment were registered as 2.9% per month or 35% per year.
Sources: Bigirimana and Namara (2010) and Muzi et al. (2011).

6 Dealing with Limited information

Various programs can address problems related to the lack of information. Counseling and
job-search assistance can help individuals make decisions about where to work and improve
their chances of finding a job that meets their skills profile. Intermediation services can lead
to better job-matches if workers (particularly those is less develops social networks) have
better information about available vacancies and employers better information about potential
applicants. Skills certification services, on the other hand, provide information to employers
about the skills that a given applicant really has—information that is particularly valuable in
the case of first-time job seekers.16

6.1 Counseling and job-search assistance

Frequently, workers lack information and confidence on how to search and find a job. Job
search assistance and counseling activities are core employment services and include the
provision of information on conditions and vacancies in the labor market, the skills and
qualifications in most demand and advice on professional careers. In addition, job search
assistance and counseling may also include seminars on motivation, on how to search for a
job, conduct interviews and approach employers. Often it also extends to advice on

16
Kluve and Sanchez-Puerta (forthcoming) conduct a selected country review and take stock of the main design
and implementation features of employment services in developing country contexts.

20
vocational, social and medical counseling. Career guidance is especially important for youth
to assist in the choice of a specialization, to inform students of the alternative employment
prospects, and to inform their eventual labor-market choices. These services often provide the
first entry point in the search for employment of the newly unemployed. Therefore, they have
an important formative role in the labor market re-integration efforts of the unemployed. They
provide a point of reference for the unemployed during their job search activities and help to
enforce individual action plans and further mutual obligations designed to activate the
unemployed.17 Anecdotal evidence from developed countries shows that job search assistance
and counseling helps individuals obtain information about education, training, and alternative
job opportunities, in making other employment services more demand-oriented, and in better
targeting expenditures for other employment services. It also ensures that individual decisions
are based on self-assessments and in labor market information, thus reducing information
related market failures.

Job-search assistance and counseling services have proven to be effective in promoting

employability and earnings of beneficiaries as they improve the efficiency of job matches.
Job-search assistance and counseling services can contribute to productivity by supporting the
unemployed in finding the right job and embedding them into production networks that reap
their full potential. International evidence shows that intensified job search assistance for
unemployed increases their employment probabilities and often labor earnings. Although the
evidence in developing country settings is weaker, a study for Romania shows also an
increase in employability due to job search assistance.18 These programs tend to be more
effective also when targeted to the unemployed workers with low hiring probabilities and,
among these to the long-term unemployed.19 Furthermore, evidence also suggests that these
programs tend to be more cost effective when used earlier in the unemployment spell, as they
avoid beneficiaries becoming long-term unemployed.20 Especially in developing and
transition economies, career guidance services can increase the efficiency in the use of scarce
education and training resources.21 Although the evidence is still very scarce, counseling can
significantly strengthen the effectiveness of the job search. 22 Often, in OECD countries and in
countries with high institutional capacity, job search assistance is combined with monitoring
of the search behavior, and sanctions to increase its effectiveness. However, in existing
evaluations it is difficult to disentangle causality.23

The most common implementation challenges in developing countries relate to the availability
and qualifications of job counselors. Often these are in short supply and lack the appropriate
qualifications to effectively screen and provide information on job seekers. The staff
caseload—the ratio of clients to counselors—is a critical constraint to the performance of this
function in most countries (see Figure 8). This is an important biding constraint given the
increasing importance of establishing customer-orientated high quality services, based on
17
See the Activation and Graduation background paper by Almeida et al. (forthcoming).
18
Rodriguez-Planas and Jacob (2010)
19
See Calmfors (1994), Martin and Grubb (2001) and Thomsen (2009) as well as meta studies by Card et al.
(2010) and Kluve (2010)
20
See Evidence by Kastoryano and van der Klaauw (2011) and Wunsch (2010).
21
See Kuddo (2009)
22
See Gorter and Kalb (1996) for evidence for the Netherlands. They show that when counselors hold longer
interviews with participants on the job search progress, the number of job applications increases.
23
See Martin and Grubb 2001) and Card et al. (2010) for a discussion. For a analysis of job search experiments
in the USA involving enforcement of job search rules and job finding services see Meyer (1995). A sanction may
be a reduction of unemployment benefits. For evidence for Germany see Boockmann et al. (2009), for the
Netherlands see Van der Berg et al. (2004), for experimental evidence from the Danish activation program see
Graversen and van Ours (2008).

21
individualized counseling and tailor-made. In addition, the upgrading of skills, competence,
and motivation among counselors is another important area of reform. Ongoing training is
especially critical for high skilled counselors, working in different specialized areas yet,
through job rotation, also able to acquire broad experience in the longer term. Staff also needs
to be proficient in the evaluation of what are the most biding constraints to employability.24

Figure 8: Staff caseload in some ECA and MENA countries

Source: Kuddo (2009).

Limited budgets together with the restricted coverage of these services in contexts of high
informality are also important challenges. Job search assistance and counseling services are of
limited use in contexts of high structural unemployment and constrained labor demand. The
activity of job counselors is also likely to be more effective in contexts of large labor demand
when there is significant variation on the skills demanded by the labor market. This raises
concerns on their effectiveness in many developing countries where many labor market
transactions are informal and filled based on the applicant’s networks and friends.
Furthermore, many jobs reside in the informal market and are beyond the reach of local
employment offices.

Looking forward, while it is essential to establish customer-orientated high quality services,

based on individualized and tailor-made counseling, grouping clients by major constraints on
employability is a promising way to improve cost effectiveness of these services, especially in
countries with low capacities. This is best practice in high capacity countries, where job
assistance and counseling centers tend to be full service centers. Probably the best known
example is the UK Job Centers Plus, which offers a range of services, including career
counseling, training or education program placement assistance, job matching, labor
exchanges, and other related services (see Box 2).

While private service provision may entail greater efficiency,25 a good regulatory framework
with performance-based contracts may be needed to avoid the tendency of “creaming off” for

24
See Betcherman et al. (2012) for Turkey.
25
Pro Empleo in Peru operates through a network of labor information centers managed by the private sector,
including NGOs and religious centers. Many countries in Eastern Europe have already started this trend with the
ultimate objective of reducing budgetary pressure while increasing economic efficiency. Interestingly, empirical

22
the hardest to serve and to promote the accountability of the service providers. In many
developed countries, the contracts with private providers typically include a performance-
based element providing placement incentives for the service providers.26 In order for such
performance measures to be effective, they must use a limited number of clear and
understandable targets, have staff commitment/buy-in to the targets, have simple
administrative procedures, and have fair and transparent procedures for assessing and
rewarding good performance.27 Countries where providers are incentivized with well-
designed incentive contracts tend to observe better results in the placement of the trainees and
avoid creaming-off.

Advanced MIS and M&E systems complemented with high technical staff are necessary
ingredients for developing more effective employment services. Limitated institutional as well
as data capabilities, the complexity of IT systems and reduced monitoring and evaluation are
further challenges to be tackled. Employment services face increasingly tight public budgets
as well as of modern ICT technology. Furthermore, monitoring systems are almost
nonexistent and only a handful of programs have evaluated rigorously. 28 Planning and
decision-making in the most effective employment services should be supported by advanced
management information systems, based on unified registries and producing real-time data for
managers. The labor market monitor pilots in Germany are a recent “innovation” in this field,
and look for promising ways of diagnosing current and near-future skills needs.

Box 2: Piloting the “One-Stop-Shop” Model in Transition Countries

Azerbaijan and Bulgaria are two examples of one stop shops in transition countries. In Azerbaijan the local
employment office (LEO) at Sumqayit has recently started (June 2008) to provide more client-oriented services
to jobseekers based on the new model, with less bureaucratic barriers and facilitation of self-help. The concept
in Sumqayit foresees that all advisors of the LEO offer their services in an open access area in a large room on
the ground floor. An area with a self-help desk, internet access, information material about professions, job
vacancies, and companies in the region will encourage and facilitate independent job search. If needed, a head
advisor will refer the client to specialized advisors, depending on his/her individual needs. The staff at the
Sumqayit office comprises specialized advisors in addition to the head advisor, an advisor on benefits, a legal
expert and a psychologist. Two advisors are qualified for providing professional guidance. The office also
provides sufficient capacity for working in a systematic way with employers: one head advisor and two
advisors work with employers; one coordinates between the service for employers and the service for
jobseekers. The new concept also includes group counseling, services for specific target groups (e.g., persons
with disabilities), and close cooperation with employers (e.g., round tables).
In Bulgaria, local employment offices also operate on the “one-stop shop” model with front offices that handle
routine initial queries (and requests to certify unemployment – needed for social assistance applications), and
“back offices” for higher-end services for jobseekers and employers. Client orientation is strong, and “clients”
are profiled for skills, education, qualification, and needs via an interview with a trained interviewer who
immediately enters the data into the MIS database of jobseekers. The local office and the job seeker also jointly
fill out a tailored “mutual obligations” personal plan to signal co-responsibility for finding a job. The clients
then access a range of activation services, including: (a) training (differentiated by skill level, ranging from
basic literacy/remedial education to low-skill vocational training to higher skill vocational education and
training; (b) counseling and job-readiness advice (for the hard-to-serve); and (c) intermediation and job
brokerage services, etc. The centers interface not only with jobseekers but also with employers and offer
employer services like holding recruitment events. Automated registries/databases and info systems are tools of
the trade and greatly facilitate case management and tracking.
Source: Kuddo (2009).

evidence from the Hartz reform in Germany fails to show that the outsourcing of placement services to the
private sector has produced statistically strong results for the prospect of entering employment.
26
For example through a bonus which is a function of the placements.
27
See Kavanagh (2007).
28
See Kuddo (2009).

