World Bank Bulgaria: Raising skills for employment, growth and convergence Labor Market Reform Policy Note September 20091 68717 Main messages  The Bulgarian labor market has seen remarkable improvements in recent years and has contributed to strong economic growth, with record low unemployment and big gains in employment through 2008, edging closer towards the Lisbon target of an employment rate of 70 percent. More than 400,000 new jobs were created between 2003 and 2007, and businesses have been reporting shortages of skilled workers.  The benign environment for job creation is now changing, as the global economic crisis impacts on labor market demand in Bulgaria. Growth in sectors that have been the engine of job creation until now—construction, industry, real estate, and trade—is declining. This has been driving up unemployment since late 2008, although the demand for highly skilled workers is likely to remain strong. Indeed, despite the crisis, there continue to be many available vacancies that remain unfilled. While much of the upsurge in unemployment is therefore cyclical, there is a strong structural element to unemployment and under-employment, much of which appears to be driven by skill mismatches.  Compared to the EU27 averages, activity and employment rates have remained low, and Bulgaria has significant untapped domestic labor reserves. Bulgaria performs poorly in youth labor market participation compared to its European partners, with a substantial share of the youth who are neither in education nor in employment. Moreover, there are groups such as adult women who are out of the labor force for family reasons, and Bulgaria’s older workers participate less in the labor force than their European peers.  Skill shortages are not just a challenge associated to the current stock of working age population but also with the pipeline of future workers. While they are more likely to drop out of school earlier than their peers elsewhere in the EU, Bulgarian pupils in school also do not acquire the necessary skills and competencies to compete in a high innovation economy: More than 50 percent of Bulgarian 15 year olds scored low on the PISA 2006 reading literacy tests – a significantly higher share than their peers elsewhere in the EU.  Continued available vacancies suggest that skills shortages remain a barrier to employment even during the crisis and measures to retrain and up-skill the unemployed and those at risk of lay-off is an important policy direction for the short-term.  Moreover, it is essential even in the current economic downturn to keep an eye on the medium- term economic growth agenda and to ensure that the fundamentals are set in place now: In 1 This note was prepared by Christian Bodewig. It summarizes and updates a recent World Bank Policy Note “Bulgaria: Raising employment and human capital for growth and convergence�, November 2008. 1 light of Bulgaria’s demographic decline over the coming decades, medium-term growth and convergence require sustained increases in labor productivity and investments in human capital. While employment was an important contributor to economic growth in recent years, further labor market activation of the working age population will not be sufficient in the future to generate the high economic growth necessary for Bulgaria’s convergence with the leading economies in Europe and around the world. Bulgaria’s level of GDP per capita will remain well below EU averages for many years to come, and its convergence will require sustained increases in skills and productivity. Policy directions  Short-term measures during the economic crisis ideally combine efforts to keep workers in employment through temporary publicly subsidized short-working hour schemes as well as the use of unemployment benefits and measures to accelerate transitions from old to new jobs, to avoid a loss in employability for newly laid-off workers. Short working hours, however, are only a short-term measure to avoid adjustment costs of lay-off in case of short-lived demand slumps and will become increasingly inadequate as the crisis persists. The government should, therefore, consider gradually shifting attention to enhanced employment services and strategic retraining and up-skilling of workers. The government could also consider, on a temporary basis, to extend unemployment benefit eligibility duration, should labor demand remain low. Moreover, it will be important that well-targeted social safety net programs, such as Guaranteed Minimum Income, are well-resourced and can be scaled up during the course of the crisis as needed.  The economic crisis is an opportune moment to address skills shortages both to tackle unemployment and to help the recovery in the short-term and to promote the foundation for medium-term economic growth and convergence. Lacking skills reduce employability of the unemployed and may hold back a quick return to employment of the newly laid-off. The key ingredient to boosting employment in the course of the crisis is to promote skills upgrading of laid-off workers and those at risk of lay-off through new training programs designed together with employers’ representatives and through incentive schemes for companies and individuals.  