Catalog

Changes in employment structure and education intensity

Figure 3.2.2 shows the education profiles of workers in agriculture, industry, and services. They very clearly show that agriculture hires the least-educated workers, and services the most-educated. Industry employs the modestly schooled.

With these trends in mind, it is useful to examine how the rise in education levels relates to changes in the structure of employment. Table 3.2.2 depicts the first, most aggregate pass at this for each of the four countries. The labor force is split into those working in the three major sectors of the economy and the unemployed. (Later on in this section a more disaggregated approach is taken, but with little change in the results.) Each country's employment profile was observed at two points in time between 10 and 13 years apart.

The first three columns depict the proportions of each country's labor force in each activity in the initial and final years, and how they have changed. (Note that unemployment rates are comparable over time but not across countries.) The table shows unemployment rising rapidly in every country. Trends in agricultural, industrial, and services employment shares, however, are country specific.

Agriculture's employment share has been declining very rapidly in those countries that reached their land frontiers before the 1990s. The Philippines ran out of new arable land in the 1970s. Thailand did so by 1980, as did most regions of India. In contrast, Indonesia, which is still clearing forests for agriculture, experienced only a small decline in agriculture's employment share. The Indonesian figures also reflect a return of low-skilled labor to agricultural activity in the wake of the Asian crisis of 1997–98. Thailand, with its more sophisticated arrangements for reallocating capital, has come back from the crisis sooner than Indonesia, and agricultural employment has continued to contract.

Industrially, India has had some recent success, while Thailand has been industrializing for some time now. Industrial employment in Indonesia and the Philippines has been shrinking. Growth amid change (Part 3) shows that this deindustrialization is occurring at very low levels of industrial development, which raises alarm bells, especially in the Philippines, where deindustrialization cannot be explained in terms of the crisis alone.

Services employment is rising everywhere, though most in the Philippines and Thailand. In India, where industrial employment surged, services employment rose only slightly, challenging the view from value-added data that India is becoming a services economy. Low net exit from agriculture in Indonesia has been associated with limited services growth.

The next three columns of the table depict measures of education intensity-the share of workers in each sector holding at least a lower secondary (LS) certificate-and how they have shifted. Consistent with Figure 3.2.2, services are always the most intensive users of LS graduates, followed by industry, and then agriculture. Also, the unemployed are more likely to have completed LS than the employed.

In Indonesia, Philippines, and Thailand, LS intensities are rising rapidly economywide. India is focusing on raising primary completion rates and LS prevalence has grown much less. Not having many primary graduates to push up the ladder further, limits scope for LS expansion in India. Perhaps most important, education intensity has risen in every section of the labor force.

The seventh column asks what increase in the labor force share of LS educated workers would be required algebraically to support the observed change in employment structure, without raising LS prevalence within sectors. In India, for example, with 38% of service workers having LS education initially, 2.8% growth in the services employment share would have required a further 1.1% of the labor force to pass LS (1.1% = 38% x 2.8% x 100). Adding this 1.1% to the corresponding projected changes in the other three sectors implies that to accommodate its employment shift between these four sectors without increasing LS-intensity within sectors, India would have required only a 1.8% increase in LS graduates. The remaining 3% increase in graduates' share in the labor force (or 62.7% of the 4.8 point intensity increase between 1993/94 and 2004) is accounted for by increases in intensity within each sector.

The penultimate column shows that, of the 4.8 point increase in LS graduates, 2.2% of the labor force (or 46.1% of the increase in graduates) were absorbed in services. Given that the sector employs only 24.7% of the labor force, services disproportionately absorbed the increase in LS educated workers. So did unemployment.

This last trend, whereby services and unemployment disproportionately absorb LS graduates, is common to all countries. Industry also absorbs its fair share of LS graduates in India and Thailand.

Noting that an 86% of the increase in educated Filipino workers was absorbed into services and unemployment, Table 3.2.3 disaggregates services to shed light on why 10% more service workers now have LS degrees. The results are stark. If education intensities in the 17 services subsectors remained unchanged, while employment shares moved as they have, the share of service workers with LS education would have fallen by 0.2 percentage points. This happens for two reasons. First, the changes in employment shares (third column) are not large, indicating very little structural change within services. Second, while employment shares in a few LS-intensive subsectors (e.g., "business services," "hotels and restaurants") have increased, unintensive sectors (e.g., "transportation") have grown as well. Thus the entire increase in education intensity in services is algebraically attributable to intensification within these 17 subsectors.

Finally, the above tables help to examine the role of increased international competition between workers in driving demand for education. This role is often championed by the media. From the disaggregated analyses of each country, it can be seen that the majority of additional educated workers are absorbed in the nontraded services sector and in unemployment-i.e., they are not in competition with foreign workers. Further, even in India and Thailand, where industry is absorbing educated workers, this is not sufficient to posit a link between trade and education. Specifically, in India, industrial workers have become less educated than the labor force at large during the very time when trade has been liberalized and industrial exports have been growing. And, as the next section shows, returns to education in Indian and Thai industry have also been falling during this time.