23
6.2 Intermediation Services
Labor market intermediation services provide information on and bring together job openings
and job seekers. Intermediation services have proven to be effective in improving matching
efficiency especially when search frictions are paramount and information on job vacancies
scarce. Countries facing high structural unemployment and constrained labor demand limit the
usefulness of intermediation services. Especially in developing countries, where many labor
market transactions are informal and filled based on the applicant’s networks and friends and
out of the reach of the public employment services.

Internet enabled social networks and job matching services have strongly influenced the way
vacancies are posted and job searches are conducted in developed countries.29 So far, evidence
for unemployed with higher education hints at improved matching quality and greater job
mobility for job intermediation through online platforms.30 Simply providing information on
vacancies and job seekers does not solve the fundamental problems posed by asymmetric
information, adverse selection, and other imperfections of labor markets31. Instead they
generate demand for institutions that coordinate the actions of job-seekers and employers and
disclose hidden information. In many countries, public and private service providers coexist to
address this demand. However, they usually serve a different clientele. While public
employment services, in practice, target the disadvantaged and the long-term unemployed,
private agencies tend to focus more on the employed, skilled, and white-collar workers.32
These services are widely used in OECD countries and to some extent in a few globalized
higher wage sectors in developing countries. Even though these services are considered the
most cost-effective type of support to the unemployed, their benefits are not easily accessible
in developing countries that also suffer from job search frictions.33

Looking forward, technology-based information sharing is a promising way to foster cost

effectiveness of these services and broaden the outreach of these services. Instead of physical
job offices, use of internet, radio, or cell phone text messaging may provide an opportunity to
offer employment services across larger areas. SoukTel provides a platform for firms and
potential employees to connect via text messages in places where young people are far more
likely to have a cell phone (approx. 85%) than internet access (approx 35%), such as Somalia
and Palestine. There is no evidence to date involving a control group. However, SoukTel’s
growth experience and financial self-sustainability make it an attractive option. Programs to
support the job-search and matching process should not discriminate based on the legal status
of the firm. Excluding the informal sector will drastically reduce the number of jobs
advertised. For example, private training providers in the Life Skills Education for
Employment and Entrepreneurship34 program in Indonesia train, certify, and match
unemployed youth with domestic and overseas jobs in either the formal or informal sectors
(see Box 3 below).35

The success of employment services deeply depends on their capacity to reach out to the
employer’s needs and in how well do they meet their needs. Understanding the needs of
employers and working to solve their problems will forge long-term partnerships. This
involves establishing and developing good relations with employers and the gradual
29
See Nakamura et al. (2009) and Kroft and Pope (2010).
30
See Bagues and Labini (2007).
31
See Autor (2009).
32
See Betcherman et al. (2004) for developing and transition countries and Kluve (2010) for Europe.
33
See Stigler (1962).
34
See World Bank (2009b).
35
See also World Bank (2009a).

24
transformation of the employment agencies into a genuine service enterprise.36 This is
especially challenging in developing countries where most of the jobs are in household, micro,
and very small firms. The Austrian PES are a best practice example in the provision of these
services. They provide specialized free services to employers, including referrals of suitable
candidates for job vacancies, assessment of staff qualification needs, grant schemes for job
training, customized solutions for mass layoffs, and information and financial support for
disabled employees. There, job counselors keep in close contact with firms, frequently
requesting vacancies notifications.

The development and wide adoption of more complex information systems and exploring
innovative ways to reach clients will likely maximize the performance of counselors and or
the information services they provide. For instance the most advanced counseling services in
Eastern Europe regular use of ICT tools for clients—with databases for vacancies and
jobseekers, self-service systems—as well as for the internal communication of the staff
(country-wide intranet, databases, email system).

ICT and electronic services new technologies have improved significantly the delivery of
these services freeing up resources to the disadvantaged individuals who cannot find jobs
through the electronic services. Several technological innovations allow job seekers and
employers to contact each other through self-service systems without the intervention of
officers. Moving away from face-to-face interactions and towards the self-service facilities for
jobseekers and employers is an alternative option to combat staffing and budget constraints. In
EU countries, many services are now delivered through the use of ICT including call centers
where employers can notify vacancies and jobseekers can get help. There are also large
advances in internet access for registration systems, such as posting CVs, benefit claims, and
job search. New ways of transferring data have been developed like the mutual sharing of
CVs and Job Vacancy notifications between PES and private employment services.
Nationwide vacancy registers easily accessed via work stations in local labor offices or online
over the internet are also a major improvement in service delivery. In many ECA countries,
the work stations are set up in public centers—including shopping centers, libraries, and
schools—to overcome the still low internet penetration rates in households.

6.3 Skills Certification and Provider Accreditation

The certification of skills solves an important information problem in the labor market as it
makes the quantity—and the quality—of individual skills observable by potential
employers.37 Often workers have the right skills, but it may be difficult to communicate these
skills to potential employers. The most commonly used signals of a person’s employability
are whether he/she has held a job, or holds a school or training institution certificate. Whether
a person acquires skills through formal or informal mechanisms, the fact that he or she has
certain abilities can often be measured against a generally accepted standard. One might argue
that skills certification is superior to certification of completion of a level of schooling or
training, as it measures what the person actually learned and is not concerned about how or
when such skills were acquired.38 National qualification frameworks, which embed the
certification of skills, are being increasingly developed or adopted in over 100 countries. They

36
See Kuddo (2009).
37
See Crawford and Mogollon (2010). Skill Certification describes the processes of assessing, validating and
recognizing learning outcomes, which lead to a qualification, see Cedefop (2009a).
38
See Bouder et. al. (2008) for the European perspective.

25
aim to create a nationally accepted single framework of qualifications and to connect
education systems with each other and to the labor market.39

Another important intervention to improve the signaling of skills in the labor market is the
accreditation of the training providers. Accreditation leads to a recognized quality
classification of the training provided. Throughout the developing world, individuals often
spend significant resources on job-related training that is delivered by unregistered, small
scale, and often informal institutions.40 Even with good access to information about the
benefits and costs of training, individuals may have difficulty identifying the right training
providers. In the absence of information to systematically compare the content and quality of
the courses offered, individuals may end up with low-quality providers or with providers who
are not good matches for their needs. Even though in the long run the market should separate
good providers from bad providers, the process in the short run can be long and costly.
Moreover, there may not be perfect competition and free entry in the training market, perhaps
because of inadequate regulations. Having a sound national system of training providers
accreditation may provide information to individuals to make better decisions about which
institutions to attend.

Box 3: Souktel: Innovating through IT in Job Intermediation

The Palestinian-Canadian NGO and mobile service Souktel has developed a SMS-based "job matching"
application. Souktel provides job seekers with real-time labor market information and links them up directly
with employers through a simple text message-driven process. Labor market information is hard to find in
developing coutries, but Souktel’s JobMatch service connects thousands of job-seekers with employers. By
giving users real-time information on their mobiles, JobMatch levels the playing field of access to jobs and
employees, helping break cycles of poverty and unemployment. Soutkel improves the access to information, it
is location-independent (rural areas with lacking infrastructure are empowered) and time-independent, avoids
long costly phone calls and does not require an internet connection. The company currently runs JobMatch
services in Palestine, and helps partners run their own JobMatch services in Morocco and East Africa. In 2007,
Souktel rolled out its first JobMatch service across Palestine, in partnership with Birzeit University and three
other leading Palestinian colleges. Funded by the World Bank through late 2009, the Palestine JobMatch
service now helps more than 6,000 young job-seekers connect with 200+ employers.
Source: www.souktel.com

While to date, there is little evidence about the effectiveness of skills certification in
increasing the access to employment, developing countries are increasingly establishing skills
certification schemes. Successful certification likely reduces transaction costs for firms,
improves labor market matching and ultimately increases firm productivity. 41 Certification is
also valuable to workers as it promotes the access to national labor markets, by fostering
geographic and occupational mobility. Skills certification can improve labor earnings,
enhance self-esteem, and augment psychological well-being but the evidence is still very
limited.42 Most of the OECD countries have established some type of skills certification
schemes. For instance, in Germany the retraining programs leading to complete, certified
vocational degrees are typically the most successful at increasing participants’ employability
and earnings.43 An accredited certificate or degree received when participants complete a
program thus, increases the external value of the program, while likely also increasing the

39
See Allais (2010).
40
See Van Adams (2008), for example for Sub Saharan Africa.
41
See Crawford and Mogollon (2010) for a review of the literature.
42
See Fertig, Zeitz, and Blau (2009).
43
See Kluve et al. (2010) and Lechner et al. (2011).