Looking at the medium term, with Bulgaria’s labor productivity remaining low in a European comparison, sustained interventions from early childhood to adult education are necessary over the coming years to raise human capital and ensure the increases in labor productivity that Bulgaria needs to accelerate growth and convergence. These interventions should not be put on hold because of other emerging priorities like dealing with the impacts of the global crisis. The importance of enhanced labor skills for future productivity growth and the time it takes to raise skills of the labor force and use them in the labor market requires attention to this issue now.  In satisfying the growing demand for skilled labor and boosting employment, Bulgaria needs to urgently look at promoting the transition of young people from education to the labor market, including through keeping them longer in school and ensuring they earn the skills that are in demand in the labor market as well as promoting part-time employment and internship programs for young people. 2 Bulgaria: Labor Market Reform Policy Note Introduction Over the last several years Bulgaria has achieved remarkable improvements in the labor market, leading to record low unemployment and considerable increases in employment rates, although this positive development is now facing a halt in light of the effects of the global economic crisis. Sustained high rates of economic growth have been associated with strong job creation, with signs of skills mismatches and shortages, evident in a growing share of long-term unemployed and extremely low unemployment rates for upper secondary and tertiary graduates. Figure 1 summarizes recent labor market developments. Increased tensions on the global financial markets, sharp adjustments to global commodity prices and recession in most advanced countries are likely to have implications on Bulgaria’s growth and have already led to a rise in unemployment and a stark reversion of the recent positive trends in the employment rate. Figure 1 Recent sustained improvements in the labor market have been halted by the onset of the economic crisis, Employment and unemployment rates 70 60 50 percent 40 unemployment rate (15-64) 30 employment rate (15-64) 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2006 2007 2008 2009 Source: NSI Despite the surge in employment over the years, labor has remained underutilized in Bulgaria, driven primarily by low participation among youth and older workers in the wake of skills and other barriers. Curiously, Bulgaria’s pre-crisis labor market had many unfilled vacancies, and this has remained so even as the crisis unfolds. Employment rates remain low in Bulgaria – relative to the Lisbon target of 70 percent by 2010. The same is true for activity rates. While the employment and activity rates for the adult population in Bulgaria are on par with EU averages – a remarkable achievement for Bulgaria – there are big deficits for young people and to a lesser extent for older workers (Figure 2). Coinciding vacancies and low employment and activity rates suggest that there are skills mismatches – an excess supply of low-skilled workers in the face of an excess demand for high skilled workers. This suggests that Bulgaria has large underutilized pools of labor among the youth as well as, to some extent, among older workers, and the challenge is to find ways to activate and ready them to fill the vacancies. 3 Figure 2: Bulgaria’s labor market outcomes are on par with the EU 15 for workers aged 25-54, but there are major lags for young workers Employment Rates, 2007 Activity rates, 2007 100 100 80 80 Lisbon target percent percent 60 60 40 40 20 20 0 0 15-64 15-24 25-54 55-64 15-64 15-24 25-54 55-64 EU27 EU15 BG EU27 EU15 BG Source: Eurostat Bulgaria faces a dramatic demographic decline and is projected to lose about 1.5m people between 2000 and 2025. Employment activation is essential given the demographic decline, yet measures to raise skills and human capital, and thereby productivity, are even more important. According to a recent World Bank study on aging in Eastern Europe, this is the largest decline among the new EU Member States in percentage terms, at 18 percent2. Triggering a decline in the working age population, this dramatic development has major implications for the labor market. However, even with increases in labor market participation to EU average levels, Bulgaria will not be able to stem the lowering effect of the demographic decline on long-term growth prospects. Figure 3 presents population charts for Bulgaria for 2005 (left panel) and 2035 (right panel), broken down by labor force status for each age bracket. It clearly denotes the shares of the inactive (dark red), and 2035 projections are based on the assumptions of constant activity and employment shares compared to 2005. The figure clearly shows that the population decline is so substantial that even an increase in activity rates cannot make up for the overall decline in the population. Continued high rates of economic growth and living standard convergence will above all require efforts to raise the human capital of every worker. Figure 3: Stemming Bulgaria’s demographic decline requires activating the working age population and raising human capital, Age distributions in 2005 (left) and 