Investing in People and Enhancing Innovation and Growth through Education in Europe and Central Asia June 2024 Contents Acknowledgments......................................................................................................................................... 1 List of Abbreviations ..................................................................................................................................... 2 1 Introduction .......................................................................................................................................... 3 1.1 ECA is facing multiple crises after a decade of declining competitiveness. ................................. 3 2 An Urgent Need to Revisit ECA’s Education Systems in Response to Key Megatrends ..................... 12 2.1 Changing Demography across the Region .................................................................................. 12 2.2 Digitization, Artificial Intelligence, and Technological Change ................................................... 14 2.3 Climate Change ........................................................................................................................... 15 3 Adapting the ECA Education Strategy to Address New Challenges and Invest in the Future ............ 16 3.1 Inclusion: Systems Focused on Learning for Students at All Levels of Education. ..................... 17 3.2 Resilience: Building Crisis-prepared Education Systems ............................................................ 19 3.3 Relevance: Building Future-ready Education, Training, and Research Systems ......................... 20 3.4 Maximizing Impact through System-wide Approaches .............................................................. 21 References .................................................................................................................................................. 23 Acknowledgments This note has been prepared by a team led by Tazeen Fasih including Ciro Avitabile, Matthieu Kalbfuss and Syeda Aroob Iqbal under the guidance of Rita Almeida, Michal Rutkowski and Fadia Saadah. The team is grateful to Stefanie Brodmann, Rafael De Hoyos, Indhira Santos and Jamele Rigolini for significant inputs and to the ECA EDU team for their critical inputs and information on the various projects. Fiona Mackintosh provided invaluable editing support. The team thanks the ECA Regional Management team and education global practice leadership team for their comments. 1 List of Abbreviations AI Artificial Intelligence ASA Advisory Services and Analytics B2C Business To Consumer DPL Digital Personalized Learning DPOs Development Policy Operations EAP East Asia and Pacific ECA Europe and Central Asia ECE Early Childhood Education ECEC Early Childhood Education and Care EGD European Green Deal EMIS Education Management Information System EU European Union GDP Gross Domestic Product GFFDR Global Facility for Disaster Reduction and Recovery IEA International Energy Agency LMICs Low- and Middle-Income Countries MOOC Massive Open Online Course NEET Not in Education, Employment or Training PIAAC Programme for the International Assessment of Adult Competencies PIRLS Progress in International Reading Literacy Study PISA Programme for International Student Assessment. PPP Purchasing Power Parity R&D Research and Development SAR South Asia STEM Science, Technology, Engineering, and Mathematics TaRL Teaching at the Right Level TFP Total Factor Productivity TVET Technician and Vocational Education and Training ROSE Romania Secondary Education Project UNHCR United Nations High Commissioner for Refugees WDS Whole Day School 2 1 Introduction In light of the emerging mega-trends and intricate challenges facing the Europe and Central Asia (ECA) region, this note presents a review of how neglecting to have a continued focus on education in ECA region can lead to a negative impact on innovation and growth. It presents a strategic realignment of the education sector interventions in the region. At the heart of this report lies the recognition of education as a transformative power given its pivotal role in shaping the future in ECA, paving the way for sustainable growth and development. The intended audience is World Bank internal stakeholders in ECA, specifically the country management teams, to help stimulate and facilitate the dialogue between the World Bank and its clients in ECA. At the same time, the report also targets a diverse audience, including policymakers, education practitioners, and researchers invested in the advancement of education in ECA. 1.1 ECA is facing multiple crises after a decade of declining competitiveness. The Europe and Central Asia (ECA) region is experiencing multiple crises that have resulted in a sharp deceleration in economic growth. After the COVID-19-induced economic contraction in 2020, the region started showing signs of recovery in 2021. However, as a result of Russia’s invasion of Ukraine and the steep increases in food and energy prices, growth in ECA plummeted to 1.2 percent in 2022. Although it improved slightly to 2.4 percent in 2023, some countries’ growth projection remained unchanged or declined, thus widening inequality among countries in the region (Kasyanenko et al, 2023). These multiple crises have resulted in internal displacement, limited job creation, and loss of learning for students. Figure 1: Labor productivity growth rates in ECA are lower than in EAP and SAR. Source: Reprinted from Dieppe 2021, figure 6A. Poverty reduction in ECA had stalled even before the recent crises. The poverty rate has remained stagnant at around 21 percent over the last decade (at $6.85 per person per day in 2017 PPP) for low and middle-income countries (LMICs) in ECA (Figure 2). Although relative inequality has decreased in most ECA countries, the majority of their people perceive inequality to be higher than before. This can be partly explained by the decline in the labor share of total income and partly by incomes being increasingly concentrated at the very top of the distribution. Inequality of income and opportunity is rising, most commonly affecting youths, low-wage earners, and inhabitants of lagging regions, which is corroding social cohesion in ECA (Bussolo et al, 2018). 