26
subjective value for the participants and the probability that they will actually complete the
course. Many developing countries are now starting in the creation of skill certification
systems. In markets with extensive informal skills acquisition, such as the informal
apprenticeship system in many Africa countries, certifying skills—as opposed to a completing
a training course—may be particularly useful. But the trend is probably more acute in middle
income countries. For example, Chile has been experimenting with certification of training
programs within Chilecalifica.44

While to a limited degree in many countries national qualification frameworks led to an

increase in the number of certifications, there is little evidence on impacts of design and
implementation to guide policy makers.45 While many frameworks have been only developed
recently, especially the lack of success stories in contrast evidence of frameworks being
unsuccessful in achieving their objectives or struggling with implementation may question
this widely embraced policy. Implementation and design can though be very diverse, for
example in European Countries national responses to quality assurance of certification span
from highly centralized, standardized and mainly run by public qualifications authorities to a
self-regulated approach in which the training provider awards the qualification and ensures the
quality of the certification process.46 47

The evidence on the impact of provide accreditation, in promoting employability has not been
sufficiently measured yet. While many countries have provider’s accreditation systems in
place, an increasing number of countries are implementing them, for example Turkey’s
national qualifications framework.48 A comprehensive analysis analyzing the income effects
of IT certifications in the US suggests wage premia between 14 and 46% which though vary
by type of certification, job function, industry, and number of certifications held.49

The need for provider accreditation has been highlighted by the evidence found in some
studies on Africa. The evidence shows that private sector providers are more successful in
contrast to public provision in providing marketable and relevant skills as well as due to their
flexibility and dynamism more adaptable to rapid labor markets changes where. Furthermore,
the involvement of private providers can support scaling up countries’ strategy. 50

In low income settings, a major implementation issue in skills certification is to link existing
traditional and often informal apprenticeships to formal training systems. Low training quality
of training and missing links to the formal training system are the mayor challenges of
traditional training systems in Africa. But this comes also at a cost. The linking should though
44
The ChileCalifica Lifelong Learning and Training project uses a set of tools, including a qualification and skill
award system, technical and vocational pathways, skill training, quality assurance of technical and vocational
education, and information systems for education and training supply. The system is regulated under the Chilean
quality assurance standard and contains a catalog of some 1,000 competencies for 315 occupational profiles in 12
sectors of the economy. Since 2003, more than 29,000 workers have been certified according to these
competency standards, and with the National System for Certification of Labor Competences, an 161
institutional umbrella was established for the different types of education (academic, vocational, and technical)
and training modalities (formal, informal, preemployment, and enterprise based). See Almeida et al. (2012).
45
See Allais (2010).
46
See Cedefop (2009a).
47
The most successful qualifications framework is the Scottish one, where the framework is used by a national
career guidance program and thereby, improving communication between education and labor markets.
Nonetheless the Scottish model can be expected to be difficult to replicate due to its specific institutions and its
longer-run incremental reform approach (see Allais, 2010).
48
See Betcherman et al. (2012).
49
See Quan, Dattero and Galup (2007).
50
See Betcherman et al. (2012) for Turkey’s ISKUR.

27
not destroy the incentives for firms to finance general skills training. For example, if the
certification leads to recognition of a worker’s informally acquired skills by formal
institutions before the end of an apprenticeship, firms may be less motivated to finance
apprenticeship training.51

Evidence from OECD has shown that the implementation of a national qualifications
framework is better implemented through a sequence of small reforms as in Scotland and
Ireland, rather than through radical changes. Countries, like South Africa, which followed the
latter approach, have had severe difficulties. Furthermore, incremental approaches minimize
the probability that ideologies will intervene, and consequently can avoid polarized positions.
Also setting up partial frameworks on levels and sectors, as implemented in Scotland, can
then provide the foundation of and confidence in a comprehensive framework. 52 In addition,
the often pursued approach of copying the introduction and development of national
qualifications framework from other countries needs to consider any existing evidence on
success or the lack thereof and must be based on a full assessment of the implementation
aspects considering country-specific differences.53

Thus, the evidence suggests that developing countries need to focus on policy priority and
sequencing. Successful countries have approached the introduction of a framework as means
to raising institutional capacity rather than aiming to substitute the latter. 54 In Scotland strong
educational institutions and professional associations have headed the framework.

A social dialogue involving the full range of stakeholders is essential to foster acceptance of
the qualification framework.55 A major challenge is making plans public and engaging the
relevant stakeholders in an open discussion. Open consultations have been adopted in the
development of the Irish NQF and compromises have been an important contribution in the
NQF in New Zealand are important. A contrary approach may well lead to a lack of
acceptance and credibility, whereby qualifications are not used.56 Especially employers need
to be convinced of the framework’s usefulness to play a leading role in making sure the
framework is used to certify workers.57

Skills certification, provider accreditation and their quality assurance frameworks should
avoid imposing detailed and complex rules creating a costly administrative and bureaucratic
process, which may reduce the incentive to join the framework and use the qualifications.58
Sometimes the adoption of the outcomes approach acknowledging multiple tracks to acquire a
qualification may lead to a very tight framework with very detailed requirements hurting the
aimed at transparency and resulting in over specified and narrow qualifications.59 In addition
inconsistencies in the standards to assess skills, their use and communication can backfire,
undermine trust in the established system and ultimately the recognition of the qualification.60
The successful Scottish framework adopted a flexible strategy in applying the outcomes
approach.

51
See Nübler (2009)
52
See Young (2005).
53
See Allais (2010).
54
See Allais (2010).
55
See Allais (2010).
56
See Young (2005).
57
See Betcherman et al. (2012).
58
See See Cedefop (2009a,b) and Allais (2010).
59
See OECD (2005).
60
See OECD (2005).

28
In high income settings quality assurance in the certification process is increasingly targeting
learning outcomes. Quality assurance in training policies has focused mostly on inputs, such
as the content and the delivery of training programs and its administration. The increasing
shift to an approach focused on outcomes, not inputs, requires ensuring that the output
(learning and skills acquired) meets some given specified standards. Thus the movement
towards quality assurance should focus on the on assessment, validation and recognition of
learning outcomes.61

International experience suggests that moving forward there should be some self contribution
for those who can afford to pay for certification. For example, while larger firms and more
skilled workers could pay for their own skills certification, this may be more difficult among
small and medium‐sized firms. For the latter, as well as for the unemployed there is greater
room for the publicly financing of the skills certification. 62

National qualifications frameworks should contribute to ensuring that the content of training
is linked to employer needs. Stressing competency- based training models and engaging
employers and workers in setting standards is very likely to link the training offered to the
market demand.63 For example, to promote closer links with employers, provider accreditation
could use ISO‐type quality standards. This approach was taken in Argentina. There within the
implementation of its competency‐based qualifications and training system, offices in line
with the requirements of ISO 9001 raise the quality in training institutions and local
employment.64 Evidence suggests that policies that do not involve or engage employers will
lead to qualifications that do not meet their demand.65

Transnational meta-frameworks are recent innovations aiming at supporting the compatibility

of qualifications across countries, the recognition of qualifications and periods of learning and
ultimately labor market mobility across countries. The European Qualifications Framework
focuses on learning outcomes and is meant to ensure the transparency of education systems to
employers, workers, authorities and providers by acting as a translation device between
different qualifications 66

7 Providing Access to Capital

The most important policy dealing with capital constraints are within the group of
“entrepreneurship promotion programs” combining access to finance with many other
services including advisory services and mentoring. The curricula of training programs cover
a variety of subjects from business skills tailored to self-employment activities and financial
literacy to entrepreneurial and life skills. The access to finance programs often involve micro-
finance organizations and lending programs (like FINCA, BRAQUE or ACCION
International) and can have added modules of training on business skills or financial literacy.
The advisory services provided by these programs can include mentoring, counseling or
assistance with business formalities. Recently, micro-franchising programs are yet another
promising—yet unevaluated - program, typically providing beneficiaries with comprehensive

61
See Cedefop (2009a).
62
See Betcherman et al. (2012).
63
See Betcherman et al. (2005).
64
See Betcherman et al. (2005).
65
See Allais (2010).
66
See Cedefop (2009a).

29
support to enable them to replicate an existing and proven business model, often with the help
of training, access to finance, networking, mentoring and many other components.

The target groups for these programs are almost as diverse as the programs themselves. Some
programs target youth, while other programs (Start and Improve Your Business, ILO or the
programs under Youth Business International) target potential entrepreneurs who are out of
school, or existing entrepreneurs (Business Edge, IFC). Beneficiaries may be living in rural
(TechnoServe) or urban areas (IRC). Some of them have special focus on women (SEWA), or
other vulnerable groups such as street children (Street Kids International).

Although the evidence is still scarce, preliminary results of a meta analysis of impact
evaluations of entrepreneurship promotion programs shows that overall, “comprehensive”
programs combining access to credit and training tend to perform better. In particular,
entrepreneurship training complemented with financial support improves labor market activity
significantly more than either of those two components delivered separately. The Youth
Opportunities Program (YOP) component of the Northern Uganda Social Action Fund
(NUSAF) is an example of one such comprehensive program that has had significantly
positive results. Targeting the most vulnerable unskilled youth (aged 15-35 years old) who
are unemployed or under-employed in 29 of the most vulnerable districts of Northern Uganda,
YOP required youth to organize themselves into groups and identify a common vocational
skill of interest. The program then provided vocational training relevant to starting a new
business, life skills and psychosocial counseling, accompanied by the opportunity to receive a
cash transfer to finance this training as well as advisory services. As a result, the average
beneficiary was nearly 100 percent more likely to be engaged in skilled employment, and saw
hours spent on market activities increase by roughly a third, relative to non-beneficiaries.
Profits increased by nearly 50 percent on average. Modest improvements in social cohesion
and community participation were also observed.

The effectiveness of programs is influenced by the context in which they are implemented.
Programs implemented in countries with a large agriculture sector and low education levels
appear to be more successful. Financing works better in low income and lower middle income
countries than upper middle income countries, and when the financial costs of starting a
business are high, interventions without financial support are not as effective.

8 Stimulating labor demand

While the training programs discussed above enhanced labor supply and the employment
services improved the functioning of the labor market, other programs have focused more in
stimulating labor demand. This section discusses two programs that are designed with the
objective of supporting the creation of new jobs or the maintenance of existing ones. Wage
subsidies and public works fall clearly under this group.