2035 (right) 2 World Bank (2007), Red to Gray: The “Third Transition� of Aging Populations in Eastern Europe and the Former Soviet Union, World Bank: Washington, DC 4 Source: Bank staff calculations Already a binding constraint to further growth in the recent boom years, skill mismatches and shortages are likely to act as a drag on a return to growth as the current recession runs its course. Training and skills upgrading is thus a key priority to promote employment in the short-term and promote medium-term economic growth. Skills shortages were a core problem in the pre-crisis labor market, they remain an issue during the crisis, and they will slow down recovery. Moreover, while the economic crisis will unavoidably lead to short-term increases in unemployment in the wake of bankruptcies and lay-offs, it is important to consider the sources for Bulgaria’s medium-term growth and convergence and its drivers – boosting employment and enhancing the skills of current and future workers. The improvement in the skills of the available workforce is a prerequisite to reductions in unemployment and improved productivity, and will help those losing their job find new employment in sectors and activities generating higher value added. Addressing labor market challenges requires increasing the effective labor supply, i.e. the supply of workers that have incentives to actively seek employment, and skills that enable them to take the newly created jobs. Building on a recent World Bank analysis3, this note identifies seven challenges related to raising skills and human capital and boosting employment and provides policy recommendations. Promoting employment In the economic crisis Bulgaria is facing both cyclical (driven by low demand overall) and structural (driven by demand and supply mismatches) unemployment and under-employment – the latter being visible in the pre-crisis period when activity rates were low, in particular among youth, older workers and certain groups of adult workers, despite high labor demand. This policy note focuses on structural unemployment and mainly lays out policy measures that address the supply of labor by focusing on readying labor supply to respond to labor demand – through enhancing skills and activating inactive parts of the working age population. It deliberately does not address measures to promote overall demand through countercyclical measures, such as Bulgaria’s short working hour scheme. Challenge 1: Lacking skills reduce employability of the unemployed, bar labor reallocation and may hold back the return to employment of the newly laid-off. While it is impossible to rigorously attest the extent of the skills barrier to employment during the crisis, the fact that vacancies remain unfilled suggests that skills do matter. Moreover, if skills were a key concern pre-crisis, they are likely to be an even bigger concern as the economy rebounds. A key ingredient to boosting employment in the course of the crisis is, therefore, to promote skills upgrading of laid-off workers and those at risk of lay-off.  Promote demand-driven training programs for laid-off workers and workers on short working hours: The government has already launched programs to retrain and re-qualify newly unemployed workers. The key here is to design programs in close consultation with employers’ representatives to reflect views on which sectors are going to drive Bulgaria’s recovery and what kind of skills will be required as the economy rebounds. It is quite likely that the post-crisis labor 3 World Bank (2008), Bulgaria: Raising employment and human capital for growth and convergence 5 market will look quite different from the pre-crisis labor market, with differing skill needs. The time to prepare for this is now. Moreover, access to programs should be handled flexibly, e.g. through the use of vouchers as currently piloted by the Employment Agency with EU financing.  Promote incentives for training aimed at both employers and individuals: The government may wish to consider making access to financing for short working hour allowance conditional on measures to retrain workers during the freed-up non-working time. Equally, the period of unemployment benefit eligibility could be extended for up to three months per worker conditional on being enrolled in a training course. The message is that individuals’ idle time resulting from the crisis should be used for strategic up-skilling. Challenge 2: Many youth are inactive in the labor market: In light of the substantial labor supply reserves among the Bulgarian youth, policies to raise the employment rate in Bulgaria need to adopt a “youth lens� – i.e. what are crucial policies that can promote youth employment while also boosting participation in education and training?  Pilot and test apprenticeship, internships and wage subsidy programs for young workers. Facilitating the school to work transition and preventing the “neither in employment, education or training� (NEET) phenomenon will require testing proactive measures like apprenticeships, internships, placement and job subsidies programs for young people to help them not only get into the labor force, but build some relevant skills. This is an agenda that requires active contributions and partnerships between the Government and employers and trade unions. For example, internships are often a cost-effective way for companies to attract and test talented students and young people, and this is one area where employers should take the lead.  