Skills formation and (un)employment in Latin America: Evidence from Chile

Motivation: Skills formation and training have been singled out as key policies to adapt to contemporary labour-market challenges such as automation and skill-biased technological change particularly in middle-income countries such as those in Latin America. However, limited knowledge about the effects of training policies in Latin America hinders adaptation to these transformations. Purpose: This article contributes to the limited knowledge to date about the impact of skills formation in Latin America, with reference to Chile, a country usually considered a successful case of educational achievement and employment but sharing many of the development problems of its Latin American peers. By doing this, it provides empirical evidence to substantiate existing theories explaining these problems. Methods and approach: Using available longitudinal data from Chile (Encuesta de Proteccion Social, EPS), we analyse the causal effects of training on the transitions from unemployment to employment through a difference-in-difference (DiD) strategy. Findings: Results suggest that there is a small but significantly positive effect of training in reducing post-training unemployment, as yearly unemployment among individuals attending training while unemployed is reduced, on average, by two weeks. Policy implications: Results confirm the low and highly segmented incidence of training in the region, highlighting the need to discuss the design of training programmes to improve their effects, including the creation of differentiated programmes for unemployed and employed workers. For the former, it is important to strengthen labour intermediation to overcome problems of social capital; for the latter, it is key to achieve the stronger incorporation of employers in the discussion on training and industry standards. In both cases, it is crucial to create institutions promoting stronger co-ordination between the interested actors.