8.1 Wage subsidies

Many countries have set-up these programs to provide incentive to employers to hire (or avoid
dismissals). Subsidies come in different forms: direct payments or tax-exemptions; targeted
to employers or workers; targeted to any worker or only new hires; and with or without
conditionalities on the total number of employees and/or the wage bill. The evidence about

30
benefits and costs is mixed. 67 Most program evaluations agree that a lower wedge between
the total cost of labor and take-home pay can both reduce dismissals and stimulate hiring.
This has been successfully implemented in Morocco with Idmaj—a youth wage subsidy—in a
context of high taxation of formal labor. In contrast, the evidence in other countries has been
more mixed. In Slovakia neither men nor women benefited from higher employability
following the take up of wage subsidies. Evidence in Poland is also unfavorable for males
showing that beneficiaries of the wage subsidies are less likely to be employed, possibly due
to a stigma effect. Furthermore, wage subsidies seem to work well when targeting welfare
beneficiaries. For example, evidence from Argentina shows that beneficiaries of wage
subsidies seem to have exerted more effort in searching for jobs than before and/or they were
perceived as more trustworthy than other similar workers. This was true especially for women
and young participants.68

Even though the effects on social cohesion have not been rigorously tested, there is likely a
strong social element to these programs. Subsidies can be especially designed to get the long-
term unemployed or disadvantaged workers into the labor market, and governments often use
this instrument even if the job lasts only for a limited period of time, and at the expense of
unsubsidized workers.

The main concern is that it is difficult to control abuse and subsidies can end-up financing the
salaries of workers who would have been hired anyways. Wage subsidies are frequently
linked with several indirect and negative effects. These include, placing a worker in a firm
that would have hired the worker also in the absence of the subsidy (deadweight costs),
subsidized workers displacing unsubsidized ones (displacement costs) and employers
substituting one skill-class of workers for the subsidized one (substitution effects). These
indirect costs can be substantial and have been estimated to reduce up to 90% of direct
employment effects. They are especially large when wage subsidies that are targeted at all
employed workers.69 Therefore, program cost effectiveness seems to be higher when wage
subsidies are targeted to a small subset of the population. Moreover, there is evidence of
positive (dynamic) effects on the ability of beneficiaries to improve their labor market
opportunities over the medium-term.

Successful wage subsidies require significant administrative and institutional capacity as well
as tight targeting and monitoring. Design, tight targeting and implementation are decisive in
determining cost-effectiveness. Beyond minimizing “dead-weight” and “displacement
effects”, a good targeting avoids disincentives for workers to keep investing in their human
capital. Fine targeting of wage subsidies to specific disadvantaged and most vulnerable
subgroups in the population is likely to reduce negative effects. However, when more finely
targeted programs could be more stigmatizing potentially affecting program take-up.70

The costs of effective wage subsidies, however, should not be underestimated. Meaningful
effects may require sizable reductions in the contribution rate, which implies substantial
budgetary transfers or an increase in the unfunded liabilities of the social security system.

67
Betcherman et al. (2004) find that most evaluated wage subsidies do not improve employment or earnings of
participants. In contrast, Calmfors et al. (2001) reviews Swedish evidence and finds a positive impact of hiring
subsidies on future employability.
68
See Galasso et al. (2004).
69
Calmfors (1994) and Martin and Grubb (2001) review evaluations for developed countries and summarize the
magnitudes of deadweight and substitution effects.
70
See Burtless (1985) and Woodbury and Spiegelman (1987) for a discussion of stigma effects in OECD
countries.

31
Furthermore, it is also important to consider the tradeoffs between providing this type of
assistance which tends to focuses more on formal sector workers and can thus be more
regressive. In addition, subsidies are often subject of fraud and corruption, especially in
countries with low implementation and enforcement capacity. Depending on design, further
disincentives might arise, for example, to reduce working hours or shifting from a shift from a
full-time to a part-time position in order to receive the transfer.71

However, the evidence suggests that subsidies targeted to workers lacking work experience,
often youth, can be an important policy tool. The objective of these subsidies is not to create
permanent employment but to allow young workers/first time job seekers to gain experience
and increase their productivity. Indeed, the expected productivity of these workers can be
below the minimum cost of labor or reservation wages—they can be a risky choice relative to
workers with experience. The subsidies, in this case, would be targeted to workers (not
employers) and could take the form of social security vouchers.

Establishing limited durations, and investing in M&E systems may also be effective ways of
raising program success.72 Having a limited duration has proven to be important way to
reduce potential “dead-weight” losses. However, a balance is needed since establishing a long
enough period is important to allow for the investment in human capital and acquiring on the
job training. In light of the relevance of targeting, developing monitoring and evaluation
(M&E) systems and measuring longer-run program results have also proven to be essential.

Alternative options to consider are targeted employee based subsidies linked to others active
labor market programs such as training.73 Targeted employee-based subsidies linked to other
active labor market programs such as training and job counseling can be considered to
improve the employability of low-income unskilled workers over the medium-term. The focus
of these programs would be on helping find jobs to the already unemployed—particularly
vulnerable groups such as youth and/or unskilled workers. This is the case of the Jovenes
programs that have been implemented successfully in several Latin American countries (see
training note).

71
See Immervoll and Pearson (2009).
72
Limited period hiring subsidies have had positive impacts on workers employability for example in Sweden,
see Sianesi (2008), and Germany, see Jirjahn et al. (2009) and Bernhard et al. (2008). In their review Martin and
Grubb (2001) as Sianesi (2008) for Sweden find hiring subsidies to be more effective than public training
measures or public works, the impact of programs though varies depending on the design.
73
For evidence on the positive impact of these combined programs see Katz (1996) and Cockx et al. (1998).
Robalino and Sanchez-Puerta (2009) also provide a review.

32
Figure 9: Duration and coverage of wage subsidies around the World

Source: For the Argentina ProEmpleo see Galasso et al. (2004), for the German EGZ see Bernhard et al. 2008,
for Hungary see O’Leary (1998), for Sweden Carling and Richardson (2004), for Slovakia van Ours (2000), for
the South Africa Youth Wage Subsidy see Schöer and Rankin (2011).
Note: Maximum subsidy values and durations have been used.

8.2 Public works

Programs to create jobs for low income/unskilled workers through Public Works are quite
common in middle and low income countries, and proved important to mitigate the impacts of
the recent financial crisis.74

Public works programs have proven to be an effective safety net but their effect on
beneficiary’s employability and earnings remains weak and undocumented. Public works
programs have proven to be effective SNs to address the vulnerability of the poorest to
income disruptions, especially during crises. In low income countries, they have been
especially successful as a self-targeted tool (through low wages).75 The examples in
Colombian Empleo en Accion, the India NEGRA and the Argentinean Trabajar programs,
clearly illustrate the significant increases in the labor supply of participants together with
income and consumption smoothing during participation.76 For instance, in India, the NEGRA
contributed especially to increase female labor force participation ultimately reducing the
staggering gender gaps in the labor market.77 Early evidence from the Ethiopia PSNP also
showed improvements in the living standards during the program.78 In spite of this, there is no
strong evidence that public works help program participants get a job after finishing the

74
See Banerji, Newhouse and Robalino (forthcoming).
75
See Del Ninno et al. (2009)
76
For Colombia see Attanasio et al. (2012), for India Datt and Ravallion (1994), Azam and Dasgupta (2011), for
Argentina Jalan and Ravallion (2003) and Ravallion et al. (2005).
77
See Azam and Dasgupta (2011), Ravi and Englar (2009) and Liu and Deininger (2011). The NREGA is
considered the largest workfare program in India’s history and in the developing world. There is no systematic
evidence on the earnings and employment effects after leaving the program.
78
Ethiopia established the Productive Safety Net Program in 2005, of which the primary component was a rural
public works program. This is one of the larger safety net programs in Africa, reaching around 18 percent of the
labor force at a cost of 4 percent of GDP. See Devereux et al. (2006) for a discussion. 60 percent of participants
were less likely to sell assets to buy food in 2005 and 30 percent enrolled more of their children in school. Nearly
50% of the beneficiaries surveyed stated that they used healthcare facilities more and mostly attributed these
changes to their participation in the program. Gilligan, Hoddinot, and Taffesse (2009) find that participants,
compared to similar controls, were slightly more likely to start up a non-farm business following the program but
statistically significant effects on employability remain to be documented.

33
program.79 This has been documented for both OECD countries (like Sweden) but also for
transition countries as Romania, Poland or India. 80 Furthermore, in some settings, the
program has even proven to produce a negative adverse effect on employability.81

Public works are also a promising approach in fragile states and anecdotal evidence suggests
that they may contribute to social cohesion. The popularity of public works is illustrated by
their presence in many post conflict countries. For example, in Sierra Leone, soon after the
conflict ended, a workfare program was launched to help rebuild infrastructure and provide
short term employment opportunities to poor and ex-combatants. After the conflicts ended,
public works programs have also been launched and scaled up in Liberia, Yemen, Sierra
Leone, Sudan, Guinea and Guinea Bissau. In Nepal, which has just emerged out of a decade-
long internal conflict, a national public workfare program is being designed. Recent evidence
is also suggestive that public works may boost social cohesion and social inclusion. For
example, the public works program in Serbia has shown that self-confidence and social
inclusion of the participants was strengthened following participation.82 Similarly, the
findings from Argentinean Jefes and from the Indian NEGRA are also promising.83 Some
issues in terms of design include:

 Setting wages below the minimum wage for unskilled workers to foster the self-
targeting of the most vulnerable;

 Designing more comprehensive packages, combining PWs with interventions to foster

beneficiaries’ employability immediately after the program ends. Examples of these
programs offering comprehensive packages include the El Salvador PATI program
and Papua New Guinea, providing additional technical and life skills training, or the
Sierra Leone and Liberia Youth Employment Support Programs, providing additional
integrated compulsory literacy, numeracy, and life skills training.

 Diversifying the work conditionality towards activities which are in strong demand by
the labor market. This has been the case, for example, in Argentina with the increased
emphasis on the provision of social services especially for women.