Develop a mandatory and intensive youth-centered activation approach focused on NEETs. Experience from across the OECD shows that youth employment interventions have to be early and sustained, with a focus on preventing long-term unemployment of youth, retaining them in formal education and training and focusing on career counseling and job search assistance4. It has also been found that programs that explicitly target disadvantaged youth are more likely to be effective than non-targeted programs5. The United Kingdom, like several other EU neighbors has introduced a youth activation regime called “New Deal for Young People�. Based on this model, Bulgaria’s Employment Services could offer a menu of services centered on intensive counseling, with job placement services, training and remedial or second chance education for older youth and back-to-school programs for the younger. It could also entail outsourcing of the full range of activation services to qualified agencies, for example with experience in working with disadvantaged youth such as socially excluded Roma. Bulgaria can learn from the experience in other EU countries and elsewhere, but needs to carefully test and evaluate what works in the Bulgarian context. 4 Quintini and Martin (2006), Starting Well and losing Their Way? The Position of Youth in the Labor Market in OECD Countries, OECD Social, Employment and Migration Working Papers No. 39, OECD: Paris 5 Betcherman et al (2007), A Review of Interventions to Support Young Workers: Findings of the Youth Employment Inventory, World Bank Social Protection Discussion Paper No. 715, World Bank: Washington, DC 6  Promote greater use of part-time and flexible work arrangements: Non-standard forms of employment and part-time and temporary jobs are a key entry point into the labor market in many OECD countries, including for young workers and in particular for low-skilled youth. They can also facilitate access to employment during the crisis, as employers may refrain from making full-time and permanent hiring decisions. Experience from across West European countries shows that an initially high share of school leavers in temporary jobs typically declines substantially after several years of work experience, suggesting that they serve as stepping stones into more permanent employment6. Bulgaria has recently made part-time and temporary work arrangements more flexible but barriers remain, in particular with respect to the ease of contracting. o Introduce simpler forms of contracting for part-time and temporary employment. Several EU countries have introduced simple short-term and limited employment contracts with reduced tax and social insurance obligations, for example Germany’s “Mini-Jobs� and “Midi Jobs�. o Introduce legislation for temporary work agencies. One way to promote more part-time and flexible contracting is through temporary work agencies, and many EU Member States have promoted the establishment of such agencies. The European Union recently approved its Temporary Agency Workers Directive, clarifying the status of temporary agency workers, which may facilitate the adoption of relevant legislation in Bulgaria. o Reduce barriers to part-time contracting in the social security system, i.e. through the minimum contribution thresholds and recognition of service record. Challenge 3: Certain adult groups are inactive in the labor market. Certain adult groups face specific barriers to labor market activities, most notably adult women (of all levels of educational attainment) for reasons of child care and low skilled workers more generally7.  Enhance the provision of child care through crèches and nurseries as well as kindergartens. This not only addresses early childhood education needs, and helps prepare young children for school, in particular those from socially disadvantaged backgrounds (see below), but also frees up parents to participate in the labor market. The analysis in this report shows that the most important reason for inactivity of adults aged 25-45 is their need to care for children. Many countries in Europe have recently re-focused on the need to provide child care, with Germany, for example, launching a nationwide initiative to boost supply. Clearly, this is a medium term agenda and likely a costly one, due to the need to create new physical infrastructure for kindergartens and nurseries. With responsibility for kindergartens and nursery resting with the municipalities, the key question is the financial space available for such investments. However, in Bulgaria the availability of financing from European Structural Funds through the Operational 6 OECD (2008) Employment Outlook 2008, Chapter 1, “Off to a Good Start? Youth Labor Market Transitions in OECD Countries, OECD: Paris 7 World Bank (2008), Bulgaria: Raising employment and human capital for growth and convergence 7 Program Regional Development, through the social infrastructure window, is one attractive way to address kindergarten supply constraints.  