Investing in Youth: Peru

Assessment and recommendations

Peru faces a major challenge to help youth getting a better start in the labour market, but time is pressing

Over a quarter of Peru’s working age population (ages 15-64) is young (15-24), compared to under a fifth on average among OECD countries. While the share of youth in the working age population in Peru is expected to fall to just above 20% by 2050, this will still be relatively high by OECD standards and will place Peru towards the high end of what is forecast for many Latin American and Caribbean (LAC) countries. The fall in the share (and number) of youth in the working age population will ease some of the pressure on the labour market for youth in the decades to come. At the same time, it will mean that the share of working age population in the overall population will gradually shrink. Therefore, the opportunities to benefit from the “growth dividend” associated with the demographic transition will fade away.

The youth labour market in Peru depicts a contrasting picture. About 56% of Peruvian youth were in employment in 2017, which compares to 42% across the OECD. In the comparison with other Latin American countries, Paraguay, Bolivia, Ecuador, and Argentina, where the shares of youth in the working age population are fairly similar to that of Peru, had much lower youth employment rates (between 30 and 50%). However, the aggregate pattern masks differences. Young Peruvian women have significantly lower employment rates than young men (52.1% compared to 60%), a gap almost entirely explained by the higher inactivity rates of young women (43%, compared to 34.6% for young men). Indeed, the unemployment rates for the two groups differ only marginally (8.5% as compared to 8.4%, respectively). In addition, youth labour market outcomes vary significantly across Peruvian regions. They are weaker for young people living in the more deprived inland areas of the South, the Andean highlands and the Amazon regions.

Employment outcomes of youth with tertiary education are no better than of their peers with lower education. If any, high skilled youth (i.e. graduates) face an even higher risk of unemployment. In 2017 their unemployment rate was 14.6%, compared to 8.7% for medium skilled (i.e. those with only a secondary education degree) and 7.3% for unskilled youth. This comparatively high unemployment rate reflects the fact that the number of students graduating with tertiary education qualifications has considerably increased over time in Peru. An over-supply of university graduates in relation to demand may be expected to lead to considerable over-qualification since highly educated youth must accept positions that require less education. Although research on the returns to education indicates that obtaining a tertiary qualification in Peru is worth the investment, this evidence varies depending upon the fields of study and the quality of education institution.

The situation of limited employment opportunities for many Peruvian youth translates into low levels of well-being (OECD, 2017). Close to 34% of Peruvian youth affirm that they find it difficult, or very difficult, to get by with their present household income. This evidence compares to an OECD average of about 20% and places Peruvian youth towards the worse-off end of the LAC countries. In turn, the inability to cope financially is mirrored by low levels of self-reported well‑being and life satisfaction.

In order to place these socio-economic indicators in broader context, the Gini index, a standard, nationwide measure of income inequality that ranges from 0 (when everybody has identical incomes) to 1 (when all income goes to one person), has declined from 0.52 in 2005 to 0.44 in 2015. Although this massive improvement places Peru at the low end of the LAC comparison, the index remains high compared to the OECD average and progress has stagnated in recent years. Achievements on the broader front of the fight against poverty have also been impressive. Almost two decades of remarkable economic growth have reduced the percentage share of the Peruvian population living in poverty from about 30% to 10% (using the measure of USD 3.2 a day). Although this is a stronger decline than across the LAC countries, recent data using the benchmark of the national poverty level show that the share of individuals living below PEN 338 per month (at which this benchmark is fixed, approximately equal to USD 103) has increased by one percentage point in 2017. This was the first rise in a decade, with poverty being particularly high for the rural population.

The lack of quality jobs is an important source of concerns

Much like most other emerging economies, the main challenge in Peru is not the lack of jobs, since open unemployment tends to be relatively low. Rather, the lack of quality jobs raises greatest concerns. In part, this reflects the weakness of social insurance scheme, which makes unemployment unaffordable and pushes many youth workers into jobs of “last resort”.