Designing more comprehensive packages, combining assistance with other promotional

activities, seem the most promising interventions to foster beneficiaries employability in the
short run. Increasingly in low capacity contexts public works are often offered as
comprehensive packages combining for example a training component or access to credit.
Examples of these programs include the El Salvador PATI program 84 and Papua New Guinea,

79
The evidence on the ineffectiveness of public works has been widely documented; see for example
Betcherman et al. (2004) and Martin and Grubb (2001) for reviews and Card et al. (2010) and Kluve (2010) for
meta-studies.
80
See Carling and Richardson (2004) as well as Sianesi (2008), who conclude in their evaluations that the closer
an policy is to regular work the better its effects for the participants.
81
See Rodriguez-Planas (2010) for Romania and Kluve et al. (2008) for Poland.
82
See Bonin and Rinne (2006).The Beautiful Serbia program combines vocational training and public works in
the construction sector for disadvantaged unemployed in Serbia and Montenegro in 2004 and 2005. They show
that the positive impact of this program is much stronger in terms of subjective well-being than of labor market
outcomes—the latter is insignificant,
83
See Galasso and Ravallion (2004) for Argentina and Gilligan, Hoddinot, and Taffesse (2009) for India.
84
El Salvador Temporary Income Support Program (PATI). This is the only country in LAC starting a new
program. PATI guarantees a minimum level of income to poor urban families and provides labor market
experience at the municipal level. By contrast with traditional income support programs, PATI funds the
participation of individuals working on projects submitted by municipalities, with emphasis on social services

34
providing additional technical and life skills training, or the Sierra Leone and Liberia Youth
Employment Support Programs, providing additional integrated compulsory literacy,
numeracy, and life skills training. Public works participants may also be linked with financial
services such as microcredit or saving accounts. In Bangladesh, the beneficiaries of the Rural
Maintenance Program are referred to microfinance institutions.85 Evidence shows that three
years after exiting the program, almost 80% were still self-employed in micro-enterprise
activities.86 Looking forward, these programs should diversify the work conditionality
activities by establishing direct links with activities that are in strong demand by the labor
market. This has been the case, for example, in Argentina with the increased emphasis on the
provision of social services especially for women. Finally, investing in better monitoring and
evaluations is also an essential tool for program success.

Figure 10: Public Works have relatively high cost per placement

Source: Rodriguez-Planas and Jacob (2010).

Note: ALMPs differ substantially in their cost per beneficiary. On the cheapest side are the employment
services (lowest cost per beneficiary and greatest outreach), providing information services to jobseekers,
giving access to trainings and other programs; job brokerage services to employers; and providing individual
case management services of individualized assistance. They tend to reach a large number of jobless individuals
and to have a low cost per placement. At the other extreme, are public works or wage subsidies typically
transferring larger income support to beneficiaries/employers.

8.3 Public services

Public and civic service, formal or informal, provides an opportunity to “play an active role in
community and national development while learning new skills, increasing their
employability, and contributing to their overall personal development”.87 Services may
include providing basic health services in public health clinics, building sustainable housing,
literacy tutoring, protecting the environment, and building small-scale infrastructure, for
example. Much less is known about programs these programs.

provision. It also comprises an innovative training component that aims to enhance beneficiaries’ technical skills
and their labor market “soft skills.” The government expects to target youth between 16 and 24 years of age
living in urban areas, as well as female household heads
85
They are required to participate in mandatory savings plans and receive training in numeracy, income-
generating skills, and micro-enterprise management. They are referred to microfinance institutions and receive
business management advice one year after exiting the program
86
See Hashemi and Rosenberg (2006).
87
See Cunningham et al. (2008a).

35
There are a few examples of Public Services programs providing temporary jobs for high
skilled workers. Korea’s public works and services program was able to rapidly scale up
during the 1998 financial crisis, reaching around 6.8 percent of the labor force at a cost of 0.4
percent of GDP. The program offered between 50 and 65 days of employment, on average,
per person on infrastructure maintenance, social service provision, and environmental cleanup
of projects. Positive features of the program included a below-market wage, high labor-
intensity, and a combination of supply-driven and demand-driven approaches in project
selection.88 Another example is the public service program Americore (US)89 and Youth
Service Canada90 that have been shown to have positive impacts on attitudes towards
education and work.

While the evidence on impacts is still very limited, it shows that these services can have
positive impacts on employability and further education as well as on civic responsibility and
self-esteem. The assessments of more than 200 international civil service programs have
exhibited an increase in work skills, career options and education as well as higher self-esteem
and sense of civic responsibility.91 While mandatory national programs as an alternative to
military service can be expensive and politically manipulated, voluntary targeted programs for
the vulnerable can be more successful.92 A quasi-experimental evaluation of Americorps (US)
to support community service showed that participants had a greater incidence of post-
program civic engagement, more positive attitudes towards employment, and a higher
likelihood of public service careers, but no significant increase in educational attainment as
compared to a control group.93 Youth Service Canada showed no statistically significant
impacts on earnings, though a positive significant impact on post-program education and
training. Furthermore, the program was regarded valuable by its participants in terms of their
personal development, especially regarding self-confidence and knowledge about finding a
job.94 In Jamaica’s National Youth Service program 60 percent of participants transition to
permanent employment or continue their studies, while only 34 percent of those not
participating.95

Public service programs targeted at youth need to last long enough be designed and structured
to generate impacts on future of the youth as well as on the communities they are working
in.96 These programs should teach young people useful and marketable skills which will be in
demand in the labor markets after their program. At the same time, they must meet their
communities’ needs and be aligned with national and community development objectives.
Accordingly, the location of such programs should depend on the situation of the target group
and the community’s willingness to participate.97 Furthermore, public-private partnerships can

88
Information on Korea’s public works program is taken from Grosh, et al, 2008, “For Protection and
Promotion”, Betcherman and Islam, “East Asian Labor Markets and the Financial Crisis”, and Subbarao,
“Financial crisis and poverty: Adequacy and design of safety nets for the old and new poor in Korea”.
89
Frumkin, P, et al, 2009, “Inside National Service: Americorps’ impact on participants”, Journal of Policy
Analysis and Management
90
Human Resources and Skills Development Canada, 1999, “Evaluation Reports Summative Evaluation of
Youth Service Canada” available at http://www.hrsdc.gc.ca/eng/cs/sp/hrsdc/edd/reports/1999-
000414/page00.shtml.
91
See McBride et al. (2003).
92
See World Bank (2005) and McBride et al. (2003).
93
See Frumkin et al. (2009).
94
See Human Resources Development Canada (1999),
95
See Cunningham et al. (2008a,b).
96
See Cunningham et al. (2008a,b).
97
See Cunningham et al. (2008a).

36
ensure effective implementation and sustainability of programs.98 Youth Service Programs
could provide additional incentives for program participation and offer post program
opportunities.99 Additional incentives such as health insurance and social services can
encourage young people’s participation. To increase post program impact future education,
training, or employment opportunities for the young participants can be identified.

The most innovative models establish bridges with existing employability programs (e.g.,
public works), involve NGOs and community-based approaches in the provision of public
social goods and services and try to reach out and responding to the needs of the most
vulnerable in rural and informal markets. One success story is the linkages of the NGO
Mobile Creches100 with the beneficiaries of a public works program in India. The program sets
up day-care facilities around New Delhi on public construction sites. This is done in
partnership with contractors providing childcare facilities and sharing other costs. For mothers
in the informal sector home-based centers and community-based programs were created by
providing training and employment to local women. In India Community-based models have
been established by Mobile Creches, the Self Employed Women’s Association (SEWA), 101 a
trade union for poor self-employed informal sector workers. In these community-based
approached employers and the community contribute to management, contribution of food
materials, training and selection of teachers.

The Home Based Care and early childhood care and development (ECCD) programs are
further examples of public works programs providing public services102. For example, the
Expanded Public Works Program in South Africa involves public social programmes such as
community-based health care and early childhood development. 103 These social programs are
also implemented in Zimbabwe and Malawi to respond to HIV-AIDS related vulnerability.104
In Yemen, public works projects address the needs of the poor and deprived in rural areas by
providing infrastructure for basic social services such as schools and health.105 Community
projects are also part of the Jefes Program in Argentina, which offer for example child or
elderly care, health program support, community and school kitchens. These services have
been unreachable for the poor. 106

9 Implementation Challenges

Although the experiences with the design and implementation of SI and ALMP programs is
mixed there is a growing consensus that costs and benefits depend on design and that a good
design needs to take into account the characteristics of the population of potential
beneficiaries as well as the economic, social, and institutional context.

There are several lessons and innovations that are worth flagging: (i) a call for better
governance; (ii) building better programs by embedding them in a portfolio of interventions;
(iii) a need for well-designed contracting and payment systems, beyond public vs. private

98
See Cunningham et al. (2008a).
99
See Cunningham et al. (2008a).
100
http://www.mobilecreches.org.
101
See SEWA Academy (2007).
102
See Del Ninno et al. (2009).
103
See www.epwp.gov.za and Del Ninno et al. (2009).
104
For the Red Cross’s Home Based Care Programmes in Zimbabwe and Malawi see McCord (2005).
105
See www.pwpyemen.org and Del Ninno et al. (2009).
106
See Kostzer (2008) and World Bank (2007).

37
delivery, which are key to high coverage and performance ; (iv) use of information
technologies to leverage outcomes; (v) administrative systems that should be upgraded to link
social insurance and ALMPs; (vi) financing does not have to be only public; and (vii)
monitoring and evaluation procedures need to be a permanent feature in the programs.

Governance. Governance structures determine the incentives facing program managers and
staff, and ultimately, the quality of the services provided, their impacts, and costs. Issues to be
addressed include what is the role of central and local governments as well as service
providers, how are responsibilities and accountability distributed at various levels (including
the different roles of ministries), how is the performance of programs and their providers
assessed, and how is this performance linked to resources and the compensation of managers
and staff.

