Op-Ed: Skills to strengthen Puerto Rico’s formal economy

In Puerto Rico’s economy with low formal labor participation, structural reform must include reducing barriers to employment. Puerto Rico must improve education and develop high-quality worker training programs that empower all residents to reach their fullest potential and enter the labor force.

Knowledge, skills, and competencies are the three attributes that define the term human capital and are tightly connected to education, health, and economic growth. Some studies even show that investing in human capital is more important for economic development than investment in physical capital.

Given its relevance for reducing poverty and increasing labor participation, the Financial Oversight and Management Board for Puerto Rico’s published its latest report on economic development, Human Capital Development in Puerto Rico, in collaboration with Estudios Tecnicos Inc. The report provides an overview of human capital development in Puerto Rico based on education and other commonly used indicators and provides several recommendations for the Government, such as

  • developing policies promoting productivity growth, including an incubator program to foster new businesses from existing informal economy activities.
  • stressing the importance of skills needed for government strategic projects, like Puerto Rico’s Ocean Thermal Energy Conversion project.
  • establishing a Human Capital Committee to formulate a Human Capital Policy, bringing together all stakeholders that contribute to strengthening Puerto Rico’s workforce.
  • improving and maintaining a reliable statistics system in Puerto Rico. If Puerto Rico does not know where it stands in relation to countries or states, it is difficult to track its progress.

The report also illustrates that the quality of Puerto Rico’s school education must improve. The test results for PISA (Programme for International Student Assessment) and NAEP (National Assessment of Educational Progress) are alarming. In the PISA test, Puerto Rico scored below the U.S., below its competitors Ireland and Singapore, and only barely above the Dominican Republic. In NAEP, Puerto Rican fourth and eighth graders performed below the average student in U.S. states.

In some ways, Puerto Rico is on the right path.  Over the last decade there have been modest rises in the percentage of people above 25 years of age who obtained a high school degree. The percentage of people obtaining college degrees also modestly increased. More needs to be done: Graduating more students with higher levels of competency will require rethinking current policies, processes, tools, business models, and funding structures in the education system, the report states.

The Certified Fiscal Plan for Puerto Rico makes education reform one of its five key structural reforms and outlines high-quality worker training programs that would empower residents to reach their fullest potential. Puerto Rico should expand vocational education and refocus coursework to address major talent gaps and coordinate workforce development programs and a life cycle initiative with professional development opportunities for Puerto Ricans at all stages in their working life.

Puerto Rico’s future hinges on employing a two-generation approach of improving the education and skills of children and adults simultaneously. The Vimenti School, run by the Boys & Girls Club inside the Ramos Antonini Public Housing project, is an excellent example. It provides high-quality education for children with emphasis on health and emotional wellbeing along with workforce development services for parents, resulting in substantially improved academic proficiency levels and wellbeing among students and helping parents to find and retain jobs. The government should consider this two-generation approach for public education and aspire to replicate those results throughout the island.

Strengthening human capital is also related to reducing the informal economy. The report notes that the Earned Income Tax Credit (EITC), implemented by the government as part of the Certified Fiscal Plan, will help to increase formal labor participation and reduce poverty. Here, much more needs to be done to inform the public of the benefits of the credit so that more Puerto Ricans make the transition into the formal economy.

Puerto Rico’s competitive advantage will depend, possibly more than on anything else, on the quality of its Human Capital. The necessary reforms to improve knowledge and skills, and to reduce barriers to employment will help businesses grow and create more jobs, be started here, and relocate to Puerto Rico.

Author: Ricardo Fuentes, FOMB's Economist

Originally published on News is my Business, January 11, 2021

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