3 Figure 2: Poverty reduction in the ECA region has stalled in recent years. % Population below $6.85 per day 100% 80% 60% 40% 20% 0% 1995 1998 2001 2004 2007 2010 2013 2016 2019 EAP LAC MENA EU non-EU ECA Source: Original calculations using the Poverty and Inequality Platform (World Bank) Over the last decade, productivity growth in ECA has remained stagnant at a low level of around 1.5 percent, which is about half of the growth in East Asia and the Pacific (EAP) during the same time period. Productivity growth dropped more steeply in ECA than in other regions following the global financial crisis in 2008, falling from an average of 5.3 percent during 2003-2008 to 1.7 percent in 2013-2018, even dipping below zero in Russia and the Western Balkans during the latter period. The region’s productivity growth has not yet recovered to pre-recession levels. This predominantly reflects weak within-sector productivity growth and total factor productivity (TFP) growth in Eastern Europe, the South Caucasus, and the Western Balkans and weak investment in Russia and Central Europe. Another factor is that in several countries such as Kazakhstan and Uzbekistan labor is transitioning from agriculture to low-productivity services sectors rather than high-productivity manufacturing and services sectors. Countries in ECA face challenges related to their working-age populations, innovation, and human capital, all of which impact total factor productivity (TFP). Historically, labor productivity growth has been driven by innovation, better education, and investment in physical capital, but over time, the effects of different drivers on productivity growth have changed. Factors such as innovation, the economic complexity of products,1 cross-border technology transfer, and demographic factors including a decline in the working-age population have increased in importance in 1995 to 2018 compared to the period from 1960 (Dieppe, 2021). Another key driver of productivity – research and innovation – is also lagging in ECA compared to the East Asia and Pacific (EAP) region. Countries in ECA have fewer patents granted for the size of their working population than EAP countries at similar income levels (Figure 3). Additionally, in ECA, expenditure on research and development as a percentage of GDP has remained mostly stagnant and has been lower than in EAP for most of the last 15 years. Low- and middle-income countries (LMICs) in ECA 1The economic complexity of products is a measure of the capabilities and know-how in a region as determined by the diversity, ubiquity, and complexity of the products that it exports. 4 invest only 0.9 percent of GDP in research and development (R&D) compared to an average of 2.2 percent spent by LMICs in EAP. As a result, the economic complexity of the products in ECA’s export basket has stagnated (Figure 4), again adversely affecting the growth potential of the region (The Growth Lab at Harvard University, 2019). Figure 3: Countries in Europe and Central Asia are lagging behind East Asia Pacific in innovations. Source: Original calculations using the World Development Indicators Database (World Bank) and WIPO 2023. While the share of the working-age population in the total population is falling in most countries in the ECA region, the Central Asia region is an outlier with a young and growing population. Sharp declines in fertility rates are driving the decline in the working-age population in most European economies. Urbanization and higher population density, tend to raise productivity through knowledge spillovers (Abel et al, 2012), deeper markets for workers and local services, and better matching between the skills of workers and the needs of firms (Combes and Gobillon, 2015; Duranton and Puga, 2004). However, in Central Europe, the Western Balkans, and Eastern Europe, urbanization has stalled. 5 Figure 4: The economic complexity of ECA’s export basket has remained stagnant over the last quarter century. Source: Original calculations using The Growth Lab at Harvard University 2019. The low quality of human capital limits the growth potential of ECA countries. Before COVID, a child born in ECA was expected, on average, to attain 69 percent of their full productivity by their 18th birthday (World Bank, 2020). However, when the scores of the World Bank’s Human Capital Index for ECA countries are adjusted for access to and quality of higher education and risks to adult health, it drops to 48 percent. This means that children will be on average half as productive as they would have been with a complete education and full health (Demirguc-Kunt et al, 2020). The main factors behind this loss of productivity are the low quality of education in ECA countries and the lack of relevance of the skills being taught to the rapidly changing labor market. While children in ECA attend 13 years of schooling, they only acquire 10 years of learning. This schooling-to-learning gap has persisted over the last two decades. Similarly, while access to tertiary education is increasing in ECA, the quality of tertiary education varies substantially. As a result, while on average, people in ECA are expected to attain around 14.5 years of education if tertiary education is included, they acquire on 11.3 years of learning. In Georgia and Kazakhstan, they lose up to five years of learning due to the poor quality of education in those countries (Figure 5). 6 Figure 5: On average, ECA students lose up to five years of learning due to the poor quality of education in the region. 18 16 14 12 10 Years 8 6 4 2 0 BGR ISL MDA LVA CYP DNK FIN GBR UZB MNE POL SWE TJK TUR HUN UKR PRT SVK LUX MKD AZE KGZ KAZ ITA HRV SVN LTU RUS AUT EST NLD ALB ESP BLR BEL ARM ROU GEO SRB MLT DEU CZE CHE FRA NOR BIH GRC IRL Expected years of schooling accounting for tertiary education Learning-adjusted years of schooling accounting for tertiary education Source: Demirguc-Kunt and Torre 2020 and World Bank 2020. There are significant differences between countries in the ECA region. The population in advanced economies such as Ireland and the Netherlands are expected to attain around 13.4 years of learning- adjusted years of schooling, whereas students in low-middle income economies such as Tajikistan acquire only 7.4 learning-adjusted years of schooling. There are also in-country differences in outcomes between students from different economic backgrounds. According to the data from the 2021 Progress in International Reading Literacy Study (PIRLS), 4th graders in Hungary and Bulgaria from the poorest quintile have lower scores on the test than their peers from the richest quintile by the equivalent of around four years of schooling. Also, results from the 2022 Program for International Student Assessment (PISA) show that, by the age of 15, a student from the bottom decile of socioeconomic status in a high-income ECA country has learned on average around three years less than their peers from the top decile. Similarly, in middle-income economies in ECA, a student from the bottom socioeconomic decile performs around two and a half years of schooling behind their peers from the top decile (Figure 6). These large differences in education outcomes at the lower secondary level are likely to prevent students from socioeconomically disadvantaged backgrounds from accessing future educational and work opportunities. Children belonging to minorities or historically excluded groups are also at risk of being excluded from these opportunities. Roma children are among the most vulnerable and disadvantaged groups in ECA, with educational outcomes dramatically below the average in all countries where they settle. For example, the percentage of children of upper-secondary age who completed primary education2 in Roma settlements is as low as 68 percent in Montenegro and is no higher than 85 to 91 percent in Kosovo, North Macedonia, and Serbia. These numbers are 9 to 28 percentage points lower than the national averages, and they increase with the child’s age. The percentage of children of upper secondary age who have transitioned to upper secondary education in Roma settlements is as low as 10 percent in Montenegro, followed by Serbia (30 percent), Kosovo (38 percent) and North Macedonia (45 percent). These numbers 2 Children aged 15 to 18 in Kosovo, Montenegro, and North Macedonia and children aged 14 to 17 in Serbia. 