The decline in both the overall and youth rate of informality has been rapid and sustained over the past decade. However, Peruvian youth remain significantly more exposed to the risk of being employed in the informal sector than adult workers, or in other unprotected work in the formal sector. Based on the definition of informality, according to which a worker is considered informal -- among other possible situations -- if she does not contribute to the pension system and therefore she will not have the right to a pension when retired, around 65% of Peruvian youth employees (20-24) work under informal conditions, which compares to an average of 53% for all dependent workers. Youth individuals from vulnerable populations, particularly in the poor rural areas, the least educated, women and teenagers are more likely to have an informal occupation.

The analysis of the youth who are neither in employment, nor in education, or training -- the so-called NEETs, or ninis using the Spanish acronym -- provides additional insights about the drivers to strongly unequal youth labour markets in Peru. These youth form a group at high risk of marginalisation and exclusion from the labour market, especially the longer they remain outside the world of work. Approximately 22% of Peruvian youth between 15 and 29 were NEETs in 2016, a figure that compares to 13.9% for the OECD average. Most other LAC countries do also fare better than Peru. The NEET rate has increased in Peru since 2010, unlike many other regional and OECD countries. Estimates suggest that the gross labour cost that could have been generated by the NEETs in Peru in 2014 - roughly the measure of the forgone productivity associated to this particular group - ranges between 1.5 and 2.5% of Peru’s GDP. By comparison, the same estimates for the OECD range between 0.9 and 1.5% of the OECD GDP in the same year.

An integrated policy framework to support inclusive labour markets for Peruvian youth

Following a detailed account of policy challenges (Chapter 1), this OECD report Investing in Youth: Peru provides advice on how to set out comprehensive actions for giving youth a strong start in the labour market. To this end, it reviews a broad range of labour market and social policies for:

• Removing demand-side barriers: Chapter 2 discusses the economic, legal and administrative weaknesses that affect the ability and willingness of the employer sector to hire youth. It focusses on the cost of hiring at the minimum wage, the segmentation of the labour market and the administrative burdens to starting a business. Although addressing informality is not a specific objective of the Chapter, some of the insights developed could complement the reflections currently underway in Peru and promoted by the MTPE.

• Improving the employability of Peruvian youth: Chapter 3 sets out the policies that could help bringing into jobs as many young job seekers and inactive people as possible. Engaging youth in the formal labour market requires ensuring that they face the right incentives to seek employment, while at the same time relying on the supportive role provided by: (i) good-quality public employment intermediation services and active labour market programmes; and (ii) unemployment insurance and social assistance schemes conditioned on active job search in the formal sector. Additionally, it involves tackling the misalignment between the supply and demand for skills, which hampers the smooth integration in the labour market of youth job seekers.

• Targeting the most vulnerable youth: Chapter 4 complements the previous chapters by providing a zoom into the policies for three groups of vulnerable youth: early school leavers, women and indigenous and Afro-Peruvian youth. Poverty raises the probability of becoming a NEET. Yet, poverty can also affect negatively the probability of being a NEET, by exacerbating the need to engage in subsistence employment. For youth coming from extremely poor families the latter effect may dominate. In this case, children will more likely drop out from school while in early ages. The exposure to this risk is particularly strong for women and indigenous and Afro-Peruvian youth. The analysis carried out in Chapter 4 is a contribution to the strategic vision of the MTPE, which considers that differentiated policies have an important role to play in order to support the impact of the general policies to strengthen the employability of at risk groups.

Overall, the report provides an integrated overview of the role that institutions and policies play in helping youth to access better quality and more rewarding formal sector jobs, particularly focussing on the most vulnerable youth. Evaluations and lessons from international experiences are used to formulate recommendations tailored to Peru.

Removing demand-side barriers that hinder the willingness of the employers to hire youth

Peru’s labour taxation is not high compared to the OECD average. For the average worker in Peru, the tax wedge - the difference between the total labour cost and the workers take home pay, measured as a percentage of the total labour cost - is 23.4%, compared to 35.9% for the OECD average. This wide gap reflects the extent of the personal income tax in the OECD; in Peru low income workers - including at the minimum wage - are exempt from personal income tax. For the average worker the combined social insurance contribution, levied on the employee and the employer, is 23.4% in Peru, a level slightly higher than the OECD average (22.5%). Measured at the level of the minimum wage the difference is wider, however, with the two rates being 23.4% and 20.5%, in Peru and the OECD average, respectively.

