Better jobs in Nicaragua: the role of human capital

In spite of considerable efforts to implement sound macroeconomic and open trade policies, by the end of the first decade of the 21st century, the economy –and the labor market—in Nicaragua show little change. There has been no structural change either in production or employment, and productivity has stagnated, leading to underperforming GDP and employment growth relative to the Latin American average.

This note aims to provide a detailed overview of the evolution of the labor market in Nicaragua in the last 10 years, by taking into account the complex nature of employment, and the role of the stock of human capital and of social policies to improve opportunities for the most vulnerable and reduce frictions in the labor market. The analysis relies on the last three living standards measurement surveys (EMNV 2001, 2005 and 2009), the first three 2010 labor force surveys (Encuesta Continua), Central Bank statistics as well as a series of administrative data.

The main findings of the analysis are:

• Similar to its growth performance, employment has shown modest but positive growth throughout the decade, closely tracking the growth trend of the working-age population;
• Productivity and real earnings have  stagnated, self-employment (with lower average earnings) has grown, and at the same time, unemployment for educated youth is around 30%, three times higher than average youth unemployment and four times higher than general unemployment;
• The overall pace of accumulation of human capital in Nicaragua has been slow and with significant heterogeneity—for instance, among the 25-39 age group 80% has only primary education or less, and this is even higher in rural areas, while 9% has at least some tertiary education, which is close to Costa Rica and 3 percentage points behind Panama. The labor market indicators for educated workers suggest that the resources invested in higher education are producing a large number of graduates that are not being efficiently utilized by the local labor market
• So far, the Government has devoted considerable resources to strengthen access to primary education, and to provide training for workers in the formal sector, with some efforts to improve the productivity of the self-employed. On the other hand, there has been no focus yet on improving access to job opportunities for skilled workers.

Our findings have direct policy implications, which call for a concerted effort from various fronts, as well as from the private sector. While improving educational attainment is an imperative—especially ensuring completion of 9 years of basic education—without complementary policies to promote investment and job creation, efforts on the education front are likely to build unemployment and low wages.

First, Nicaragua can raise the quality of employment, both in terms of earnings and protection against shocks, in the agriculture sector, which is the largest employer and export earner. This requires investing in modernizing the sector to raise productivity and at the same time improving the skills of farmers and agricultural workers. Better skills can be provided both via basic education, as well as training (which should be tailored to match the specific needs of the sector). It is also crucial to strengthen income protection mechanisms to guard against sector-specific risks such as weather shocks.

Second, Nicaragua can take advantage of its large pool of educated adults by taking initiatives to increase employment and selfemployment in the knowledge-intensive services sector (e.g., call centers, business outsourcing, private education, etc.). At the same time, it is important that in the future the contents and careers offered by university programs be better aligned with labor market needs.

Finally, Nicaragua needs to continue its efforts in social protection to skill acquisition, but more needs to be done to facilitate transitions in the labor market. This can only be done successfully if there is sufficient information on how well current programs work, and where they should be expanded or rationalized.