7 are 47 to 80 percentage points lower than the national averages (UNICEF, 2022). In addition, living in an urban setting is associated with better educational results, as evidenced by the 31-point difference in average scores between urban and rural schools in ECA countries according to PISA 2015. Figure 6: Large within-country differences exist in learning outcomes between students in the bottom and top deciles of the socioeconomic distribution. 600 Reading performance in PISA 2018 550 500 450 400 350 300 Italy Austria Latvia Georgia Netherlands* Estonia Greece Belgium Kazakhstan Kosovo Finland Poland Moldova Luxembourg Baku (Azerbaijan) Albania Ireland Bulgaria Switzerland Croatia Turkey Lithuania Cyprus Hungary Russia Serbia Portugal* Ukraine Sweden Belarus Romania Montenegro Iceland Norway Slovenia United Kingdom France Czech Republic Germany Denmark North Macedonia Slovak Republic Below the bottom decile of ESCS Above the top decile of ESCS Source: OECD 2019a. Note: ESCS refers to the PISA index of economic, social, and cultural status (ESCS). Around 30 to 40 PISA points are equivalent to one year of schooling Because of conflicts and natural disasters, ECA is experiencing a large increase in the number of vulnerable groups at risk of exclusion (Figure 7). As of January 2023, an estimated 5.4 million people are internally displaced within Ukraine as a result of Russia’s invasion (IOM, 2023). As the conflict goes on, protracted displacement is becoming more prevalent, with 58 percent of internally displaced individuals having endured it for six months or more. At the same time, the UNHCR has recorded the presence of an estimated 8.08 million Ukrainian refugees in other European countries.3 Even before the Ukraine war, Europe hosted the largest number of refugees (6.97 million) globally as of December 2021, which is much more than other regions (UNHCR, 2021). In 2021, Türkiye was host to the largest refugee population in the world, with more than 3.6 million refugees at year-end or 15 percent of all people displaced across borders globally. Germany was the second-largest refugee-hosting country in Europe and third largest globally, with 2.1 million refugees (UHNCR, n.d.). There is a need to protect these vulnerable populations and ensure that the host countries receive the support required to ensure that they can access quality services. 3The largest number of Ukrainian refugees (1.56 million) are in Poland, followed by the Czech Republic and Romania. For some host countries, such as the Czech Republic where Ukrainian refugees represent around 5 percent of the country’s population, this represents a substantial rise in population, increasing pressure on domestic service delivery sectors such as education and health (UNHCR / Ukraine Refugee Situation - https://data.unhcr.org/en/situations/ukraine. Accessed February 24, 2024) 8 Figure 7: The number of refugees and asylum seekers has increased dramatically in ECA over the past decades. Source: Original calculations using UNHCR 2023. Although the COVID-19 crisis led to a significant decline in learning outcomes in most ECA countries, learning was already on a declining trajectory. Recent standardized data on learning outcomes for students in different age groups (PIRLS 2021 and PISA 2022) illustrate a common trend. On average, there has been a significant decline in learning in ECA countries, irrespective of the student age group, compared to the last data collection period before the pandemic. In the 2021 PIRLS reading assessment for 4th graders, 21 out of the 26 ECA countries that participated experienced a decline in scores between 2016 and 2021 (Figure 8). In Kazakhstan and Azerbaijan, the losses were equivalent to around one year. In PISA 2022 evaluation of cognitive outcomes among 15-year-old students, 36 out of 37 ECA countries that participated experienced a decline in math scores, while 34 experienced a decline in reading scores (Figure 9). Albania stood out for its losses, especially in mathematics, and another three countries (Iceland, Macedonia, and Finland) had learning losses equivalent to one year of education. Economists project these learning losses to translate into lifetime earnings losses of US$2.9 trillion, while as a percentage of current GDP, they are likely to amount to 13 percent. In annualized terms, this equals 0.6 percent per year of lost GDP in the ECA region.4 However, the large drops experienced after COVID-19 should not divert attention from the declining structural trends in learning outcomes in many countries that pre-dated the pandemic. For instance, both Greece and Bulgaria had been experiencing significant declines starting from 2015, and their current levels of learning are comparable to those that prevailed in 2006. 4 All studies that measured learning loss by socioeconomic status found greater learning loss among students or schools with lower socioeconomic status. For example, in the Netherlands, 60 percent higher learning losses were observed for students from families with lower educational backgrounds (Engzell et al, 2021). Similarly, in the United Kingdom, schools serving disadvantaged students suffered 50 percent higher losses in reading than average (DfE, 2021). 9 Figure 8: Twenty-one ECA countries experienced declines in reading outcomes, with a few countries reporting a loss of around 30 PIRLS points – roughly equivalent to a year of schooling. 30 Change in Student Leaning Outcomes in Reading: 20 10 PIRLS 2016 - PIRLS 2021 0 -10 -20 -30 -40 DNK AUT DEU HUN IRL AZE SVK BGR NLD NOR GEO LTU SVN LVA CZE ESP FRA GBR SWE KAZ PRT BEL ITA POL FIN Source: IEA 2021. Note: Twenty-six ECA countries participated in both PIRLS 2016 and 2021. Figure 9: Thirty-six ECA countries experienced declines in mathematics outcomes and thirty-four in reading outcomes. 10 Change in Student Leaning Outcomes in Mathematics and 0 -10 Reading ; PISA 2018 - PISA 2022 -20 -30 -40 -50 -60 -70 -80 BGR MNE GBR FIN DNK ISL HUN LVA XKX MDA SWE PRT POL LTU TUR SVK MKD KAZ AZE SVN ITA HRV AUT BEL ROU DEU NLD SRB CHE CZE NOR IRL GEO EST FRA GRC ALB Mathematics Reading Source: OECD 2023. Note: Thirty-seven ECA countries participated in both PISA 2018 and PISA 2022. 10 In today's educational landscape, significant challenges persist that are hindering the full realization of students' potential. These include: (i) outdated curricula and pedagogies, often characterized by excessive memorization, that are failing to meet the evolving needs of learners who are becoming disengaged and frustrated; (ii) the rise of mental health problems among students, underscoring the pressing need for comprehensive support systems within educational institutions; and (iii) the lagging research and innovation within post-secondary institutions that is hampering their capacity to stay competitive on a global scale. These challenges are causing service providers to have to deal with widespread disruptions while making it increasingly unpredictable which competencies and skills are being sought by the labor market. This underscores the need to develop education systems that are ready for the future. Neither the quantity nor the quality of education spending has improved in the last decade, with investment going down in some ECA countries. Despite the heightened need for investment in education in many countries, government spending as