Addressing overly complex firm regulations

One source of unbalances that stands out in Peru is the strong segmentation of the private sector into different categories of enterprises, each subject to a specific labour cost scheme. Special tax rules for promoting the creation of micro and small enterprises were introduced by Peru in 2003. These include a combination between tax incentives and reduced labour obligations for such firms (Act No. 28015 on the Promotion and Formalization of Micro- and Small Enterprises of 2003). As a result, there exist three categories of private enterprises in Peru today, the micro enterprises, the small enterprises and a broad class of other enterprises. Each category is subject to a distinct labour cost scheme. These complexities appear exacerbated by the regulations concerning paid annual leave, profit sharing and family allowances, which also vary significantly across categories of enterprises.

Binding labour cost regulations that are contingent upon the size of the enterprises may engender asymmetries in the distribution of firms (Garicano, Lelarge and Van Reenen, 2016). Many highly productive firms that would have been larger without the regulation will likely refrain from expanding to avoid the higher labour costs induced by the change of the legal threshold. When they decide to expand, they will do so by splitting into small units, at the cost of considerable efficiency losses. Recent work on Peru by Dabla-Norris, Jaramillo Mayor, Lima and Sollaci (2018) find that size-dependent policies may even led to increase labour informality, since some firms ultimately prefer to hire informal workers to avoid the regulation. Taken together, these patterns can result in substantial productivity and employment gaps with firms producing too little output and using too few workers (Restuccia and Rogerson, 2008; Bartelsman, Haltiwanger and Scarpetta, 2013).

Youth job seekers are likely to lose the most from these asymmetries. Evidence from a wide range of countries at different levels of per capita incomes (including Peru) shows that rates of job creation are higher amongst small young firms, provided that they are allowed to grow (Haltiwanger, Jarmin, and Miranda, 2013; Ayyagari, Demirguc-Kunt and Maksimovic, 2014). In addition, small young firms are particularly likely to hire young job seekers since these typically have just attained education and therefore can carry the most up-to-date technical skills at a relatively low cost (Ouimet and Zarutskie, 2014). Therefore, they might be particularly attractive to young firms aiming to develop new products and/or methods of production.

Policy insights for creating a more balanced system of firms’ incentives

The question as to whether or not to maintain the current size-based threshold structure goes beyond the scope of this report. In fact, addressing it properly would require a thorough examination of the overall system of tax policies and tax arrangements in Peru, assessing the benefits and the disadvantages of various alternative approaches. However, the findings of the recent report by the OECD on the Taxation of SMEs in OECD and G20 countries (OECD, 2015) may be of some relevance to guide Peru’s policy thinking when developing and implementing a more balanced and coherent system of firms’ incentives. Particularly, the report underlines that a high degree of caution is needed to ensure that tax preferences or simplification measures do not introduce further distortions. These distortions can result in incentives to alter economic activity in unintended ways to benefit from special tax rules, horizontal inequities in the treatment of different firms or individuals depending on their characteristics. They can also stem from the creation of additional barriers to SME growth owing to sized-based thresholds, which provide incentives to remain under that threshold, whether artificially or by restraining growth.

Making the minimum wage pay

Youth workers are primary candidates to be paid at the minimum wage in countries where this wage floor is enforced, reflecting a shorter work experience (Cahuc, Carcillo and Zylberberg, 2014). However, the level of the minimum wage must be appropriately set. Too low a minimum wage may result in undesirable low wages for youth workers whose bargaining power is relatively weak and therefore may induce them to prefer an occupation in the informal sector. By contrast, if set too high the minimum wage leaves little room for rewarding youth workers in line with their productivity, and may again lead to more informal work or reduced working hours for some (Neumark and Wascher, 2008).

In Peru the minimum wage is defined as a single value with national coverage, which implies that it does not vary according to age. It is calculated on a monthly basis, assuming a maximum limit of 48 hours per week. The minimum wage has not been increased “mechanically” throughout the years but rather prudently and in a way broadly in line with labour-market conditions.