Promote second chance education programs. Around 50 percent of the inactive in Bulgaria has low levels of education (7th grade and below)8. Second chance education, starting from basic literacy and opening a path back into the formal vocational training system with recognition of competencies, will help getting unskilled inactive back into the labor force. The Government has undertaken initial steps to re-open the formal training system to early school leavers through literacy courses managed by the Employment Agency. Successful completion of literacy courses now result in the recognition of attainment of 4th grade equivalent. Moreover, minimum entry requirements for vocational training has been lowered from 6th grade to 4th grade, thereby enabling graduates from literacy courses to get back into formal education and training. The key is now to take measures to promote this program among the low-skilled long-term unemployed, for example socially excluded Roma to ensure strong take-up. Challenge 4: Older workers leave the labor market too early. While the short-term worsening of employment opportunities risks triggering early exit of older workers from the labor market, Bulgaria’s demographic decline suggests the need to prolong working lives of the adult population, following the direction other EU Member States, old and new:  Strengthen incentives to remain active in the labor market even beyond the statutory retirement age and consider raising the statutory retirement ages for men and women. The economic crisis should not be used to argue for a reversal of Bulgaria’s recent increase in statutory retirement ages. Rather, with its statutory retirement age still below that of many European neighbors, Bulgaria may wish to bring its provisions in line. Moreover, some European countries, for example Germany, have introduced measures to raise the retirement age above 65. Bulgaria may wish to explore policies adopted in the Baltic States to discourage early retirement by reducing pension benefit and encourage deferred retirement through higher accrual factors. Raise skills and human capital for the medium-term Both short-term skills gaps and long-term agenda of raising Bulgaria’s human capital requires an all- out effort to enhance access to quality education and training at every level from early childhood education and development programs through to adult training. While the skills and human capital agenda are of a medium-term nature, the time for action on laying the ground for future human capital increases is now. Challenge 5: Too many youth drop out of school early and become NEET: In 2005, close to 25 percent of Bulgarian 15-24 year olds were neither in employment, education nor training (see Figure 4). Contrast that with the Netherlands where 35 percent of the youth population was both in the labor market and education at the same time. Bulgaria is not the only new EU Member State with a NEETs problem – it 8 Ibid. 8 appears to be widespread across the region. However, there are also exceptions: Slovenia in particular is a case which merits examination. The message is that lacking part-time employment opportunities and low youth participation in the labor market in Bulgaria appears to go hand in hand. Figure 4: Too many Bulgarian youth leave education early, but not to join the work force education and employment status of 15-24 year olds, 2005 40 30 20 10 percent 0 United Kingdom Czech Republic Luxembourg Belgium Slovakia Slovenia Lithuania Finland Netherlands Bulgaria Romania Hungary Germany Portugal Cyprus Estonia Spain Poland Ireland Denmark EU 27 av Latvia Austria Italy Sweden Malta Greece France -10 -20 -30 neither in education nor employment both in education and employment Source: Eurostat This challenge could be met through the following policy measures:  Promote early childhood education and development (ECED) interventions to promote school readiness, particularly for children from marginalized backgrounds such as Roma. There is strong international evidence that investments in ECED interventions, including health and educational programs, have a substantial impact on subsequent education outcomes in primary and secondary schooling and yield greater returns than later investments9. ECED interventions typically aim at developing cognitive, motor and behavioral as well as language skills through educational components. Likewise, their nutrition and health components affect individual growth and brain development well ahead of school age. While such programs play an important role in raising human capital across the population, they are particularly important for children from marginalized backgrounds. Recognizing the importance of ECED, Bulgaria has already introduced one year of free and mandatory pre-school and raised its pre-primary enrollment rate from 66 to 77 percent between 2000 and 2005. However, while the mandatory year remains not fully implemented, in particular among the more marginalized children such as Roma, preschool enrollment in the advanced EU countries is above 90 percent. Further promoting the ECED agenda will involve developing new child welfare services aimed at children aged 0-3 focused on community outreach and parental training as well as expansion of the supply of crèches/nursery as well as kindergarten places for the 3-6 year olds. 9 Cunha, F., Heckman, J., Lochner, L. & Masterov, D. (2005), Interpreting the evidence on life cycle skill formation (North Holland, Amsterdam). 