percentage of total government spending has remained substantially unchanged over the last decade in ECA (12.3 percent in 2014-2015 and 12.2 percent in 2019- 2020). As a result, education spending in non-European Union ECA countries is well below the European Union (EU) average. Between 2015 and 2019, average spending on education as a share of GDP in ECA was 4.7 percent compared to 6.8 percent in the EU. Furthermore, from 2010-2014 to 2015-2019, average education spending as a share of GDP had declined from 6.3 percent to 5.3 percent in Eastern Europe and from 4.1 percent to 3.7 percent in the Western Balkans (Figure 10). Middle-income countries in ECA spend much less on education as a share of GDP than their high-income peers in the region (4.2 percent versus 5.1 percent). The efficiency of their spending is also limited. In Bulgaria, for instance, there is no evidence that municipalities with higher education spending produce better education results (Al-Samarrai and Lewis, 2021). With the fiscal pressures brought by COVID-19, education expenditures in the 21 ECA countries with data available for 2019 and 2021 declined substantially after the pandemic. According to the UNESCO Institute for Statistics (2023), the largest drops in government expenditure on education as a percentage of GDP came in Norway (4.96 percent down from 7.86 percent), Denmark (5.93 percent down from 7.26 percent), Sweden (6.65 percent down from 7.64 percent), Uzbekistan (5.37 percent down from 6.29 percent), and Albania (3.02 percent down from 3.92 percent). 11 Figure 10: Average investments in education (as a share of GDP) decreased substantially in the Western Balkans and Eastern Europe and slightly in the ECA region on average. 7% 6% Share of GDP 5% 4% 3% 2% 2000-2004 2005-2009 2010-2014 2015-2019 South Caucasus Eastern Europe New EU Member States Russian Federation Turkey Europe and Central Asia Western Balkans EU Source: Original calculations using the World Development Indicators Database (World Bank). 2 An Urgent Need to Revisit ECA’s Education Systems in Response to Key Megatrends Having established that having an educated population is critical for economic growth, it is becoming necessary to understand the way in which education systems in ECA are operating given the advent of three specific megatrends – changing demography, technological change, and climate change. 2.1 Changing Demography across the Region In the coming decades, the working-age population in Europe is projected to decline steeply, while the population in Central Asia is set to rise. By 2050, the share of the working-age population in Europe will have declined from 65 percent in 2022 to 59 percent, and one in four people in European countries will be aged 65 or over. This decline will put increased pressure on the economy as the shrinking working-age population will need to support a larger share of the elderly population. Additionally, the lifespan of people in ECA is expected to increase by an additional 21 years on average, with women living longer than men (22.5 years versus 19.5 years respectively). Central Asian countries, on the other hand, continues to have a high fertility rate and still have the potential to benefit from a demographic dividend (Figure 11). Increased investments in human capital will be required to ensure that the smaller share of the working- age population in European countries is able to support a thriving economy and the larger population in the Central Asia region can lead to a demographic dividend. 12 Figure 11: The working-age populations of all sub-regions of ECA except Central Asia will be declining. Source: Original calculations using UN DESA 2022. Note: Regional and sub-regional averages are simple averages of country values. The changing demography of the ECA region requires a shift away traditional ways of organizing the education and skills development system. On the one hand, many ECA countries with shrinking populations, particularly in rural areas, tend to have empty schools with low number of enrolled students. These are costly to maintain, and it is hard to improve their quality (Echazarra and Radinger, 2019). In many of these countries, schools will need to be rationalized to make them more cost-effective, with some countries such as Romania and Bulgaria having already implemented such measures. On the other hand, countries like Kazakhstan and Uzbekistan are struggling to provide enough places in schools to accommodate the growing population and often have to run two to three shifts within the same school in a given day. At the higher education level, because the number of students aged 15 to 19 is shrinking in many ECA countries, the traditional in-person mode of instruction might soon become inefficient. As their budgets get tighter, higher education institutions are being forced to find innovative ways to serve people in age groups and from socioeconomic backgrounds who have traditionally been unable to access higher education. The changing demographics of the ECA countries also impacts school staff, including teachers and educators. In most ECA countries, the most well trained and experienced teachers are retiring and leaving the workforce. As a result, there is a heightened need in those countries to attract, train, and retain new teachers, while also taking the opportunity to rationalize the size of the teaching workforce. 13 Because the populations of ECA countries are declining and/or aging, there is a need to provide quality lifelong learning opportunities to maintain productivity levels. The aging of the workforce in ECA is likely to have a negative impact on aggregate productivity unless it is remediated by the creation of strong lifelong learning systems. Age by itself does not necessarily lead to a drop-off in aggregate human capital and productivity. A 2013 projection analysis found that, by the year 2042, the United Kingdom’s population would be chronologically older but, based on cohort-level education improvements, cognitively younger (Skirbekk et al, 2013). Similarly, in the Russian Federation, where the older generation is better educated than the younger generation, older adults (aged 55 to 64) were found to perform better than younger adults (aged 25 to 34) in the OECD’s Programme for the International Assessment of Adult Competencies (PIAAC 2012), which tests literacy, numeracy, and proficiency in problem-solving in technology-rich environments (Bussolo et al, 2015). Therefore, an aging population provided with the right lifelong learning opportunities can have the cognitive capacity to contribute effectively to the economy. 2.2 Digitization, Artificial Intelligence, and Technological Change Technological change is not only transforming labor markets globally, but it is also disrupting how teaching and learning happens at all levels of education. Rapid advancements in technology are changing the nature of jobs to be conducted by humans and impacting the mix of skills that are in demand. The World Bank’s 2019 World Development Report “The Changing Nature of Work” found that, in advanced economies, employment has been growing fastest in high-skilled cognitive occupations and in low-skilled occupations that require physical dexterity (World Bank, 2019). For instance, in all subregions of Europe, the employment share of non-routine, cognitive, task-intensive occupations, which are usually well- paying jobs, rose from late 1990s to the early 2010s (Figure 12). Simulation results have shown that transition to a job that involves many non-routine cognitive tasks implied an increase of around 25 percentage points in wages. Technological change has also contributed to increasing the return to other skills. For instance, in Sweden, the return to non-cognitive skills almost doubled between 1992 and 2013 (Edin et al, 2022). Figure 12: The employment share of non-routine, cognitive occupations increased in all sub-regions in Europe from the late 1990s to the early 2010s. Source: Reprinted from Bussolo et al. 2018, figure 2.6. 