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How much do workforce skills matter for innovation in the Caribbean?

Innovation levels in the Caribbean region are relatively low. On average, roughly 19 percent of Caribbean firms reported having engaged in some form of innovation in the past three years. The range varies from the lowest, at 4.8 percent of firms in Dominica, to the highest at 53 percent of firms in Guyana. A higher proportion of firms reported their intention to engage in innovation in the next two years: an average of 35 percent of firms indicated that their intention to undertake technological innovation in the next two years and 39 percent expect to undertake non-technological innovation. Not surprisingly, only 10.3 percent of firms in the Caribbean have an innovation department: the range varies from the lowest at 1.6 percent of firms in Dominica to the highest, at 36.7 percent of firms in Guyana.

Is workforce education important for innovation?

Innovation activities in a country or firm require human capital with the ability to generate and apply knowledge and ideas. In fact, studies have found that innovation at the firm level is positively associated with workforce qualifications and expenditure on training. Highly skilled workers are thought to be more apt for generating ideas and adopting technologies to make improvements on existing products and processes. However, Caribbean firms have consistently identified an “inadequately educated workforce” as their most serious obstacle to improving performance. Thus, understanding the link between human capital constraints faced by Caribbean firms and their innovation decisions is a critical issue for policymakers and firms. In that regard, this blog presents the findings of a recent IDB paper which looked at the relationship between several dimensions of human capital constraints and past and future innovation decisions of Caribbean firms.

Challenges to obtaining the desired workforce can potentially lower the likelihood of innovation

Four aspects of workforce constraints for Caribbean firms are examined: (i) the difficulty of a firm finding new skilled workers, (ii) educational mismatches for managerial and professional job types, (iii) difficulty finding employees with core and job-related skills, and (iv) in-firm training. The econometric analysis suggests that when firms’ have difficulty finding new skilled employees they are less likely to engage in any type of innovation, and this is also true for decisions about future technological and non-technological innovations. It was also found that educational mismatches for managerial and professional job types also lowers the likelihood of innovation. Moreover, firms that face challenges in finding employees with the required core and job-related skills at the managerial and professional levels are less likely to innovate, than those that don’t. In fact, future technological innovation is lowered by 18 percent, on average, when firms are unable to find professionals with the appropriate core skills. On the other hand, while in-firm training is found to increase the probability of innovation, its magnitude is low.

Policy implications for firms and governments

Such outcomes could lower productivity growth. It is therefore important for policymakers and firms to enact policies to address the underlying causes of educational and skill mismatches in the labor force and streamline education and training programs that are most relevant to the evolving demands of the labour market. Admittedly, the literature on the underlying factors causing human capital constraints in the Caribbean is sparse, but what exists suggests that the relatively deficient human capital stock is related to worker emigration, quality of education and training and perhaps the need for more relevant education and training programs. The latter may reflect gaps in education policies, information asymmetries between institutions that provide education and training and private sector demand for labor, and weak monitoring and evaluation mechanisms within the region’s education system. However, further research in this area is needed along with better-quality data to make more conclusive policy statements. Additionally, given the low intensity of training reported by firms, there is significant potential to increase in-firm training and or establish networks with both local and foreign institutions to design training programs that can enhance the quality and relevance of firms’ human capital stock within the Caribbean.

For more details, see Estimating the Effects of Human Capital Constraints on Innovation in the Caribbean.

 

About the author

Dr. Jeetendra Khadan is a Senior Economist who holds the position of Country Economist for Suriname within the Caribbean Country Department at the Inter-American Development Bank. He also worked as the Country Economist for Trinidad and Tobago and Research Consultant at the Inter-American Development Bank in Washington DC. Prior to his IDB assignment. Jeetendra worked as a part-time lecturer and tutor in the Economics Department at The University of The West Indies, St. Augustine campus where he taught courses on international trade, international finance, economic integration, econometrics and mathematical economics, and was the lead researcher on several projects for international organizations. Jeetendra has written and published books, book chapters, and articles in peer-reviewed academic journals such as The Economic Journal, Empirical Economic Letters, Journal of Developing Areas, Economies, Journal of Social and Economic Studies, Transition Journal, Journal of Eastern Caribbean Studies, UWI Press, the International Monetary Fund, and Inter-American Development Bank working paper series on issues related to trade policy, macroeconomics, institutions and governance, private sector development and other contemporary issues. Jeetendra holds a Ph.D. in Economics from the University of the West Indies.

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