Can German vocational training combat skill shortages in developing countries? Evidence from dual training system in the Philippines

• Published date: 01 November 2023
• Author: Futoshi Yamauchi,Taejong Kim,Kye Woo Lee,Marites Tiongco
• Date: 01 November 2023
• DOI: http://doi.org/10.1111/rode.13047

REGULAR ARTICLE

Can German vocational training combat skill

shortages in developing countries? Evidence

from dual training system in the Philippines

Futoshi Yamauchi

1

| Taejong Kim

2

| Kye Woo Lee

2

|

Marites Tiongco

3

1

International Food Policy Research

Institute, Washington, DC, USA

2

KDI School of Public Policy and

Management, Sejong, South Korea

3

De La Salle University,

Manila, Philippines

Correspondence

Futoshi Yamauchi, International Food

Policy Research Institute, 1201 Eye Street,

NW, Washington, DC 20005, USA.

Email: f.yamauchi@cgiar.org

Funding information

Korea Development Institute

Abstract

This paper examines the labor market impacts of the

Philippine Dual Training System (DTS), a vocational

training program that combines firm-based on-the-job

training (OJT) and conventional institution-based

training, using a recent survey that tracked graduates

from DTS and regular institution-based programs. The

estimation results using fuzzy regression discontinuity

design show a significantly positive impact on the most

recent monthly earnings. The impact significantly

increases with the OJT intensity, measured by the

number of hours a week in OJT. The above results

imply that vocational training has to be aligned with

actual production technologies and work practices to

narrow skill gaps and create positive returns.

KEYWORDS

dual training, Germany, labor market, on-the-job training,

Philippines

JEL CLASSIFICATION

J24, O15, M53

1|INTRODUCTION

It has been increasingly recognized that vocational training must be responsive to skill needs in

the economy so that those who are trained in vocational training programs can readily contrib-

ute to production by narrowing the existing skill gaps. When particular skills required in

Received: 26 July 2017 Revised: 10 July 2023 Accepted: 7 August 2023

DOI: 10.1111/rode.13047

2470 © 2023 John Wiley & Sons Ltd. Rev Dev Econ. 2023;27:2470–2488.wileyonlinelibrary.com/journal/rode

production are not readily available from the labor market, companies need to train their

employees (or hire those who are trainable and train them) to develop their own human capital

specific to their production technology. This often happens through on-the-job training (OJT).

In Germany, the government and companies have had a highly successful dual vocational

training system, known as the dual training system (DTS). Trainees gain practical skills work-

ing in companies while acquiring theoretical knowledge at a vocational training institution.

Recently many countries have shown an interest in the German system. However, such DTS

arrangements are relatively new in developing countries, and they often face challenges in

implementation. In this paper, we conduct an impact evaluation of DTS provided by vocational

training institutions in the Philippines.

The Philippine DTS was adapted from the German model and was first introduced in the

Philippines in the 1980s through a joint project of the Southeast Asian Science Foundation and

the Hans Seidel Foundation, and first implemented in the Dualtech Training Center. The

Dualtech experience was deemed successful and satisfactory and began to see a nationwide

expansion in 1991. In 1994, the DTS was institutionalized through the enactment of Republic

Act No. 7686 (also known as the Dual Training System Act of 1994). Did the German-type DTS

work in the Philippines? Was it effective in mitigating skill shortages and reducing youth unem-

ployment? Is the German DTS useful in developing countries?

The accumulation of human capital is crucial for productivity growth at both firm and

aggregate levels. Among the various types of investments in human capital, training, and learn-

ing in the workplace play important roles in the accumulation of human capital. While school-

ing investment mainly contributes to the accumulation of general human capital, training

investments in the workplace aim to enhance skill formation attuned to specific production

technologies (Becker, 1962; Mincer, 1962). Although qualitative case studies are available to

report the importance of skill formation and training investment in the context of productivity

growth in developing countries (e.g., Inoki & Koike, 1990), quantitative evidence on the returns

to OJT remains scant.

1

More recently, empirical studies of OJT have tried to directly identify returns to training

using data mainly from the United States and the United Kingdom (e.g., Bartel, 1995). Though

the necessity of firm-level training seems to be more urgent for industrial development in devel-

oping countries, identifying returns to such training is rare in the studies of such countries (see,

e.g., Schaffner, 2001; Yamauchi et al., 2009; Sekkat, 2011).

2

Yamauchi et al. (2009) show

evidence from workers in Thai manufacturing firms that (i) returns to informal OJT are robust

and significant, contrary to findings from developed countries; (ii) technical change induces

both on-the-job and off-the-job training; and (iii) controlling for technical change makes returns

to OJT even larger. The findings of the paper suggest that OJT enjoys advantages over general

vocational training in the face of rapid technical change. Based on these studies, one may argue

that there is potential for government-sponsored vocational training programs to benefit from

partnerships with firms through the incorporation of workplace-based training to gain access to

frontier technologies used in the workplace.

One example is the DTS in technical and vocational institutions (TVIs) managed by the

Technical Education and Skills Development Authority (TESDA) in the Philippines.

3

The DTS

is officially defined as an instructional mode for technology-based education and training in

which learning takes place alternately in two sites, the school or training center on the one

hand and the company on the other (Republic of the Philippines, 1994a; Republic Act No. 7686,

known as the Dual Training System Act of 1994). For instance, about 50% of trainees at the

Jacobo Z. Gonzales Memorial School of Arts and Trade, one of the training institutions that

YAMAUCHI ET AL.2471