14 Only a small share of adults (aged 16 to 65) in ECA has the minimum proficiency required to operate and solve problems in technologically rich environments (Figure 13). Although technological advancement has the potential for high productivity gains, these are not being fully leveraged by countries in ECA. Europe has few large tech and data companies. Today, the top tech companies in the world are mostly headquartered outside Europe, such as Alphabet, Apple, Facebook, Microsoft, Alibaba, and Tencent. SAP, which is the most valuable company in Germany and the second most valuable company in Europe (after Royal Dutch Shell), is Europe’s sole data company among the global leaders, coming in at number 12. Europe also lags behind in the widespread adoption of transactional and informational technologies. For example, while the use of digital sales and e-commerce platforms is associated with higher labor productivity, less than one-fourth of firms in Europe used a B2C (business to consumer) website to sell online as of 2018. Similarly, greater use of business management software and cloud computing is also associated with higher labor productivity, but only around 40 percent of firms in the EU- 27 countries use these informational technologies (Hallward-Driemeier et al, 2020). Although there is no clear evidence of a causal link, if the labor force were better able to perform in technology-rich employment, this might help companies to make more effective use of technology in the workplace. Figure 13: Only a small share of adults (aged 16 to 65) has the minimum proficiency required to solve problems in technology-rich environments. 50 Percentage of adults with minimum proficiency in problem solving in technoloy-rich environments 40 30 20 10 0 Turkey Hungary Austria Norway Finland Greece Poland OECD average Denmark Slovak Republic Germany Ireland Czech Republic Kazakhstan Slovenia England (UK) Lithuania Estonia Flanders (Belgium) Sweden Russian Federation² Source: OECD 2019b. The increased ease of access to artificial intelligence (AI) technologies within the last year has the potential to massively change the way in which education will be delivered and used in the future. There is a growing need for governments and education administrators to find ways to harness the potential of technology to adapt education and training to maximize the ability of individuals to lead productive lives and contribute to economic growth. 2.3 Climate Change Like everywhere else in the world, climate-related disruptions have directly impacted education service delivery and student attainment in ECA. ECA is not immune to these shocks, as evidenced by the recent 15 floods, heatwaves, wildfires, and drought such as in Kazakhstan, Turkey, France Italy, and Greece. Climate change can impact education in many diverse ways, including damage to schools and roads and reductions in household incomes that prompt parents to withdraw their children from school. While the impact of climate-related natural disasters and shocks on school buildings are obvious and make frontline news, the subtle but sustained impacts of climate change too often go unacknowledged in the policy dialogue. For instance, global warming can negatively impact children’s cognition and ability to learn. A study in the United States found that a one standard deviation increase in average temperature (equivalent to 4.4 degrees Fahrenheit) during exams reduced a student’s likelihood of graduating on time by approximately 3 percentage points (Park, 2020). Similarly, children’s learning is often also negatively affected by air pollution. A study from Israel suggests that even short-term exposure of students to ambient carbon monoxide or to fine particulate matter has a negative impact on their high-stake test scores (Ebenstein et al, 2016). Studies also suggest that exposure to pollution in utero can depress children’s learning ability and their scores at later stages in life (Bharadwaj et al, 2017). Transitioning to “net zero carbon emissions” in ECA will require behavioral changes in most activities of human life, and educating current and future generations on how to adopt more sustainable ways of living will be at the heart of the success of this transition. More educated individuals are better equipped to understand the complexities of climate science and have more awareness of the embedded risks. A global survey in 2019 found people with more education were more likely to recognize climate change as a major threat (Fagan and Huang, 2019). More education also produces graduates with skills that are transferable between occupations, while also giving them the information and motivation to vote for policies that promote less-polluting industries, such as renewable energy subsidies. In fact, having an additional year of education is associated with the likelihood of having pro-climate beliefs, behaviors, and policy preferences. One year of education has also been found to increase the likelihood of voting green by a substantial 35 percent, which is particularly consequential for promoting pro-climate policies (Angrist et al, 2023). To deploy more clean energy at scale, it will be a massive need to train and reskill the ECA workforce and to put in place policies to protect those whose livelihoods will be negatively affected by these changes. The European Green Deal (EGD envisions reducing net emissions of greenhouse gases to zero and decoupling economic growth from resource use for all people and places. The global energy sector produces three-quarters of all greenhouse gas emissions, primarily due to its reliance on fossil fuels. Therefore, the shift towards zero net emissions will require a major structural change in ECA to create millions of new clean energy jobs that will change the composition of existing jobs and the skills required in the labor market. In 2019, power generation employed 11.3 million people globally, of whom 6.8 million were in renewables. In recent years, the share of energy employment related to clean energy technologies has grown steadily, and this trend proved resilient through the COVID-19 pandemic. As a result, the International Energy Agency (IEA) estimated that clean energy jobs, which require higher skills (Sanchez- Reaza et al, 2023), constitute the majority share of energy employment (IEA, 2022). 