Building program portfolios. The market failures or constraints discussed above affect all
individuals simultaneously. However, there are differences in the degree people are affected.
Evaluations suggest that successful programs need to work together. One model to achieve
this is to offer a package of services to individual through one-stop-shops—the interface
between job-seekers, programs, and employers. These “shops” can be specialized in
registration, counseling, job-search assistance, processing of benefits, and reporting. Based
on an assessment of individuals’ needs, they can connect them with the providers of different
services (skills certification and training), institutions providing transfers (e.g., unemployment
benefits, wage subsidies), and ultimately employers. Hence, individuals would be able to
process their applications for unemployment (or disability and pensions) benefits or wage
subsidies through the shops. As discussed below, this implies that the shops need to be able to
monitor and enforce the conditionalities related to the benefits and report back to the relevant
social security institution or ministry. The “shops” can be public or private institutions which
have been accredited by the government according to pre-determined criteria (e.g., staffing,
experience).

Contracting and payment systems. Key to the performance of programs are incentives that
ensure that managers provide the best services to job-seekers (and employers) and ultimately
succeed in their placement. The fees they receive can have two components: a fixed part
obtained per case treated; (from registration to placement) and a variable part that collected
upon the placement of the individual. This component could be adjusted upwards the shorter
the unemployment spell and the longer the contract. “Shops” can also be allowed to receive
payments from employers for services provided for recruitment.

Information technologies. Part of the information and services that individuals receive can be
accessed on-line. On-line meetings, text, and videos can be used to provide counseling,
information about jobs, and guidance to prepare CVs, job applications, and interviews.
Individuals can receive job posting on their mobile phones and apply to unemployment
benefits or wage subsidies on-line. Some of the skills certification tests can also be taken on-
line. Even the monitoring of conditionalities to receive unemployment benefits and wage
subsidies—related to participation in job-search and training activities—can be done on-line
using biometric technologies. The idea then is to encourage providers to develop applications
that offer these services and considerably reduce the costs of the programs. Real-time visits
could be reduced to in-classroom training, certain types of job counseling (e.g., for difficult to
serve clients), or to monitor job search.

Administrative systems. Connecting multiple “shops”—whether real or virtual—and different

providers and institutions (training, skills certification, social insurance programs) require

38
sophisticated administrative systems. The corner stone are Identification and Registration
systems that call for a centralized database where each individual is characterized by a unique
identifier and that provides information about career, benefits, and training histories. The
administrative system needs to allow the “shops” to transfer information to the social
insurance institution for a given application for benefits, and report continuously on
conditionalities so that the social insurance institution is able to clear payments and make
transfers to the individual’s accounts (or collect transfers from the government like in the case
of wage subsidies). The administrative system also needs to be able to process the payment of
fees to services providers. Current information and communication technologies (ICTs) allow
the development of these systems at low costs and without requiring highly skilled users.

Monitoring and evaluation. Improving Monitoring and Evaluation systems is critical for
better planning and decision-making in ALMP and SI programs. A key factor behind good
performance is having a results-based management system where the local service units can
be held accountable for their performance. Programs need to be adjusted and optimized
continuously, and this can only be done if real-time data are available on operations and
performance. One of the pre-requisites to successful M&E is the collection of administrative
data within and across ALMP and SI programs.

Conclusion

Labor market transitions can vary considerably between different sub-populations and
countries and are influenced by constraints and market failures that can be relaxed by well-
conceived policy interventions. Transitions occur between jobs, between school or inactivity
to work, and in and out of unemployment and have a large effect on household income and
welfare, labor productivity, and social cohesion. The constraints are numerous and include
lack of access to insurance, lack of capital, lack of information, lack of skills, or insufficient
labor demand. Their relative importance varies and influences labor market transitions
which—as shown—depend on important characteristics such as age, gender, education,
income group, and type of employment. Moreover, the economic, social, and institutional
context of a country makes a difference in the transitions as depicted in the cross-country
comparison.

As put forward in this paper, a well-conceived mix of social insurance provisions and active
labor market programs that address limitations such as skills gaps, deal with limited
information in the labor market, provide access to credit, and stimulate labor demand are key
to improve labor market transitions. These policies and programs face challenges for design
and implementation that can greatly influence their efficiency (costs) and effectiveness. As
discussed in the last section, several lessons and innovations may help alleviate these. They
range from better governance, program portfolio attunement, focusing on contracting and
payment systems, pervasive use of information technologies, linking social insurance and
active labor market programs, alternative financing mechanisms including private sources, to
comprehensive monitoring and evaluation procedures of programs and policies. Clearly, the
detailed alignment of such measures depends on the characteristics of important sub-
populations and the specific country context. Nevertheless, labor market transitions along
different employment states can greatly be enhanced by awareness of the market and
government failures and counteracting policies and programs as presented in this paper.

39
 References
Allais, S. (2010), The implementation and impact of National Qualifications Frameworks: Report of a
study in 16 countries, ILO: Geneva.
Almeida, R. and Cho, Y. (2012) “Employer-Provided Training: Patterns and Incentives for Building
Skills for Higher Productivity”, In: The Right Skills for the Job?: Rethinking Effective
Training Policies for Workers, ed. Almeida, R., Behrman, J and Robalino, D., 105-132, The
World Bank, Washington, DC.
Almeida, R., Arbelaez, J., Honorati, M., Kuddo, K., Lohmann, T., Ovadiya, M., Pop, L., Sanchez
Puerta, M.L. and Weber, M. (2012), Improving Access to Jobs and earnings Opportunities:
The Role of Activation and Graduation Policies, Background Paper to the New Social
Protection and Labor Strategy, The World Bank.
Almeida, R., Behrman, J and Robalino, D. (2012), The Right Skills for the Job?: Rethinking Effective
Training Policies for Workers, The World Bank, Washington, DC.
Angel-Urdinola, D., Semlali, A., and Brodmann, S. (2010), “Non-Public Provision of Active Labor
Market Programs in Arab-Mediterranean Countries: An Inventory of Youth Programs.” Social
Protection Discussion Paper 1005, The World Bank, Washington, DC.
Barrientos, A., (2009), "Social Pensions in Low-Income Countries" In: Closing the Coverage Gap: The
Role of Social Pensions and Other Retirement Income Transfers, ed. Holzmann, R., Robalino,
D.A., and Takayama, N., 73-84. The World Bank, Washington, DC.
Bernhard, S., Gartner, H., and Gesine, S. (2008), "Wage Subsidies for Needy Job-Seekers and Their
Effect on Individual Labour Market Outcomes after the German Reforms," IZA Discussion
Papers 3772, Institute for the Study of Labor (IZA).
Betcherman, G., Dar, A., Luinstra, A., and Ogawa, M. (2000), "Active Labor Market Policies: Policy
Issues for East Asia." Social Protection Discussion Paper 0005, World Bank. Washington, DC.
Betcherman, G., Godfrey, M., Puerto, S., Rother, F., and Stavreska, A. (2007), “A Review of
Interventions to Support Young Workers: Findings of the Youth Employment Inventory.”
Social Protection Discussion Paper 0715, World Bank, Washington, DC.
Betcherman, G., Gussing, R., Jones, P., Can, R. and Benus, J. (2012), Policy Note on Turkey’s Active
Labor Market Programs, The World Bank, Washington, DC.
Betcherman, G., Olivas, K., and Dar, A. (2004), "Impacts of Active Labor Market Programs: New
Evidence from Evaluations with Particular Attention to Developing and Transition Countries."
Social Protection Discussion Paper 0402, World Bank, Washington, DC.
Bigirimana, P. and Namara, S. (2010), “Aide Memoire: Second Northern Uganda Social Action Fund,
Government of Uganda/World Bank Joint Implementation Support Mission September 27-
October 14.” Kampala, Uganda.
Blattman, C. and Annan, J. (2012), Reintegrating and Employing High Risk Youth in Liberia: Lessons
from a randomized evaluation of a Landmine Action an agricultural training program for ex-
combatants, IPA Yale University.
Blattman, C., Fiala, N. and Martinez, S. (2011), Employment Generation in Rural Africa: Mid-term
Results from an Experimental Evaluation of the Youth Opportunities Program in Northern
Uganda, SP Discussion Paper 1120, The World Bank, Washington, DC.
Boockmann, B., Thomsen, S. L. and Walter, T. (2009), Intensifying the Use of Benefit Sanctions: An
Effective Tool to Shorten Welfare Receipt and Speed Up Transitions to Employment?, IZA
Discussion Paper 4580 (2008).

40
Bosch, M. and Maloney, W. (2007), "Comparative analysis of labor market dynamics using markov
processes : an application to informality," Policy Research Working Paper Series 4429, The
World Bank.
Bouder, A., Dauty, F., Kirsch, J.-L. and Lemistre, P. (2008), Readability of qualifications: a question
as old as Europe, in: Modernizing Vocational education and training: Volume 2. Fourth report
on vocational training research in Europe: Background report. Cedefop (ed) Luxembourg:
EUR-OP.
Brown, A. and Koettl, J. (2012), "Active Labor Market Programs: Employment Gain or Fiscal
Drain?", IZA Discussion Papers 6880, Institute for the Study of Labor (IZA).
Calmfors, L. (1994), Active Labour Market Policy and Unemployment: a Framework for the Analysis
of Crucial Design Features, OECD Journal: Economic Studies (1994), pp. 7-47.
Card, D., Kluve, J. and Weber, A. (2010), Active Labor Market Policy Evaluations: A Meta-Analysis,
Economic Journal 120 (2010), pp. F452-F477.
Carling, K. and K. Richardson (2004). The Relative Efficiency of Labour Market Programs: Swedish
Experience from the 1990s, Labour Economics. 11: 335-354.
Cedefop (2009a), The relationship between quality assurance and VET certification in EU Member
States, Cedefop panorama series VI, Luxembourg: Office for Official Publications of the
European Communities, 2009.
Cedefop (2009b), Accreditation and quality assurance in vocational education and training - Selected
European approaches, Luxembourg: Publications Office of the European Union, 2009.
Crawford, M. and Mogollon, M.P. (2010), Literature Review: Labor Competency Certifications in
Commercial Occupations: A Literature Review, Education Working Paper 17 (2011), The
World Bank, Washington, DC.
Cunningham, W. V., Cohan, L. M., Naudeau, S. and McGinnis, L. (2008a), Supporting Youth at Risk -
A Policy Toolkit for Middle-Income Countries, The World Bank (2008), Washington, DC.
Cunningham, W. V., McGinnis, L., García-Verdú, R., Tesliuc, C. and, Verner, D. (2008b), Youth at
risk in Latin America and the Caribbean: understanding the causes, realizing the potential, The
World Bank (2008), Washington, DC.
Cunningham, W., Sanchez Puerta, M.L., and Wuermli, A. (2010), “Active Labor Market Programs for
Youth: A Framework to Guide Youth Employment Interventions,” World Bank Employment
Policy Primer 16.
Del Ninno, C., Subbarao, K. and Milazzo, A. (2009), How to Make Public Works Work: A Review of
the Experiences, The World Bank Social Protection Discussion Paper Series 0905 (2009).

