World Development Report 2024: The Middle-Income Trap

To build a pool of talent with advanced skills, middle-income countries must substantially upgrade their higher education systems. These systems need to be aware of the skills in demand or they run the risk of producing unemployable graduates whose skills are not relevant to the labor market. In Latin America and the Caribbean, shorter-term higher education programs that interact more with employers and help students in their job search contribute more to students’ labor market outcomes than other such “short-cycle” programs. Although short-cycle programs pursue such connections more often than bachelor’s programs, the connections are equally important for both.

Lack of experience often holds back university graduates from finding jobs. Education models that incorporate work experience attempt to break this cycle and facilitate the school-to-work transition. Examples include dual training programs, apprenticeships, co-operative education, and integrated curricula. In Ecuador, Corporación Formados provides students with dual training based on the German model to produce not only technical workers in manufacturing but also middle managers (who, according to firms, are undertrained), as well as sales and banking specialists. The co-op model alternates between terms of classroom-based instruction and terms of paid work, and it relies on partnerships between institutions and employers. Institutions in middle-income countries offering co-ops include the Universidade de São Paulo in Brazil, Nelson Mandela University in South Africa, and TOBB University of Economics and Technology in Türkiye. The integrated curriculum model is exemplified by Indonesia’s Merdeka Belajar (Emancipated Learning) initiative. Educational authorities oversee large-scale curriculum coordination among universities, firms, and other institutions, which allows students to spend up to a third of their time in work settings inside or outside the country. Universities also train practitioners who are interested in learning how to teach and pair them with mentors.

Countries can use public funding for higher education to pursue country-level strategic goals and promote equitable access to higher education. Expanding the base of science, technology, engineering, and mathematics (STEM) graduates may be one such strategic goal. China, for example, has dramatically expanded its tertiary-educated population over the last few decades by means of policies at home and training overseas, as well as its base of STEM graduates. Targeted scholarships can increase student interest in STEM careers, including the life sciences, physical sciences, engineering, mathematics, computer science, and the health sciences. When coupled with information and mentoring interventions, they are particularly effective at attracting females to STEM fields. To promote equitable access to higher education, some countries provide need-based financial aid—such as Brazil’s ProUni and South Africa’s National Student Financial Aid Scheme (NSFAS); unsubsidized student loans—such as those provided by Tanzania’s Higher Education Students’ Loan Board (HESLB); and subsidized student loans—such as Malaysia’s Student Loan Fund Corporation (PTPTN).

Countries can provide incentives to align the attainment and use of actual skills in the workplace and entrepreneurship. For example, short-term technical and vocational education and training (TVET) programs depend for their success on connecting to employers, and offering incentives to industry can help. In Finland, institutions sign student performance contracts with the government and are held accountable for their outcomes. The government of Denmark also signs performance contracts with universities. The country relies on local advisory councils formed by representatives of governments, institutions, and enterprises for short-term programs and training. Councils periodically discuss local skill needs and decide how many programs are needed to address them, closing programs as needed. Denmark also has a well-developed system to forecast skills, as well as an information system that provides data on job opportunities for hundreds of occupations by region.

Selecting efficient learners

Some institutions and programs—particularly those teaching highly advanced material—may require advanced academic readiness and establish selective, merit-based admission criteria. Countries need an effective mechanism to identify, select, and promote talent and ability. Efficient learners with “merit” can be identified using the test scores of higher education entrance exams (or high school exit exams), sometimes in combination with other criteria.

Entrance exams are a standardized, comparable way to evaluate students from different backgrounds, especially when used nationally. On the one hand, exams are a transparent and simple way to sort students across institutions and programs. In 2005, for example, the country of Georgia established a university entrance exam because its previous admission system—inherited from the Soviet era—was obscure, prone to corruption, and widely perceived as inequitable. Entrance exams also establish clear rules for the selection of students across institutions and majors, and they are the backbone of the increasingly popular centralized admission systems used in many countries (box 8.2). On the other hand, entrance exams can perpetuate the very inequities they seek to eliminate. Because students with more educated parents and from higher-income households enjoy access to higher-quality basic education, they score higher on university entrance exams and therefore appear to have more “merit” than others. Students are more likely to confuse an actual “aristocracy of privilege” with an imagined “aristocracy of talent.”

Unless all students develop foundational skills and receive excellent basic education, merit-based schemes can detract from—rather than promote—social mobility. Furthermore, entrance exams are not perfect measures of student preparation or the potential for advanced training. As a result, institutions may reject applicants who would perform well if they were admitted.

A more holistic approach to selection may be needed. In principle, “merit” could be defined in broader terms than just exam scores. For example, institutions could reserve a share of their classroom seats for students from disadvantaged minorities, who would also be chosen based on merit—as in Brazil. They may also choose to admit the top share of students from every high school—as in the Top Ten Percent Program in the US state of Texas and similar programs in California and Florida. All these variants, however, have their own trade-offs. More important, capacity at highly selective institutions is limited. The challenge is to build tertiary education systems that provide high-quality opportunities at all institutions, not only the most selective ones. In the United States, many institutions—not only top-ranked universities where merit-based admission is most prevalent—promote social mobility. Although countries may want to adopt merit-based admission to some higher education institutions, the emphasis should be on ensuring high-quality education at all institutions and educational levels in order to build a broad, deep talent pool.

Box 8.2 Promoting better student choices with digital tools

Countries have increasingly adopted centralized choice and admission systems (CCAS) for primary, secondary, and higher education. CCAS can enhance students’ decision-making by providing information about the available choices and helping students use it. Currently, 57 developing countries rely on such mechanisms. Chatbots powered by artificial intelligence have helped students gain admission to higher-quality colleges than they would have attended otherwise in cities such as Bogotá and Palmira (Colombia), Recife (Brazil), Tacna (Peru), and various cities across Chile.a

Digital tools are particularly powerful when combined with administrative data. For example, trackers can use administrative data on graduates to follow them through higher education and beyond. In Chile, an online portal reports the average labor market outcomes for every higher education program in the country,b allowing prospective students to identify programs with high returns.

Although necessary for good decision-making, information alone is not sufficient because disadvantaged students often need help to interpret or utilize information. Advice and counseling—including through chatbots—can further enhance student decision-making.c

b. See Subsecretaría de Educación Superior (Subsecretariat of Higher Education) (portal), Ministry of Education, Santiago, Chile, https://www.mifuturo.cl/.

c. For more on information-related interventions for higher education, see Ferreyra et al. (2021).