HOW MUCH DO WORK­FORCE SKILLS MAT­TER FOR IN­NO­VA­TION IN THE CARIBBEAN?

The Star (St. Lucia) - Business Week - - MONEY LAUNDERING - BY JEE­TENDRA KHADAN, INTERAMERICAN DEVEL­OP­MENT BANK

In­no­va­tion lev­els in the Caribbean re­gion are rel­a­tively low. On av­er­age, roughly 19 per cent of Caribbean firms re­ported hav­ing en­gaged in some form of in­no­va­tion in the past three years. The range varies from the low­est, at 4.8 per cent of firms in Do­minica, to the high­est, at 53 per cent of firms in Guyana. A higher proportion of firms re­ported their in­ten­tion to en­gage in in­no­va­tion in the next two years: an av­er­age of 35 per cent of firms in­di­cated their in­ten­tion to un­der­take tech­no­log­i­cal in­no­va­tion in the next two years and 39 per cent ex­pect to un­der­take non-tech­no­log­i­cal in­no­va­tion. Not sur­pris­ingly, only 10.3 per cent of firms in the Caribbean have an in­no­va­tion depart­ment: the range varies from the low­est, at 1.6 per cent of firms in Do­minica, to the high­est, at 36.7 per cent of firms in Guyana. In­no­va­tion ac­tiv­i­ties in a coun­try or firm re­quire hu­man cap­i­tal with the abil­ity to gen­er­ate and ap­ply knowl­edge and ideas. In fact, stud­ies have found that in­no­va­tion at the firm level is pos­i­tively as­so­ci­ated with work­force qual­i­fi­ca­tions and ex­pen­di­ture on train­ing. Highly skilled work­ers are thought to be more apt for gen­er­at­ing ideas and adopt­ing tech­nolo­gies to make im­prove­ments on ex­ist­ing prod­ucts and pro­cesses. How­ever, Caribbean firms have con­sis­tently iden­ti­fied an “in­ad­e­quately ed­u­cated work­force” as their most se­ri­ous ob­sta­cle to im­prov­ing per­for­mance. Thus, un­der­stand­ing the link be­tween hu­man cap­i­tal con­straints faced by Caribbean firms and their in­no­va­tion de­ci­sions is a crit­i­cal is­sue for pol­i­cy­mak­ers and firms. In that re­gard, this blog presents the find­ings of a re­cent IDB paper which looked at the re­la­tion­ship be­tween sev­eral di­men­sions of hu­man cap­i­tal con­straints and past and fu­ture in­no­va­tion de­ci­sions of Caribbean firms.

CHAL­LENGES TO OB­TAIN­ING THE DE­SIRED WORK­FORCE CAN PO­TEN­TIALLY LOWER THE LIKE­LI­HOOD OF IN­NO­VA­TION

Four as­pects of work­force con­straints for Caribbean firms are ex­am­ined: (i) the dif­fi­culty of a firm find­ing new skilled work­ers, (ii) ed­u­ca­tional mis­matches for man­age­rial and pro­fes­sional job types, (iii) dif­fi­culty find­ing em­ploy­ees with core and job-re­lated skills, and (iv) in-firm train­ing. The econo­met­ric anal­y­sis suggests that when firms have dif­fi­culty find­ing new skilled em­ploy­ees, they are less likely to en­gage in any type of in­no­va­tion, and this is also true for de­ci­sions about fu­ture tech­no­log­i­cal and non-tech­no­log­i­cal in­no­va­tions. It was also found that ed­u­ca­tional mis­matches for man­age­rial and pro­fes­sional job types also lower the like­li­hood of in­no­va­tion. More­over, firms that face chal­lenges in find­ing em­ploy­ees with the re­quired core and job-re­lated skills at the man­age­rial and pro­fes­sional lev­els are less likely to in­no­vate than those that don’t. In fact, fu­ture tech­no­log­i­cal in­no­va­tion is low­ered by 18 per cent, on av­er­age, when firms are un­able to find pro­fes­sion­als with the ap­pro­pri­ate core skills. On the other hand, while in-firm train­ing is found to in­crease the prob­a­bil­ity of in­no­va­tion, its mag­ni­tude is low.

POL­ICY IM­PLI­CA­TIONS FOR FIRMS AND GOV­ERN­MENTS

Such out­comes could lower pro­duc­tiv­ity growth. It is there­fore important for pol­i­cy­mak­ers and firms to en­act poli­cies to ad­dress the un­der­ly­ing causes of ed­u­ca­tional and skill mis­matches in the labour force and stream­line ed­u­ca­tion and train­ing programmes that are most rel­e­vant to the evolv­ing de­mands of the labour mar­ket. Ad­mit­tedly, the lit­er­a­ture on the un­der­ly­ing fac­tors caus­ing hu­man cap­i­tal con­straints in the Caribbean is sparse, but what ex­ists suggests that the rel­a­tively de­fi­cient hu­man cap­i­tal stock is re­lated to worker em­i­gra­tion, qual­ity of ed­u­ca­tion and train­ing and per­haps the need for more rel­e­vant ed­u­ca­tion and train­ing programmes. The lat­ter may re­flect gaps in ed­u­ca­tion poli­cies, in­for­ma­tion asym­me­tries be­tween in­sti­tu­tions that pro­vide ed­u­ca­tion and train­ing and pri­vate sec­tor de­mand for labour, and weak mon­i­tor­ing and eval­u­a­tion mech­a­nisms within the re­gion’s ed­u­ca­tion sys­tem. How­ever, fur­ther re­search in this area is needed along with bet­ter-qual­ity data to make more con­clu­sive pol­icy state­ments. Ad­di­tion­ally, given the low in­ten­sity of train­ing re­ported by firms, there is sig­nif­i­cant po­ten­tial to in­crease in­firm train­ing and/or es­tab­lish net­works with both lo­cal and for­eign in­sti­tu­tions to de­sign train­ing programmes that can en­hance the qual­ity and rel­e­vance of firms’ hu­man cap­i­tal stock within the Caribbean.

In­no­va­tion lev­els in the Caribbean re­gion are rel­a­tively low. On av­er­age, roughly 19 per cent of Caribbean firms re­ported hav­ing en­gaged in some form of in­no­va­tion in the past three years

Is work­force ed­u­ca­tion important for in­no­va­tion?

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