Entra21 (2009), “Final Report on the entra21 Program Phase I 2001-2007.” International Youth
Foundation.
Fertig, J., Zeitz, G. and Blau, G. (2009), Building Internal Motivation for Worker Competency
Certifications: A Critique and Proposal, Human Resource Development Review 8 (2009), pp.
197-222.
Forteza, Á. (2010), “The Portability of Pension Rights: General Principles and the Caribbean Case,”
Development Policy Review, 28(2).
Frumkin, P., Jastrzab, J., Vaaler, M., Greeney, A., Grimm Jr., R. T., Cramer, K. and Dietz, N. (2009),
Inside national service: AmeriCorps' impact on participants, Journal of policy analysis and
management 28 (2009), 3, pp. 394-416.
Galasso, E., Ravallion, M., and Salvia A. (2004), “Assisting the Transition from Workfare to Work: A
Randomized Experiment”. Industrial and Labor Relations Review 58 (1), Cornell University:
Ithaca.

41
Gorter, C. and Kalb, G. (1996), Estimating the effect of counseling and monitoring the unemployed
using a job search model, Journal of human resources 31 (1996), 3, pp. 590-610.
Graversen, B. K., van Ours, J. C. (2008), How to Help Unemployed Find Jobs Quickly: Experimental
Evidence from a Mandatory Activation Program, Journal of Public Economics 92 (2008),
10/11, pp. 2020-2035.
Hicks, J. H., Kremer, M., Mbiti, I. and Miguel, E. (2011), Vocational Education Voucher Delivery and
Labor Market Returns: A Randomized Evaluation Among Kenyan Youth, Report for Spanish
Impact Evaluation Fund (SIEF) Phase II, The World Bank (2011).
Holzmann, R. and Koettl, J. (2011), "Portability of pension, health, and other social benefits: facts,
concepts, issues," Social Protection Discussion Papers 62725, The World Bank.
Holzmann, R., Robalino, D.A., and Takayama, N. (2009), Closing the Coverage Gap, The Role of
Social Pensions and Other Retirement Income Transfers. Washington, DC: World Bank.
Human Resources Development Canada (1999), Evaluation Reports, Summary Evaluation of Youth
Service Canada., Ottawa (Ontario), Canada.
Ibarraran, P. and Rosas, D. (2009), “Evaluating the Impact of Job Training Programs in Latin
America: Evidence from IDB Funded Operations,” Journal of Development Effectiveness,
1(2).
Johanson, R. and Adams, A. V. (2004), Skills Development in Sub-Saharan Africa, The World Bank,
Washington DC.
Kastoryano, S. and van der Klaauw, B. (2011), Dynamic Evaluation of Job Search Assistance, IZA
Discussion Paper 5424 (2011).
Kavanagh, F. (2007), Public Employment Services (PES)—Innovations and New Approaches, Paper
prepared under the World Bank Russia Southern Okrug Labour Markets Project.
Kluve, J. (2010), The Effectiveness of European Active Labor Market Programs, Labour Economics
17 (2010), 6, pp. 904–918.
Kluve, J., Schneider, H., Uhlendorff, A. and Zhao, Z. (2010), Evaluating Continuous Training
Programs Using the Generalized Propensity Score, Revised version of IZA Discussion Paper
3255, Institute for the Study of Labor, Bonn, Germany.
Koning, J. de, Kotzeva, M., Tzvetkov, S. (2007), “Mid-term Evaluation of the Bulgarian Programme
‘From Social Assistance to Employment’.” In: Koning, J. de, (Eds) Employment and Training
Policies in Central and Eastern Europe: A Transitional Labour Market Perspective, Dutch
University Press, Amsterdam.
Kostzer, D. (2008), Argentina: a case study on the Plan Jefes y Jefas de Hogar Desocupados, or the
employment road to economic recovery, The Levy Economics Institute Working Paper 534
(2008).
Kuddo, A. (2009), Employment Services and Active Labor Market Programs in Eastern European and
Central Asian Countries, The World Bank Social Protection Discussion Paper 0918 (2009).
Kuddo, A. (2012), Activation Policies: Incentives and Sanctions, The World Bank, Washington DC.
Lechner, M., Miquel, R. and Wunsch, C. (2011), Long-Run Effects of Public Sector Sponsored
Training in West Germany. Journal of the European Economic Association 9 (2011), 4, pp.
742-784.
Levy, S. (2008), “Good Intentions, Bad Outcomes: Social Policy, Informality, and Economic Growth
in Mexico.” Brookings Institution Press.

42
Martin, J. P. and Grubb, D. (2001), What works and for whom : A review of OECD countries'
experiences with active labour market policies, Swedish economic policy review 8 (2001), 2,
pp. 9-60.
McBride, A.M., Benitez, C. and M. Sherraden (2003), The Forms and Nature of Civic Service: A
Global Assessment, Global Service Institute, Global Service Institute, Center for Social
Development, Washington University: St Louis, MO.
McCord, A. (2005), Public Works in the Context of HIV/AIDS: Innovations in public works for
reaching the most vulnerable children and households in east and southern Africa, UNICEF,
Nairobi (2005).
Meyer, B. (1995), Lessons from the U.S. Unemployment Insurance Experiments, Journal of Economic
Literature 33 (1995), 1, pp. 91-131.
Muzi, S., Almeida, R., Arbelaez, J., and Lundberg, M. (2011), “Summary Notes on Impact
Evaluations in the Active Labor Market/Youth Employment Programs Cluster Supported by
SIEF”, The World Bank, Human Development Network, Social Protection and Labor,
Washington, DC.

Nübler, I. (2008), Institutions and the Finance of General Skills Training Evidence from Africa, In
Defence of Labour Market Institutions, Palgrave Macmillan: Basingstoke, Hampshire, pp. 64-
79.
OECD - Organization for Economic Cooperation and Development (2005), The role of national
qualifications systems in promoting lifelong learning, report from thematic group 1: the
development and use of ‘Qualification frameworks’ as a means of reforming and managing
qualifications systems, Paris: OECD.
O'Leary, C.J. (1998), "A Cross Country Evaluation of Active Labor Programs in Hungary and
Poland." Report prepared for International Labor Affairs Bureau of the U.S. Department of
Labor.
Palacios, R. and Robalino, D.A. (2009), “Matching Contributions as a Way to Increase Pension
Coverage”, In: Closing the Coverage Gap: The Role of Social Pensions and Other Retirement
Income Transfers, ed. Holzmann, R., Robalino, D.A., and Takayama, N., 187-202, The World
Bank, Washington, DC.
Pallares-Miralles, M, Romero, C. and Whitehouse, E. (2012), "International Patterns of Pension Provision II. A
Worldwide Overview of Facts and Figures". SP Discussion Paper No. 1211. World Bank,
Washington, DC.

Perry, G., Maloney, W., Arias, O., Fajnzylber, P., Mason, A., Saavedra, J. (2007), “Informality: Exit
and Exclusion”, The World Bank, Washington, DC.

Quan, J. J., Dattero, R. and Galup, S. D. (2007), Information Technology Wages and the Value of
Certifications: A Human Capital Perspective, Communications of the Association for
Information Systems 19 (2007), pp. 21-26.
Reyes, G., Van Ours, J. C., and Vodopivec, M. (2011), “Incentive Effects of Unemployment Insurance
Savings Accounts: Evidence from Chile.”, Labour Economics.

Ribe, H., Robalino, D., and Walker, I. (2010), “Protection for All in Latin America and Caribbean
from Right to Reality”, The World Bank, Latin America and Caribbean Region, Washington,
DC.

43
Ribe, H., Robalino, D., and Walker, I. (2012), From Right to Reality: Incentives, Labor Markets, and
the Challenge of Universal Social Protection in Latin America and the Caribbean.
Washington, D.C.: World Bank.

Robalino, D.A., Vodopivec, M., and Bodor, A. (2009). “Savings for unemployment in good or bad
times: options for developing countries.” IZA Discussion Paper No. 4516 (August).

Rodriguez-Planas, N. and Jacob, B. (2010), Evaluating Active Labor Market Programs in Romania,
Empirical Economics 38 (2010), 1, pp. 65-84.
Santiago Consultores (2009), Evaluación en Profundidad Programa Chilecalifica, Santiago
Consultores, Santiago.
Schneider, H. (2008), The Labor Market Reform in German and Its Impact on Employment Services,
Paying for Success: How to Make Public Contracting Work, Policy Exchange, London.
Schöer, V. and Rankin, N. (2011), “Youth Employment, Recruitment and a Youth-targeted Wage
Subsidy: Findings from a South African Firm Level Survey.” World Bank, South Africa.