3 Adapting the ECA Education Strategy to Address New Challenges and Invest in the Future The three megatrends discussed above will require a recalibration of the traditional education and skills systems in ECA. For instance, investments in school infrastructure need to become more responsive to the changing demography in the region, particularly declining student populations, and need to include 16 investments in digital infrastructure and energy efficiency. The aging of the teacher workforce may require massive new recruitment or the use of innovative approaches to leverage technology to complement in- person teaching. Similarly, investments in the curriculum need to prioritize strong foundational skills, while making space for project-based learning and digital skills in order to allow lifelong learning and to foster climate consciousness. Investments in vocational and tertiary education will need to build closer links between educational institutions and technological and green industries to spur innovation and growth in these sectors and leverage the megatrends to boost the region’s growth. Given these new trends, we propose that a new World Bank ECA education strategy should have three pillars or priorities - inclusion, resilience, and relevance (see Figure 14). In addition, we see technology and gender as cross-cutting themes that influence the strategy across all of the pillars and at all education levels. Figure 14: The new ECA education strategy includes three strategic pillars – inclusion, resilience, and relevance. Source: Original figure for this publication. 3.1 Inclusion: Systems Focused on Learning for Students at All Levels of Education. The first pillar focuses on ensuring the provision of foundational learning for all individuals, including not only basic literacy and numeracy but also digital, higher-order cognitive and socioemotional skills. Given the rise in income inequalities within and across countries and the persistence of learning outcome differences between students from different socioeconomic backgrounds, this pillar is fundamental. Achieving inclusion will require that all students are taught the key building blocks for a life of learning and equipped with the knowledge and skills needed to proceed to their next level of education or to be productive and employable in the labor market. Foundational skills not only include basic literacy and numeracy but also higher cognitive and socioemotional skills as well as digital skills. There is well- established evidence, including for EU countries, that new technologies are increasingly making very sector-specific competencies outdated, which means that providing students with strong foundational 17 skills will be the best way to enable them to adapt to the fast-paced new labor market (Autor et al, 2003; Dalvit et al, 2023). High quality, play-based early childhood education (ECE) is the best investment for ensuring that students get a strong early foundation on which they can build as they continue learning (Howes et al, 2008). It provides the basis for future skills acquisition and productivity for young children during a critical window of their development (Cunha and Heckman, 2007; Duncan and Magnuson, 2013; and Rao et al 2014). For example, the World Bank is supporting innovations in the delivery of ECE through its support to a project in Uzbekistan.5 This project supports not only the expanded enrollment of children aged 3 to 7 but also the increased availability of pre-schools in remote areas by converting old buses into well- equipped mobile ECE classrooms. Students who enter higher education with gaps in their foundational skills often fail to complete their studies or fail to acquire the advanced generic and specific skills that would enable them to thrive in the labor market. Strong foundational skills are the necessary condition for students to thrive throughout their education trajectory. Both in the Education Quality Improvement Project in Moldova and in the Evaluating the Effectiveness of Tutoring Program for Adolescents in Ukraine ASA, the World Bank is piloting cost-effective tutoring solutions to close the gaps in the foundational skills of the most disadvantaged. The Romania Secondary Education Project (ROSE) aims to reduce dropout rates of students in their last year of study at low-performing high schools and to increase retention rates in their first year of university studies through a combination of school grants and remedial programs for students lagging behind. The World Bank’s education portfolio in ECA supports the inclusion of minorities, children with special needs and equality for girls. This includes focus on Roma children, girls and women (for instance, in Tajikistan where it supports increasing their access to STEM courses and research opportunities in higher education), and for children with special education needs (for instance, its support for developing special needs education in pre-schools in Kyrgyzstan). The Bank’s current education strategy in ECA specifies inclusive and safe education as being fundamental to the development of foundational skills for all. Given the rapid pace of technological and digital transition, adapting curricula to focus on foundational skills will be essential. In a world where many jobs of the future are expected to be very different from what we see in the present world (World Economic Forum, 2016), instilling cognitive, socioemotional, and digital skills throughout the learning process will be critical to ensure that individuals are able to adapt as the nature of jobs changes around them. The ECA region contains some countries that are high achievers on the PISA tests, including Portugal whose PISA scores improved by almost one full year of schooling between 2000 and 2018 and Estonia, which is one of the highest achievers in PISA. These countries focused their curricula on foundational learning to high quality standards. An emphasis on assessments, both national and international, helped these countries to identify weaknesses in their systems and areas of priority in their teaching and learning in the classroom. In order for ECA students to maintain a competitive edge in the changing world, the emphasis should be on revising and updating curriculum and on improving the pedagogy by introducing more learner-centered inquiry-based approaches. Teacher training needs to be revised to ensure that teachers have the ability to develop these foundational skills in their students. There should be a strong emphasis on pre-service teacher training as well as continuous professional development. The most successful education systems globally as well as in Europe, for instance Finland, each have a highly competitive teacher selection process with salary structures commensurate with any other jobs with similar level of education required in the economy. 