Improving the Mongolian Labor Market and Enhancing Opportunities for Youth Howard J. Shatz, Louay Constant, Francisco Perez-Arce, Eric Robinson, Robin Beckman, Haijing Huang, Peter Glick, Bonnie Ghosh-Dastidar C O R P O R A T I O N For more information on this publication, visit www.rand.org/t/rr1092 Library of Congress Control Number: 2015949804 ISBN: 978-0-8330-9057-7 Published by the RAND Corporation, Santa Monica, Calif. © Copyright 2015 RAND Corporation R® is a registered trademark. Limited Print and Electronic Distribution Rights This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial use. For information on reprint and linking permissions, please visit www.rand.org/pubs/permissions.html. The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous. RAND is nonprofit, nonpartisan, and committed to the public interest. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. Support RAND Make a tax-deductible charitable contribution at www.rand.org/giving/contribute www.rand.org Preface Despite a slowdown in 2014, Mongolia has experienced rapid economic growth in recent years, with real per capita gross domestic product increasing by an annual average of 6.7 per- cent from 2000 to 2013. This growth has been driven largely by infrastructure spending and strong fiscal and monetary stimulus measures fueled by major strides in natural resource exploitation. One challenge the government now faces is to develop a robust labor market that is responsive to the needs of a fast-growing economy and that can promote sustained economic growth and development. RAND has joined with the new Institute for Labour Studies of the Mongolian Ministry of Labour to diagnose key issues in labor-market performance, jointly conduct a survey on Mongolian youth—a labor-market issue of importance to Mongolian policymakers—engage in capacity building, and provide recommendations for policy measures to improve the labor market and enhance opportunities for youth. This report provides a diagnosis of key issues in labor-market performance, the results of the youth survey, and policy implications. The Mongolian Ministry of Labour sponsored this research. This report should be of interest to Mongolian policymakers, Mongolian analysts focusing on the labor market, and researchers more generally interested in developing country labor markets. RAND Labor and Population This research was undertaken within RAND Labor and Population. RAND Labor and Popu- lation has built an international reputation for conducting objective, high-quality, empirical research to support and improve policies and organizations around the world. Its work focuses on labor markets, social welfare policy, demographic behavior, immigration, international development, and issues related to aging and retirement with a common aim of understand- ing how policy and social and economic forces affect individual decisionmaking and the well- being of children, adults, and families. For more information on RAND Labor and Population please contact Krishna Kumar, Director, RAND Labor and Population, at [email protected]. iii Contents Preface ........................................................................................................... iii Figures and Tables .............................................................................................vii Summary ........................................................................................................ xi Acknowledgments .......................................................................................... xxiii CHAPTER ONE Introduction ..................................................................................................... 1 Youth Issues ....................................................................................................... 2 The Mongolian Economy and Labor Market ................................................................. 2 Theory and Measurement of the Labor Market .............................................................. 5 The ILS-RAND Mongolian Youth Survey ..................................................................12 This Report ......................................................................................................14 CHAPTER TWO The Supply of Mongolian Labor ............................................................................15 The Analysis of Labor Supply ..................................................................................15 Labor Supply in Mongolia .....................................................................................16 Youth LFP in the ILS-RAND Mongolian Youth Survey ................................................. 20 Labor Supply Conclusions .....................................................................................25 CHAPTER THREE Lost Potential: The Case of NEET Youth in Mongolia ................................................ 27 Analyzing NEET Youth in Mongolia ....................................................................... 28 Characteristics of NEET Youth and Non-NEET Youth ...................................................31 Conclusions About NEET Youth in Mongolia ..............................................................39 CHAPTER FOUR The Demand for Mongolian Labor .........................................................................41 Determinants of the Demand for Labor .....................................................................41 Employer Views of Mongolian Labor........................................................................ 42 The Education of the Mongolian Labor Force .............................................................. 44 Youth Education in the ILS-RAND Mongolian Youth Survey .......................................... 46 Labor Earnings ..................................................................................................51 Returns to Schooling ...........................................................................................55 Skill Mismatch and TVET ................................................................................... 56 v vi Improving the Mongolian Labor Market and Enhancing Opportunities for Youth Recent TVET Reforms ........................................................................................ 60 Labor-Demand Conclusions ...................................................................................61 CHAPTER FIVE Labor-Market Outcomes: Employment and Unemployment .........................................63 Unemployment in Mongolia ...................................................................................63 Employment and Unemployment in the ILS-RAND Mongolian Youth Survey ...................... 66 Conclusions About Unemployment and Employment Outcomes ........................................75 CHAPTER SIX Labor-Market Outcomes: Low-Productivity Employment and Skill Mismatch ...................79 Low-Productivity Employment ................................................................................79 Low-Productivity Employment in the ILS-RAND Mongolian Youth Survey ..........................83 Employment by Sector ........................................................................................ 88 Employment by Sector in the ILS-RAND Mongolian Youth Survey ................................... 90 Conclusions About Types of Employment .................................................................. 94 CHAPTER SEVEN Policy Implications ........................................................................................... 97 Areas of Concern for Labor Policy ........................................................................... 98 Developing Policies ............................................................................................ 99 Government Policies for Improving the Labor Market ................................................... 100 The Way Forward ............................................................................................. 111 APPENDIXES A. International Comparisons ............................................................................. 113 B. Methodology .............................................................................................. 117 C. ILS-RAND Mongolian Youth Survey Questionnaire ............................................. 129 Abbreviations ................................................................................................. 153 References .................................................................................................... 155 Figures and Tables Figures 1.1. Dependency Ratios in Mongolia, 1990–2014 ................................................... 4 1.2. Labor-Force Participation Rates in Mongolia and World Regions ............................ 7 1.3. Labor-Force Participation in Mongolia and Transition Countries ............................ 8 1.4. Employment-to-Population Ratio in Mongolia and World Regions