While the real value of the minimum wage should not be allowed to erode in years to come, the prevailing long-term stance that prioritises avoiding important (real) increases should be maintained. This conclusion is supported by the results of recent analysis, which points to the fact that formal employment in Peru, if not strongly affected, tends to respond negatively to changes in the minimum wage (ILO , 2017; Céspedes and Sánchez, 2013; Jaramillo, 2012; Palomino Samaniego, 2011; Del Valle, 2009; Céspedes Reynaga, 2006). Furthermore, these studies conclude that the risk of unemployment following a rise of the minimum wage is higher among youth workers.

Strengthening the attractiveness of the minimum wage to Peruvian employers

The ratio of net minimum wage to the median wage is considerably higher in Peru than in the average OECD country. It ranges from 60% in micro-enterprises to 66% in small enterprises and 72% in firms under the general regime. By contrast, this ratio is 55% in the OECD average. No OECD country shows a ratio greater than that which prevails in Peru for firms under the general regime, with the exception of Turkey. Accordingly, the ratio is high also in comparison to Mexico and Chile.

Future policies should ensure that the minimum wage remains attractive to Peruvian youth job seekers but also that the minimum wage is set in a way that does not create a disincentive for employers to hire workers formally. Mechanisms that link minimum wages with productivity or price levels can help reduce such disincentives. A related action would be to allow for a differentiated minimum wage across different regions in Peru so that they are more closely linked to actual levels of worker productivity and/or price levels in the region.

One approach used by many OECD countries and other Latin American countries consists in the introduction of a legal subminimum wage for young people. This scheme could allow for progressive increases of the minimum wage up to the standard minimum wage, as is the case for instance in Australia and the Netherlands. By avoiding large jumps in labour costs from one level to the next, the advantage of this approach is twofold: i) to limit risks of job separations around the point of eligibility to the standard minimum wage; and ii) to help youth workers remain on a path of gradual career progression.

Tackling labour market dualism

Employment protection legislation (EPL) refers to the procedures and costs involved in dismissing workers on permanent contracts and hiring them on temporary ones. It aims to protect employees against unfair dismissals and earnings reductions at the time of job loss and to shield them from precarious jobs (e.g. the overuse of temporary contracts). While protecting workers in the context of poor job quality is a high priority in Peru, an excessively strict or poorly designed EPL can hamper the economy by discouraging the flow of workers from less productive jobs to more productive and better quality jobs. Job creation can be reduced as a result, with youth workers being particularly exposed to this risk. Productivity growth can also be affected and the duality of the labour market can be accentuated. EPL should therefore be used judiciously and effectively in combination with other measures that protect workers themselves, rather than specific jobs.

The strictness of EPL on permanent contracts in Peru reflects the difficulty to proceed to individual and collective dismissals. The provision on collective dismissals grounded on economic, technological and structural reasons applies when it involves at least 10% of a firm’s employees in Peru. One main reasons explaining the strictness of this regulation relates to the fact that starting from this threshold the fulfilment of complex compliance procedures, involving employers, trade unions, or workers’ representatives, and the Labour Administrative Authority, is required in order to launch a collective dismissal. The regulation applies across all firms, irrespective of their size, thus including small firms, which are the large majority in Peru. In many OECD countries, employers who proceed to collective dismissals are subject to only a notification requirement. Concerning individual dismissals, one particularly constraining regulation from the perspective of the employers relates to the limited chances to have dismissal decisions recognized as “justified” -- ranging from the proof of misconduct or incapacity, to adverse economic circumstances -- if the dismissed worker brings the case to court. Whenever the court rules the dismissal as “unfair”, the reinstatement is nearly automatic and prevails over the options of compensation, which discourages hiring formally in the first place. Reinstatement is less typical in many OECD countries, and even rarer in Latin American benchmark countries.

It is important to underline that the Peruvian law involves more than ten types of temporary contracts today and allows the recourse to temporary contracts for some permanent tasks related to the core activities of the firm. At the same time, Peru’s restrictions on the maximum cumulated duration of successive temporary contracts are broadly in line with the regulation prevailing in the OECD countries. However, the administrative requirements governing the authorisation of a temporary work agency are highly demanding. Once operational, these agencies have to meet some very strict periodic reporting requirements.