5 Uzbekistan – Promoting Early Childhood Development Project (P165737) 18 The World Bank continues to support countries in strengthening their teacher training while bringing in new research and innovative ideas from global good practice. Technology has also proved to be a boon in teacher training and management. From basic teacher groups on WhatsApp to exchange ideas to specific applications with easy to access teaching resources to teacher assessments and certifications, the use of properly implemented technology can make service delivery more effective and efficient. Finally, technological changes can trigger a radical transformation in how education management and information systems (EMIS) work, allowing for seamless communication among stakeholders or early warning systems to be incorporated into the system to inform principals’ and teachers’ decision-making and improve student outcomes. Education technology can help to improve students’ foundational skills in a cost-effective way at all levels. An upcoming report from the World Bank (forthcoming) presents a framework in which the use of digital technology in education must be seen as part of a broader transformation that is affecting the lives of individuals and communities, both directly and indirectly. In classrooms, teachers are already using digital tools to share visual evidence, to engage students in projects, and to practice their skills through interesting and engaging games or tools. In some cases, teachers are even using augmented and virtual reality to help students to practice hands-on learning. Teaching at the Right Level (TaRL) is an approach that groups children based on their learning levels rather than age or grade that has been proven to be a very effective way to close the learning gap. However, conducting personalizing learning on a large scale through classroom instruction alone is beyond the means of many high-income countries, let alone middle- and low-income countries. Individual tutoring online, which was found to be effective to mitigate learning losses during the pandemic (Carlana and La Ferrara, 2021), can offer a long-term solution to improving the academic performance and socioemotional skills of the most disadvantaged students. Digital personalized learning (DPL) is technology that leverages AI and machine learning to provide students with adaptive instruction tailored to their competency levels. As such, it is a cost-effective way to level the playing field, especially in mathematics (De Barros et al, 2021), across all levels of education (Angel-Urdinola et al, 2023). In higher education, the large-scale availability of open access digital resources is already complementing in classroom teaching. Learners are able to learn from world- renowned professors through Massive Open Online Courses (MOOC) platforms at no cost or very low cost from any geographical location. By expanding the supply of higher education programs and the potential number of attendants, technology can attenuate the negative consequences of demographic changes and help to make the delivery of higher education services more efficient. 3.2 Resilience: Building Crisis-prepared Education Systems Natural and manmade disasters in and around the ECA region have put a renewed emphasis on the need for education systems to be prepared for crises. All shocks, whether man-made, climate-related, or natural, underscore the critical need for education systems to be prepared to navigate crises effectively. In many countries, digital technology offers solutions for making systems more resilient. Türkiye has welcomed a large number of refugees from the conflict in Syria. Most of these refugees are poverty stricken, and hundreds of thousands of Syrian refugee children are out of school. The World Bank has supported the Government of Türkiye in providing educational services to these children through safe schooling programs and using technology to train teachers how to provide the requisite socio-emotional 19 support and reduce any bias against refugee children.6 The World Bank also continues to support the more than 4 million people displaced in Ukraine, about 1.4 million of whom are children. These refugee children have been absorbed into the education systems of their host countries, whereas the school-age children of the large internally displaced population are mostly being educated online. It is crucial to ensure the continued education of these Ukrainian refugee and internally displaced children along with the provision of strong psychosocial support to prevent losing an entire generation to the war. All children and young people have the right to access educational opportunities in safe and inclusive learning environments despite the increased incidence of shocks. As the world grapples with climate change and resource depletion, building learning and teaching spaces in a sustainable way is of paramount importance. This requires fortifying school safety protocols, integrating sustainable green practices into construction plans, and implementing disaster resilience measures in all buildings. For example, the resilient school structures in Türkiye’s seismic zones that were built with the financial and technical support of the World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR) withstood the disastrous earthquakes of February 2023. Similarly, the World Bank will help the Ministry of Education in Kosovo to carry out the green adaptation of its pre-school centers. This will involve the construction of new early childhood education and care (ECEC) centers using offsite prefabricated (or modular) building materials, the rehabilitation of existing ECEC spaces, and the repurposing or upgrading of other existing public spaces to be used for ECEC. 3.3 Relevance: Building Future-ready Education, Training, and Research Systems Education, training, and research systems need to become rapidly adaptable in the face of persistent educational challenges and emerging megatrends. The Bank’s ECA team is currently aiming to help education systems develop the flexibility needed to prepare students for employment and growth in the fast-changing world. The Bank has supported this approach in Greece through a Trust Fund to implement a national skills framework. From September 2021 to October 2023, the Bank provided technical support to the Greek Public Employment Service (DYPA) as it upgraded its TVET track into a more modern, dynamic, evidence-driven, and cost-effective system capable of responding to the needs of the new economy. However, many countries in ECA still assign secondary students at an early stage into technical and vocational education (TVET), which is often stigmatized and regarded as a “dead end”.7 Moving away from making early assignments to the TVET track in favor of letting all students experience a longer period of general academic education would strengthen their foundational skills and would contribute to flexibly integrating the general education and TVET systems (World Bank et al, 2023). A few countries have successfully implemented such systems, including Finland and Singapore. However, enabling conditions must be there for curricular reforms to produce meaningful changes in student outcomes. For instance, the results of a rigorous impact evaluation in Greece showed that a low-cost data management intervention led to an increase in the probability of first year students securing apprenticeships, equivalent to a 10 percent increase. Implementing adaptive curricula is an essential step in ensuring that the education system is aligned with society’s evolving needs. Given the dynamic landscape of education and society, it is imperative to implement adaptive curricula that embrace cross-disciplinary learning, language proficiency, and flexible 6 Türkiye – Safe Schooling and Distance Education Project (P173997) 7 A recent study by Dalvit et al (2023) has suggested that, in the EU27 countries, TVET graduates are more likely to find employment after training than general education graduates. However, in the medium term, this advantage