9  Intensify efforts to prevent early school leaving and boost retention in education and training. More than 60 percent of Bulgarian youth neither in education nor employment have basic education and less. They should be in education. o Introduce incentive measures to keep youth in school for longer. Several OECD countries have introduced incentive measures to promote retention in school beyond compulsory school age, and there are examples for positive and negative incentives: (i) cash incentives for youth from low income families to stay in school post compulsory age, such as the Education Maintenance Allowance (EMA) Program in the UK, or (ii) the extension of mandatory schooling until the completion of upper secondary education or until the age of 18, as recently introduced in the Netherlands. Cash incentives could be provided through raising the individual eligibility threshold for Guaranteed Minimum Income (GMI) for those youth between 15 and 18 who remain in school beyond compulsory schooling10. o Promote early outreach through school counseling and professional orientation to identify and counsel those youth at risk of drop out. Prevention of early school leaving, and retention in formal education and training requires early outreach to and advisory services for those at risk of drop-out. The experience of the United Kingdom’s “Connexions� services tasked with providing guidance to 13-19 year olds, in particular disadvantaged youth, suggests that the Bulgarian child protection services at the local level could more proactively, and in a more formalized manner, support schools in engaging youth at risk and counseling them about their options to remain in school or training beyond compulsory schooling. o Introduce more varied, alternative and flexible pathways to education and training and more choice for youth beyond the compulsory school age. Many OECD countries have introduced apprenticeship and training programs and other programs that combine work and training for young people who do not wish to remain in formal schooling beyond the compulsory school age. The United Kingdom is moving towards a policy mix of (i) guaranteed place in education or training program after age 16 (“September Guarantee�), (ii) a broadening of learning options (“14-19 Strategy�) ranging from formal schooling through diploma programs linking academic and vocational learning, apprenticeships to work-based learning programs, and choice with respect to providers, including schools, colleges, private training providers or accredited employer-provided training. The aim is to ensure that all youth participate in education and training until they are 18 or achieve a formal qualification (whichever is earlier)11. In addition, it will be important to introduce and develop mechanisms to recognize the qualifications of individuals obtained through informal and non-formal education, for example through the development of a National Qualification Framework. 10 However, given the large variance in schooling outcomes between schools (as opposed to within schools), as documented in the OECD PISA 2006 assessment, Bulgaria needs to also focus on improving school quality, in particular for children from marginalized backgrounds. If schools are bad, efforts to keeping young people in school for longer will not result in improvements in education outcomes and skills. 11 OECD (2008) Jobs for Youth: United Kingdom, OECD: Paris 10 Challenge 6: Youth leave education insufficiently prepared for the knowledge economy. While too few young Bulgarians are staying on in education, especially at higher levels, many who do stay in education do not acquire the necessary skills and competencies to compete in a high innovation economy and meet skill needs from employers – marketable, often vocational, qualifications which would guarantee a job. But this also holds for generic, transferable skills increasingly needed in an era of fast technological change: For example, as shown in Figure 5, more than 50 percent of Bulgarian 15 year olds scored low on the PISA 2006 reading literacy tests – a significantly higher share than their peers elsewhere in the EU – new and old Member States alike – and other developed economies. This suggests that Bulgarian youth may be graduating from school unprepared for the needs of the knowledge economy. Figure 5: Bulgaria’s 15 year olds are behind in reading literacy, Percentage of students with reading literacy proficiency level 1 and below on the PISA reading literacy scale, 2006 50 40 percent 30 20 EU benchmark 2010 10 0 EU SW EE HU CZ ES SLO AT FR SK FI IE UK IT DE DE NL LV LU LT GR BG RO BE PL PT Source: OECD PISA database, presented in European Commission (2008), Progress towards the Lisbon objectives in education and training, Indicators and Benchmarks, Commission Staff Working Document. Note: Reading literacy is defined as “understanding, using and reflecting on written texts, in order to achieve one’s goal, to develop one’s goal, to develop one’s knowledge and potential to participate in society�. The scale is level 1 and below (worst) to level 5 (best). Netherlands, Luxemburg and