The high protection of Peruvian workers on permanent contracts can discourage employers from hiring youth on this type of contracts for fear of not being able to adjust to employees’ misconduct or incapacity, or changes in demand and technology. This implies that employers would rely on temporary contracts as “dead ends”, rather than stepping stones during the transition to a permanent job, with particularly harmful effects on the creation of more stable youth jobs. The function of these contracts as on the “job training” and “screening tool” of young job seekers, would be reduced and the duality of the labour market would increase as a result. Indeed, the probability for young people (15-24) in Peru to work under a permanent contract is half than that of the working age population (21% vis-a-vis 42%). By contrast, it is only one third lower in the mean OECD country (62% vis-a-vis 87%).

Tackling the strictness of EPL on permanent contracts can therefore be an important lever to reduce the large proportion of Peruvian young workers who are either trapped in precarious jobs in the formal sector, or are entirely excluded due to high informality. For collective dismissals grounded on economic, technological and structural reasons, today’s cumbersome compliance procedures preventing the recourse to these dismissals could leave the way to a simpler notification requirement. For individual dismissals, a number of outstanding legal barriers that prevent employers from the possibility to plea for a justified dismissal could be relaxed. The recognition of adverse economic circumstances among the reasons justifying a dismissal is a primary candidate. Moreover, the high penalty following an unfair dismissal could be reduced with a view to aligning it more closely to the standards prevailing in OECD countries. Recent reforms undertaken by a number of OECD countries go in this direction (Estonia, Spain Slovenia and Italy). Regarding temporary contracts, Peru could benefit from a reduction of the administrative barriers that discourage the creation of temporary work agencies. There also seems to remain scope for expanding the circumstances under which Peruvian firms can use temporary contracts for permanent tasks related to the core activities of the firm. At the same time, the maximum cumulated duration should be fixed by regulation as a way of preventing young workers from being trapped in precarious jobs, but also ensuring that the employers can screen youth workers for future permanent hiring.

In designing policies to improve the EPL setting, policy makers typically face some key trade-offs. In particular, the effect of relaxing employment protection on permanent contracts may not be the creation of more and better quality jobs for youth, if temporary contracts are eased at the same time. Indeed, the overall effect could be that, as a way of benefiting the smaller cost of terminating an employment relationship at the end of a fixed-term contract, firms will adjust by substituting temporary for permanent workers. To counter the risk of this offsetting effect, several OECD countries have introduced measures recently to reduce incentives for employers to hire people on temporary contracts when not justified by the temporary nature of the tasks. For example, as part of a broader strategy to rebalance job protection, Italy introduced a standard contract in 2015 with employment protection increasing with tenure.

Complementary strategies to address barriers to firm creation

In addition to the creation of more supportive regulatory settings for social security contributions, for minimum wages and for employment protection, the establishment of a friendly administrative environment to firm creation is also essential to support youth employment. Critical to this end is that Peru pursues the efforts to simplify the administrative procedures to formally register companies and, hence, promote firm creation. Since 2004, Peru has reduced the number of procedures to start a business from ten to six, the expected number of days to fulfil the required procedures from 98 to 26 and the overall cost from 40% to 10% of income per capita. These reforms must be continued by (i) having government agencies substitute to notaries and municipalities in the registration process in order to limit anti-competitive practices and (ii) creating an online one-stop shop for firm registrations. More progress is needed to establish the “e-government” that the Strategic Plan for Electronic Commerce 2012 – 2021 is longing for. One notable step in the right direction was the launch by the MTPE in 2018 of Formalizate Peru, an integrated platform to orient and accompany workers and employers in the process of formalization for both labour and business.

Lessons from the past: The importance to strengthen social dialogue

In December 2014, a Special Youth Labour Scheme was proposed to reduce non-wage labour costs paid by small enterprises and firms under the general regime when they hire young people between 18 and 24. Under the new scheme, a substantial cut of employers’ social security contributions was foreseen: contributions to health insurance would be subsidised by the Peruvian State, while contributions to unemployment benefits would be eliminated. At the same time, the scheme envisaged to abolish existing entitlement of young workers to bonuses and profit sharing. Furthermore, paid annual leave would drop from 30 to 15 calendar days for youth employed under the general regime.