SEWA (Self-Employed Women’s Association) Academy (2007), Taking Care of Our Children:
Ensuring Long Term Impact (Balwadi Study), SEWA Academy Research Unit, Ahmedabad,
India.
Tergeist, P. and Grubb, D.A. (2006), Activation Strategies and the Performance of Employment
Services in Germany, the Netherlands and the United Kingdom, OECD Social, Employment
and Migration Working Paper 42.
Thomsen, S. L. (2009), Job search assistance programs in Europe : evaluation methods and recent
empirical findings, FEMM Working Paper 18 (2009).
Todd, P. E. (2010), Effectiveness of Interventions Aimed at Improving Women’s Employability and
Quality of Work: A Critical Review, University of Pennsylvania, Philadelphia, PA.
Van Adams, A. (2008), Skills Development in the Informal Sector of Sub-Saharan Africa, World
Bank. Draft.
Van den Berg, G., van der Klaauw, B. and van Ours, J. C. (2004), Punitive Sanctions and the
Transition Rate from Welfare to Work, Journal of Labor Economics 22 (2004), 1, pp. 211-41.
van Ours, J.C., (2000), "Subsidized Jobs for Unemployed Workers in Slovakia," William Davidson
Institute Working Papers Series 311, William Davidson Institute at the University of
Michigan.

Vodopivec, M. (2004), “Income Support for the Unemployed: Issues and Options.” World Bank,
Regional and Sectoral Studies, Washington, DC.

Vodopivec, M. (2009), “Introducing Unemployment Insurance to Developing Countries,” World Bank

Social Protection Discussion Paper 0907.

Watts, A. G. and Fretwell, D. (2004), Public Policies for Career Development: Case Studies and
Emerging Issues for Designing Career Information and Guidance Systems in Developing and
Transition Economies, The World Bank, Washington, DC.
World Bank (2005), Youth Service: A Strategy for Youth and National Development, Youth
Development Notes 1 (2005), 2, The World Bank: Washington, DC.

World Bank (2007), Jefes De Hogar (Heads Of Household) Program: Implementation Completion And
Results Report, Report No ICR355, The World Bank: Washington, DC.

44
World Bank (2011), Approaches To Employment Generation In Fragile And Conflict-Affected
Countries, The World Bank, Washington DC.
World Bank (2012), World Development Report 2013: Jobs, The World Bank, Washington DC.

Wunsch, C. (2010), Optimal Use of Labor Market Policies: the Role of Job Search Assistance, IZA
Discussion Paper 4773 (2010).
Young, M. (2005), National qualifications frameworks: Their feasibility for effective implementation
in developing countries, Skills Working Paper 22 (2005), ILO: Geneva.

45
Annex: Data and Empirical Methodology

This annex provides more details on the data and methodology explored in Section 2, where
we report several statistics on labor market transitions for Brazil and for Mexico. Table A.1
reports summary information on the two rotating panels that we explore in this paper. Wwe
select individuals aged more than 14 years old and less than 66 years old. The data available
in the two countries has many similarities, but also a few differences. In both cases, a rotating
panel was used. Our main objective was to construct a panel with information on the labor
market states of individuals at two different and consecutive periods. For Brazil, we use the
Pesquisa Mensal de Emprego (PME), or Monthly Employment Survey, from the Brazilian
Institute of Geography and Statistics (IBGE or Instituto Brasileiro de Geografia e
Estatística)107. For Mexico we used the Encuesta Nacional de Ocupación y Empleo, or
National Survey of Occupation and Employment) from INEGI (Instituto Nacional de
Estadística, Geografia y Informatica or National Institute of Geography, Statistics and Data
Processing).

Table A.1: Surveys used and their main characteristics

Characteristic Brazil (PME) Mexico (ENOE)

Provider IBGE INEGI

Frequency Every month Every three months

Regions included Six metropolitan areas Whole country

Period available March, 2002 until Second quarter of 2005

December, 2010 until third quarter of
2009

Rotating panel? Yes Yes

Participation scheme Four interviews in four Five consecutive

consecutive months, a interviews; in each
four months absence trimester 20% of the
and other four sample changes
interviews in four
consecutive months; in
each month 25% of the
sample changes (4-4-4)

Source: IBGE and INEGI.

Mexico’s data is available in a quarterly basis. Thus, even though the Brazilian survey occurs
on a monthly basis, both panels were built considering a three months interval between
observations. The results can therefore be compared.

We are interested in quantifying the risk of non-employment. We measure this risk with the
observable probability of becoming unemployed or out of the labor force at period t

107
This survey is carried only in six metropolitan areas: Sao Paulo, Rio de Janeiro, Salvador, Recife, Belo
Horizonte and Porto Alegre. These areas correspond to approximately 25% of the country’s total population.

46
conditional on being employed at period t-1. We compute the non-employment duration with
the inverse of the employment risk which we measure with the probabilities of becoming
employed at period t conditional on being unemployed or out of the labor force at period t-1.

We consider several explanatory variables including gender, age (or birth cohort), educational
level, marital status and number of dwellers in the household. In both panels, such variables
are, in most cases, readily available. But because the interest in this study is to compare both
labor markets, some adjustments had to be made. For instance, in the Brazilian survey, the
number of years of education is not a discrete variable as in the Mexican case. Rather, this
information is available in groups of years of education (none, 1 to 3 years, 4 to 7, 8 to 10 and
11 or more). Marital status, is another example. In the Brazilian case it is possible to classify
each individual according to her position in the household: responsible for the household,
spouse, child or other, but no direct information on marital status is available. In the Mexican
case, on the other hand, it is possible to obtain this information readily from the data: one
knows whether an individual is married, widowed or divorced.

Table A.2 reports some descriptive statistics for the two countries. Some differences between
the two samples arise. First, the Brazilian population is older, slightly more gender-balanced
and more educated. These differences might have risen due to the fact that the Brazilian PME
only surveys individuals living in the largest metropolitan areas in the country, whereas the
Mexican data covers the entire population (including rural areas). Second, the Mexican
unemployment rate is lower than the Brazilian one. Even though it is true that the period
covered by the two surveys is somewhat different, they share most of the same timeframe. In
Mexico, the highest unemployment rate measured was 6%, whereas in Brazil it was 2.5 times
higher.

47
Table A. 2: Descriptive statistics for Mexico and Brazil respectively

Mexico Brazil
Variable Mean Std. Dev. Min Max Mean Std. Dev. Min Max
Female 0.53 0.50 0 1 0.50 0.50 0 1
Birth cohort = 1940's 0.07 0.26 0 1 0.09 0.29 0 1
Birth cohort = 1950's 0.15 0.36 0 1 0.16 0.37 0 1
Birth cohort = 1960's 0.21 0.41 0 1 0.20 0.40 0 1
Birth cohort = 1970's 0.22 0.42 0 1 0.22 0.42 0 1
Birth cohort = 1980's 0.24 0.43 0 1 0.25 0.43 0 1
Birth cohort = 1990's 0.10 0.30 0 1 0.05 0.22 0 1
Single 0.34 0.47 0 1 - - - -
Married 0.59 0.49 0 1 - - - -
Divorced 0.04 0.21 0 1 - - - -
Widowed 0.02 0.15 0 1 - - - -
Responsible for HH - - - - 0.38 0.48 0 1
Spouse - - - - 0.24 0.43 0 1
Child - - - - 0.31 0.46 0 1
Other - - - - 0.07 0.25 0 1
# dwellers = 2 0.31 0.46 0 1 0.27 0.44 0 1
# dwellers = 3 0.24 0.43 0 1 0.26 0.44 0 1
# dwellers = 4 0.21 0.41 0 1 0.24 0.42 0 1
# dwellers = 5 0.11 0.32 0 1 0.12 0.32 0 1
# dwellers = 6 or + 0.08 0.26 0 1 0.07 0.26 0 1
No education 0.05 0.21 0 1 0.03 0.18 0 1
Years of education = [1 to 3] 0.07 0.26 0 1 0.06 0.23 0 1
Years of education = [4 to 7] 0.22 0.41 0 1 0.24 0.43 0 1
Years of education = [8 to 10] 0.30 0.46 0 1 0.22 0.41 0 1
Years of education = [11 or +] 0.36 0.48 0 1 0.45 0.50 0 1
Unemployment rate 3.92 0.83 3.09 6.05 10.44 2.01 4.82 15.21
Observations 413,623 1,054,791
Source: PME/IBGE and ENOE/INEGI.

48
 Table A. 3: Labor force states distribution, Brazil and Mexico

Mexico Brazil

LF State Frequency % Cum. % Frequency % Cum. %

Out of LF 149,830 36.3 36.3 364,914 34.6 34.6

Unemployed 10,118 2.5 38.8 73,061 6.9 41.5

Unpaid worker 15,906 3.9 42.6 4,939 0.5 42.0

Self-employed 53,254 12.9 55.5 128,594 12.2 54.2

Employer 13,352 3.2 58.8 30,299 2.9 57.1

Informal employee 58,820 14.3 73.0 102,919 9.8 66.8

Formal employee 111,286 27.0 100.0 350,065 33.2 100.0

Total 412,566 100.0 - 1,054,791 100.0 -

Source: PME/IBGE and ENOE/INEGI

Finally, in Table A.3 we report the distribution of the labor force states across the two
countries. Seven different statuses where considered: out of the labor force, unemployed,
unpaid worker, self-employed, employer and informal or formal employee. We define a
worker as an informal employee when he/she is a wage employee and does not contribute to
social security. Even though the two countries have similar shares of the population that is out
of the labor force (approximately 35%) and similar shared of self-employed, the table also
documents some differences across the two countries. In Mexico there is a higher share of
workers that are unpaid compared with Brazil. This seems to be one of the reasons underneath
the smaller share of individuals that is unemployed. Informality is also higher in Mexico than
in Brazil (14.3% of the population compared with 9.8%).

49