UK are not representative in 2000. The EU figure is a weighted average based on the number of students enrolled and data for 18 countries. This challenge could be met through the following policy measures:  Complete the ongoing process of modernizing the primary and secondary school system, also including vocational education and training. Bulgaria has initiated a substantial reform of the primary and secondary school system building on international experience, with delegated budgets, school-based management, per-student financing, external assessment and enhanced teacher training. This reform, currently under implementation, will decentralize decision-making to the school level and provide more autonomy to the school to improve learning environments and enhance the accountability of the school to the local community. It is also achieving financial savings which can be reinvested in measures to promote education quality. o Place a greater focus on developing good monitoring systems to track performance of the system at the school level. Bulgaria has been building up systems of data collection, 11 including on external student assessments. The challenge now is to ensure that the systems are used to provide timely feedback on the education system overall, but also on how individual schools are doing and guide school improvement plans. Recent OECD PISA results suggest a large variance in student achievement between schools, as opposed to within schools, suggesting that there are many high quality but also many failing schools. This is consistent with anecdotal knowledge of vast underperformance of schools in socially excluded Roma localities – likely to be confirmed by external assessments at 4th and 7th grade. The new, decentralized Bulgarian education system with school-by-school student assessments allows more easy identify poorly performing schools and tackle their problems in a targeted manner. o Adopt active measures to attract, train, retain and reward effective teachers. International experience suggests that the quality and performance of teachers is a key predictor of student performance. This suggests the need, over the coming years, to focus on the development of the teaching profession, in particular through in-service teacher training to attract and retain highly qualified teaching staff. o Move to a competency-based approach in curriculum and learning. Because of rapid technological change and the need for continuous adaptation, the knowledge economy requires education systems to increasingly focus on equipping the future work force with generic and transferable skills and competencies. Curriculum reforms across the world are introducing elements of a competency-based curriculum with emphasis for example on problem solving and teamwork, creative use of knowledge and information, and building the basis for continuous life-long learning. This requires a redefinition of curriculum content, tasks and standards, more geared towards “situated� learning and less focused on disciplinary knowledge and absorbing “raw� information.  Promote tertiary education participation by increasing the pipeline of qualified upper secondary graduates and offering more pathways to tertiary education. o Enhance options for financial support for university students. Boosting tertiary participation will also require the provision of financial support, through student loans (to be introduced shortly) and scholarship programs for financially constrained students. o Improve the quality of secondary education in non-profiled schools, delay early selection of students and open multiple pathways into tertiary education. International experience suggests that delaying streaming of students out of general education into vocational education contributes to raising performance. Delaying the currently early selection into profile and non-profile schools (after 7th grade) and delaying the streaming of students into vocational education until after the completion of compulsory general education may contribute to raising the effective cohorts qualified to enroll in tertiary education. This would also involve developing curricula for vocational secondary schools that balance 12 vocational and general skills (in particular mathematics, science and language skills) and introducing pathways from vocational secondary schools to universities. o Expand the number of occupationally-oriented tertiary colleges. A part of Bulgaria’s low tertiary participation overall can be explained by the fact that it has a much smaller share of occupationally oriented short-cycle tertiary colleges compared to many EU neighbors. These colleges offer degree programs in more applied and vocational subjects12.  