Seen as favouring employers at the expense of young people, the law was bitterly opposed by Peruvian youth and was finally abandoned. This example points to the need for ensuring a strong social dialogue framework that supports the identification of reform needs while at the same time ensuring protection (OECD, 2017). Together with the rigor and quality of ex-ante evaluation analysis, social dialogue is essential to create a consensus for reform and to the effective implementation of policy decisions once agreed upon.

Summary of key recommendations for removing demand-side barriers to youth employment in Peru

Demand-side barriers to youth employment relate to economic, legal and administrative constraints that affect the ability and willingness of employers to hire young people. The OECD suggests to:

Contain the cost of hiring young workers

• In line with the key findings of the recent report by the OECD on the Taxation of SMEs in OECD and G20 countries, ensure that incentives to the firm sector do not alter economic activity in unintended ways, particularly by exacerbating the effects of strong sized-based thresholds. These thresholds encourage the small and medium sized enterprises to remain small, hindering the expansion of youth employment.

• While the real value of the minimum wage should not be allowed to erode in years to come, the prevailing long-term stance that prioritises avoiding important (real) increases should be maintained.

• Future policies should ensure that the minimum wage remains attractive to Peruvian youth job seekers, but also that the minimum wage is set in a way that does not create a disincentive for employers to hire workers formally. Mechanisms that link minimum wages with productivity or price levels can help reduce such disincentives. A related action would be to allow for a differentiated minimum wage across different regions in Peru so that they are more closely linked to actual levels of worker productivity and/or price levels in the region.

Tackle labour market duality

• Alleviate the protection provided by permanent contracts. For collective dismissals grounded on economic, technological and structural reasons, today’s cumbersome compliance procedures preventing the recourse to these dismissals could leave the way to a simpler notification requirement. For individual dismissals, a number of outstanding legal barriers that prevent employers from the possibility to plea for a justified dismissal could be relaxed. The recognition of adverse economic circumstances among the reasons justifying a dismissal is a primary candidate.

• Regarding temporary contracts, Peru could benefit from a reduction of the administrative barriers that discourage the creation of temporary work agencies. There also seems to remain scope for expanding the circumstances under which Peruvian firms can use temporary contracts for permanent tasks related to the core activities of the firm. At the same time, the maximum cumulated duration should be fixed by regulation as a way of preventing young workers from being trapped in precarious jobs, but also ensuring that the employers can screen youth workers for future permanent hiring.

• Policies need to consider the development of a comprehensive strategy to reduce the strong duality of the Peruvian labour market between permanent and temporary contracts. The objective of such reforms should be to reduce incentives for employers to hire people on temporary contracts when not justified by the temporary nature of the tasks.

• At the same time, the policies to reduce the strong duality of the Peruvian labour market for young workers would require the support of the actions to reinforce the social protection system. This requires reforming the current unemployment benefits system in Peru to meet the following two prerequisites: (i) providing income protection to all workers in the formal sector, including those whose work experience is insufficient to cover them; and (ii) making such a protection contingent upon the active search for a job and/or a serious engagement in employment programmes.

Abolish administrative barriers to firm creation

• Replace the presently highly fragmented system of notaries and municipalities for the registration of businesses with a national government agency. By reducing fragmentation and limiting risks of arbitrariness, this would strengthen the level playing field, while at the same time reducing the length and the cost of procedures.

• Create an online one-stop shop for firm registration.

Ensure that reform decisions are embedded into a strong framework for social dialogue

• Together with the rigor and quality of ex-ante evaluation analysis, social dialogue is essential to create a consensus for reform and to the effective implementation of policy decisions once agreed upon. The example of the Ley Pulpín points to the need for ensuring a strong social dialogue framework that supports the identification of reform needs while at the same time ensuring protection.

