National Council of Applied Economic Research
Opinion: Manish Sabharwal and Ramesh A Reddy.
Amartya Sen acknowledges progress in combating ‘son preference’ in Haryana and UP, while emphasizing the need for innovative employer financing solutions to bridge the skills gap and empower millions of youngsters in the workforce. The skill ecosystem should be aligned with employer supply chains through three reforms to NEP-enabled degree apprentices (DAs). These reforms would not only create new financing for ‘repair and prepare’ of millions of youngsters but also create structural connectivity between education, employability and employment.
Amartya Sen hasn’t been happy with India lately. But he’s surely smiling at the diminishing ‘son preference’ in Haryana and UP, which were significant contributors to the 100 million missing girls in Asia he insightfully flagged decades ago. But another missing 100 million youngsters outside India’s skill ecosystem arise from a market failure in financing.
The skill ecosystem should be aligned with employer supply chains through three reforms to NEP-enabled degree apprentices (DAs). These reforms would not only create new financing for ‘repair and prepare’ of millions of youngsters but also create structural connectivity between education, employability and employment.
There are three pressing problems in skills:
Connecting matching supply to demand.
Repair mismatch of supply for demand.
Prepare pipeline of supply for demand.
Market failure in financing skills straddles all three problems.
Employers are not willing to pay for training or candidates, but are willing to pay a premium for trained candidates.
Candidates are not ready to pay for training but willing to pay for a job.
Financiers are unwilling to finance skill development unless a job is guaranteed.
Skill providers are unable to fill up their classrooms because youngsters can’t pay.
This situation demands immediate action. The unwillingness of employers to manufacture their employees – finance skilling from their revenues – arises from three holes in the bucket:
They pay for training, and the candidate doesn’t get a job.
They pay for training, and the candidate gets a job but is not productive.
They pay for training, and the candidate gets a job and is productive, but leaves.
So, learning, productivity and attrition risks have made employer financing unviable. However, employers are piloting DA programs because of a demonstrable RoI from three sources: faster hiring time, lower attrition and higher productivity. Early data suggests employer degree apprenticeship programmes generate RoIs higher (more than 12%) than most corporate capex projects.
DAs meet policy and employer priorities. From a policy perspective, they solve matching (employers take potential employees for a test drive), repair (students learn firm-specific skills) and prepare (students get a broader education). From an employer perspective, they create scalability, replicability and generalisability by embracing five design principles:
Learning by doing Soft skills that drive wage premiums are not taught but ‘caught’.
Learning while earning Learning with qualification modularity (continuity between certificates, diplomas and degrees).
Learning with multi-modal delivery Online, onsite, on-campus and on-job and learning with signalling value (social and employability).
We currently have five sources of skill financing: GoI, state governments, philanthropy, lenders and parents. Creating a sixth pillar of employer financing requires three policy changes to the current DA framework.
Recognise tripartite contracts between universities, employers and youngsters, and legitimise an apprenticeship credit framework that recognises on-the-job training (degrees and employment are currently separate bilateral contracts).
Tech infrastructure for apprenticeship registration, workflows, reimbursements, etc. should be upgraded with modern user interfaces, uptime requirements and API frameworks.
Eliminate differences between the National Apprenticeship Training Scheme (labour ministry) and the National Apprenticeship Promotion Scheme (skills ministry) regarding reimbursement procedure/ amount/mode, trainee eligibility and study tenure.
Education and employability are moving from being ‘cousins’ to ‘siblings’ while employment is moving from being a fleeting acquaintance of both to a ‘cousin’. However, GoI’s organisational structure often ensures its leaders think vertically about horizontal problems. Parents with kids near the end of school often ask, ‘Is there one place they can go to get knowledge, skills and a job?’. They essentially articulate the multi-stakeholder demand for higher collaboration between employers, universities and skills.
We are all looking for something that is 1/3rd college, 1/3rd employment exchange and 1/3rd ITI. DAs synthesise this outcome.
Fifty years ago, Amartya Sen distinguished between accumulating human capital and expanding human capability. He suggested that ‘the former concentrates on the agency of human beings through skill and knowledge as well as effort in augmenting production possibilities. The latter focuses on the ability of human beings to lead lives they have reason to value and enhance their substantive choices. The two perspectives cannot but be related.’
Just like adults who get more than income from their jobs, DA programmes give our youngsters more than skills and degrees. They create new financing for the missing 100 million youngsters by embedding skilling into employer people supply chains. DAs are a buy-one-get-one-free deal – human capital and capability – that policymakers must grab.