Enhance labor market relevance of university degree programs by promoting competition among tertiary institutions. Bulgarian universities already face increasingly stiff competition from universities abroad, evident in the large and growing share of Bulgarian university students moving to study abroad. However, greater labor market relevance of university studies need more domestic competition to expand, diversify and modernize degree programs. Bulgaria may wish to move to a system of empowered demand, i.e. a system where students have greater choice, and universities compete for students. This would require, in particular, changes to university governance to promote accountability for results13. Challenge 7: Few adults participate in life-long learning. Bulgaria is one of the EU Member States with the lowest share of adults participating in education and training. Measures to counter this include:  Pilot and test various approaches to promoting adult training. The Bulgarian Employment Agency has just launched a program to provide matching grants to employers for training their workforce, with financing from the European Social Fund (ESF) under the Operational Program Human Resources Development (OP HRD). While this is a step in the right direction, little is known whether the barriers to training are predominantly financial or whether there are others. For example, with access to finance having much improved over the last few years, the constraints will not be purely financial. Another important constrain may be the concern of companies that better trained workers will move to other companies (“poaching�). This is why programs that provide financial incentives to employers should be subject to rigorous evaluation to establish their impact and ensure that public funds are well spent. Additional approaches to be piloted and tested are the widening of the offer of distance education programs at all levels.  Ease alternative entry routes into higher education for adults and to continuing education programs provided by universities. Linked to the point on the recognition of qualifications obtained through informal and non-formal education through a National Qualifications Framework, efforts to introduce and ease alternative entry into higher education for adults is an important avenue to boost adult education. Such special entry routes would build on qualifications obtained through prior formal education, but also qualifications obtained through work. 12 For more, see World Bank (2007). "Accelerating Bulgaria's Convergence: The Challenge of Raising Productivity", World Bank: Washington DC. 13 Ibid. 13 Bulgaria’s employment activation and human capital agenda - reform recommendation matrix Impact Complexity Cost low med high Promoting Employment Challenge 1: Lacking skills reduce employability of the unemployed and may hold back the return to employment of the newly laid-off Promote demand-driven training programs for laid-off workers and workers on short working hours ST P T € Promote incentives for training aimed at both employers and individuals ST P T € Challenge 2: Many youth are inactive in the labor market Promote flexible and part-time work arrangements Introduce legislation on temporary work agencies MT T P € Introduce simpler contracting for part-time and temporary employment ST T P € Reduce barriers to part-time contracting in the social security system ST T P ? Pilot and test apprenticeship, internship and wage subsidy programs ST T/P € Develop youth-centered employment activation ST P T € Challenge 3: Certain adult groups are inactive in the labor market Enhance provision of child care MT P T €€€ Promote second chance education programs ST T/P €€ Challenge 4: Older worker leave labor market too early Strengthen incentives in the pension system to work longer MT T P ? Skills and human capital Challenge 5: Too many youth drop out of school early and become NEET Promote ECD programs to promote school readiness MT P T €€€ Intensify efforts to prevent early school leaving and boost retention in education and training Introduce incentive measures to prevent early school leaving ST P T € Promote school counseling and professional orientation MT T/P €€ Introduce alternative and flexible pathways to education and training MT P T €€ Challenge 6: Youth leave education insufficiently prepared for the knowledge economy Complete ongoing school education reform to improve quality and relevance Place a greater focus on developing good monitoring systems MT P T € Attract, train, retain and reward effective teachers MT P T €€ Move to a competency-based approach in curriculum and learning MT P T €€ Promote tertiary participation Introduce student loans and scholarship programs ST P T €€ Delay early selection into profile and non-profile secondary schools MT P/T € Develop curricula for VET secondary schools balancing vocational and general skills MT P T € Expand occupationally oriented short-cycle colleges MT P T €€ Enhance labor market relevance of university degree programs Enhance competition among tertiary institutions MT T P € Reform governance of higher education institutions MT T P € Challenge 7: Few adults participate in life-long learning Pilot test adult learning approaches ST T/P €€ Ease alternative entry routes into higher education for adults MT T/P €€ Note: The complexity and cost indicators are meant to give some broad guidance as to how difficult it will be to introduce the various reform recommendations and to help identify the easier solutions. “ST denotes short-term impact; “MT� denotes medium-term impact. “T� denotes technical complexity; “P� denotes political economy complexity. €, €€ and €€€ denote magnitude of fiscal costs. 14 wb220293 C:\Users\wb220293\Documents\Bulgaria\HD Policy Notes\Bulgaria Labor Market Policy Note Long.docx 9/3/2009 11:22:00 PM 15