Baku today is very different from the Baku of my high school years. I remember riding a tram to school. I also remember my high school sharing a building with a vocational school. Nowadays, you will find neither trams nor well-functioning vocational schools in Baku. Although I am not sure about the former, there is increasing evidence, both anecdotal and systematic, that Azerbaijan needs to rejuvenate the latter. In this post, I argue that prioritizing Vocational Education and Training (VET) reform may prove to be an important step toward tackling the so-called skills mismatch in Azerbaijan.

Paradoxically, the labor force in Azerbaijan is both underskilled and overqualified. There is plenty of anecdotal evidence to illustrate the case. On the one hand, the construction firm building the new campus of Azerbaijan Diplomatic Academy once had to “import” 45 painters from Romania. On the other hand, there is anecdotal evidence that thousands of workers employed as technical staff at the State Oil Company of Azerbaijan (SOCAR) hold a bachelor's degree a degree that they don’t need to pursue their current job. What’s more, you often hear complaints about the scarcity of labor in occupations as diverse as babysitters, plumbers, waiters, and IT technicians, whereas there are many unemployed or underemployed people with degrees in such fields as health and education, according to a recent World Bank report. The same report mentions two interesting facts. Despite 7000 jobs being offered at Baku Job Fair in 2007, only half of the vacancies could be filled by suitable candidates. Another interesting fact is that British Petroleum, for the first time in its history, had to establish a large training center in Azerbaijan to train its new recruits.

The Azerbaijani economy suffers from a skills mismatch: the education system is supplying graduates with a set of skills not much in demand by the changed and changing labor market. There is an excess supply of labor in certain occupations, whereas excess demand for labor in others. Economists refer to the result as structural unemployment. Policymakers cannot reduce this unemployment using demand-side measures such as fiscal stimulus or easy monetary policy. Structural unemployment, as the name suggests, requires structural reforms, most notably those targeted to equip workers with skills needed by the market. As discussed below, the near-collapse of vocational education can explain the skills mismatch in the country, and hence its reform is one of the most urgently needed structural reforms.

The skills mismatch in Azerbaijan should not come as a surprise because it is a transition economy, on its way from being a centrally planned economy to becoming one driven mainly by market forces. Certain sectors are declining, while others are on the rise. This structural change is inevitable and is reflected not only in the changing architecture of Baku and other regions of the country. More importantly, it is visible in the labor market, where demands for skills are changing along with the economy as rising sectors often require a different set of skills than the declining ones. In addition, there is a sector-neutral worldwide change in the skill profile of labor demand a so-called skills-biased technological change that favors highly skilled labor. These changes require an adequate response by the education system which is unfortunately not in place.

Resolving the skills mismatch is an important prerequisite for reaching the goal of economic diversification. Azerbaijan is currently a natural resource-abundant country with significant yet temporary reserves of oil and gas. These riches can lead to sustainable economic and social development only if used properly to diversify the economy and find new engines of growth. Whatever the new engines are, there is no doubt that they have to be complemented by adequate human capital, among other things. It is also clear that new engines of growth have to come from the private sector, especially from small and medium enterprises (SMEs). Many of these, according to the Business Environment and Enterprise Performance Survey (BEEPS) report by the European Bank of Reconstruction and Development (EBRD), list the lack of available skilled workers as a major obstacle to their operations and growth. In particular, technical and vocational skills, as well as behavioral (soft) skills are scarce.

Clearly, the reform of vocational education is not enough - the government of Azerbaijan needs to embrace a much broader education reform to fully resolve the skills mismatch. Yet I emphasize the priority of the VET reform mainly for three reasons. First, we used to have a well-functioning vocational education system in place during Soviet times and it might be easier to revive the old wheel rather than invent a new one. The collapse of the Soviet Union has led to the gradual collapse of the vocational school system. This resulted in a shift toward general secondary education followed by a university degree which seemed to provide students with better paying, more demanded jobs. However, with the benefit of hindsight, it is clear that the near-collapse of vocational education should have been prevented, particularly in the face of strong demand for technical skills. Second, arguably it is much easier and cheaper to build a world-class vocational school than to build a world-class university. Third, vocational schools are dynamic in nature and can better serve the needs of a rapidly changing, transition economy like Azerbaijan. The example of Singapore is a case in point. Their VET system changed in tandem with the economy and served it perfectly well during all three phases of economic development: labor-intensive, capital-intensive, and knowledge-intensive.

The government of Azerbaijan has taken important steps in reforming the VET system. The State Program for VET was adopted for the years 2007-2012. There has been some progress in establishing public-private partnerships with enterprises, the development of occupational standards, and the establishment of new VET centers. VET schools are becoming more attractive. Nevertheless, according to the European Training Foundation, the main European agency supporting VET reforms in Azerbaijan, “systemic changes” are yet to be seen. Most importantly, policymakers must change the negative public image of vocational schools as providing outdated, low-paying skills.

Frankly, I have no hope that trams will ever be back on the streets of Baku. Yet I do hope that vocational schools, revived and updated to meet the needs of the rapidly changing economy, will be back as part of the overall education reform in Azerbaijan.