fades away. 20 modes of delivery. These curricula should be designed to seamlessly integrate new content and pedagogical approaches that are aligned with the rapidly changing demands labor markets. Tertiary education can keep up with the changing skills requirements only if institutions ensure that their curricula remain relevant and broaden the variety of programs that they offer. Universities can ensure that their curricula remain relevant by seeking guidance from industry advisory boards about current and future skills needs. Specific demand-driven training often supplied by employers in partnership with universities can provide students with skills relevant to the technological and green transition. The World Bank’s current engagement in higher education in ECA has supported research and innovation through the establishment of centers of academic excellence and by providing incentives to the private sector to develop prototypes and build centers of excellence. This approach will continue, while the Bank will also encourage more women to participate in STEM subjects and research – as was done successfully in the Tajikistan Higher Education Project. Preparing students for higher education goes beyond providing them with foundational skills. When searching for higher education programs, students, especially those from low-income backgrounds, are often unaware of the monetary returns that they can expect to receive once they graduate and throughout their career. For this reason, ECA countries need to invest in comprehensive information systems based on their rich administrative data that can be used to disseminate vital information to secondary school students who are planning for their futures. For instance, promoting role models for girls in STEM fields will give them tangible evidence to disprove the notion that mathematics and science are somehow “masculine” disciplines, thus building their self-confidence in their mathematics and science abilities. Moreover, for displaced students in particular, it is important to adopt a holistic student development model that prioritizes students’ mental health and well-being, as has been done in Armenia with displaced children and young people from Nargorno-Karabakh.8 By addressing these pillars comprehensively, educational institutions can better equip students with the skills, knowledge, and resilience needed to thrive in an ever-changing world. Both technological change and an aging demographic require ECA countries to think about skills development not as an age-dependent activity but as a lifelong approach. Training, re-training, and developing the ability to adapt and acquire new skills will need to be a core characteristic of the workforce going forward. There are many successful examples in ECA. For example, in Scotland, a skills development agency offers flexible courses both to those seeking employment and to those wanting to progress in their careers. The learners are given subsidies to take training courses and can receive certifications. Similarly, in France, workers can enroll in personal training accounts which allows them to receive an allowance for training as they seek training and progress to other higher skilled jobs. A similar approach has been supported by the WB for instance in Romania to promote digital skills development. 3.4 Maximizing Impact through System-wide Approaches Achieving these desired impacts at scale will only be possible if education systems work in close collaboration with other sectors and organizations. The scale of the challenges faced by education sectors around the world, including those in the ECA region, is unprecedented. As a result, only systemic efforts can produce wide-reaching and long-lasting impacts. Closer collaboration among all of the human development sectors will make it possible to increase the number of children who have access to all the necessary conditions for a healthy start in life, thus maximizing their learning potential in school. The Georgia Human Capital project, which integrates initiatives in the education, health, and social protection sectors to deliver a comprehensive program for human capital formation, is a good example of how future 8 Armenia – Mental Health and Psychosocial Support in Armenian Schools (P504701) 21 collaborations could be structured. Given the increased level of readiness in ECA countries, a wider use of development policy operations (DPOs) by the World Bank might provide more systemic support to ECA governments to tackle issues related to children’s lack of school readiness and to those not in education, employment, or training (NEET). These operations might also yield more immediate results. Collaboration should go beyond the human development sectors. For example, the full potential of education technology will be realized only if the necessary investments are not restricted to schools. a Since most ECA countries have fewer binding constraints on access to technology and connectivity than other regions, the World Bank might build on synergies between its education unit and its new digital VPU to explore the opportunities that technology can create to enhance learning and reskilling for those of all ages and potentially inform future operations in other regions. A combination of policy-based evidence and partnerships can help to maximize the impact of World Bank financing. It is not easy to scale up good ideas, as in most cases, when scaled up, their effectiveness can deteriorate and their cost–benefit profile depreciates (List, 2023). Partnering with other international organizations and development partners such as the European Union would provide the Bank’s ECA team with a unique opportunity to do more policy experimentation”, particularly in EU countries. For instance, the Bank’s Croatia Towards Sustainable, Equitable, and Efficient Education Project (US$30 million) finances a big pilot of the “whole day school” (WDS) model, including both impact and process evaluations. Once the implementation lessons have been learned and the impact of the model has been assessed in conditions that resemble those at scale, the government will be able to scale up the WDS model nationwide with funds (approximately EUR 600 million) from the European Union. Besides helping to overcome development constraints for client countries, this approach can increase the effectiveness of financing and contribute to global knowledge about the WDS model. Nimble evaluations (rapid, low-cost evaluations) can help to solve some of the most common implementation challenges in the region. Due to the demographic trends in ECA, many countries in the region are facing a combination of efficiency and equity issues that are unknown in other countries and for which evidence-based solutions have not yet been found. While many countries in the region will need to optimize their school networks, it is unclear how to organize student transportation, food provision, and teacher assignments while making sure that all students have access to similar learning opportunities. Conducting repeated “nimble evaluations” of how policy is being implemented rather than of final outcomes would make it possible to make real-time adjustments, especially if outcomes can be measured with administrative data. 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