Improving the employability of Peruvian youth

Raising the capacity of Public Employment Services to support activation

The international comparison shows that spending on Active Labour Market Policies (ALMPs) is too low in Peru to be able to generate a significant impact. Recent analysis carried out by the ILO shows that Peru’s spending on labour market programmes is one of the lowest in the Latin American region, both evaluated as a share of GDP and as a share of total government spending (ILO, 2016). In 2015, spending for the three largest Peruvian programmes (Jovenes Productivos, Trabaja Peru and Impulsa Peru) amounted to around PEN 300 million (USD 90 million or EUR 80 million), corresponding to 0.05% of GDP. As a benchmark, the OECD countries devote on average 0.4% of their GDP to labour market activation policies.

Only around 5.5% of unemployed Peruvian youth in the age range between 15 and 29 years old seek work through Public Employment Services (PESs), a very low figure by international standards. Across a sample of European OECD countries the same share ranges between 13.5% (Iceland) and close to 94% (Belgium), with an average of 47.6%. In part, this low take-up of public employment services in Peru reflects the fact that the most preferred job search vehicle by the youth remains the social network (through relatives and friends) and reaching out directly to employers. Many workers (especially those who are relatively low skilled) do not refer to the labour intermediation institutions since they look for a job in the informal sector. In addition, Peruvian PESs are severely understaffed by international standards. As of 2016, the system counted only 221 caseworkers, corresponding to a rate of 1 300 PES clients per caseworker. By comparison, the average caseworker provides services to 202 jobseekers among OECD countries for which data are available (France, Germany, Italy, Sweden, Spain and United Kingdom).

Further hindering the effectiveness of ALMPs in Peru, the limited human and financial resources available are not directed towards the programmes characterised by the highest potential to raise youth employability. For example, the largest share of spending (approximately 75%) for ALMPs in Peru concentrates on public works programmes that lack a vocational training component. This is despite a strong body of evidence for OECD and LAC countries suggests that training programmes play an important role to support the integration of youth workers in the formal labour market (Card, Kluve and Weber (forthcoming) and Escudero et. al., 2017).

Strengthening outreach to young NEETs

If the resources and human capital were expanded to make PES more effective, the Peruvian government would be able to undertake measures to widen the range of outreach activities of the Centro de Empleo (Employment Centre, Peruvian PES), particularly to strengthen the support provided to the most deprived, low-skilled NEETs. The recent experience of OECD-EU countries suggests that one promising way to achieve this is by bringing PES services closer to the places where the NEETs meet. This requires, for example, designating youth outreach workers and organising publicity campaigns. Intensive collaboration between PESs, schools and teachers, youth organizations and social activists can be instrumental to identifying school drop-outs and youth at risk of becoming NEETs. Sweden and the UK provide examples of such a “detached” outreach model, which includes appointing ‘street marketers’ to reach out directly to youth. Italy and Norway have introduced innovative models of cooperation between PESs and schools to monitor the attachment of young people to the labour market, thus enabling early forms of intervention. The Belgian Le Forem and German BIZ-mobil provide successful examples of multi-channelling, which uses a wide range of Information and Communication Technology (ICT) tools to advertise PES services and organize ‘low threshold’ PES units, capable of implementing out field campaigns in remote areas using mobile centres.

Tailoring services better to specific needs

The capacity of the Centro de Empleo to offer personalized support services to unemployed youth is fairly limited in Peru. Counselling and advice mainly rely on group workshops. Recent measures to enable Jóvenes Productivos to select training centres for the implementation of specified curricula and to facilitate the intermediation between youth and the firm sector are steps in the right direction. SOVIO offers access to personalised career guidance. These experiences could be used to inform the development of a new model of personal guidance with the aim to support the labour market integration of disadvantaged youth.

Peru could do more to gear the assistance currently provided by the Centro de Empleo to the specific needs of the most disadvantaged youth. Recourse to individualised service approaches could be strengthened, provided that PES are adequately staffed. Individual service practices rest on appointing a personal case manager who evaluates the candidate's profile and suitable job prospects, prepares individual action plans and monitors the progress towards finding a placement. Candidates assessed as employable are provided with access to job vacancies tailored to their profiles and are offered additional counselling services. Difficult-to-employ candidates receive an early referral to training, work experience, or other special supports.

Greater capacity will be essential to deliver effective employment services

Although individualised services can significantly enhance the effectiveness of activation, the actual implementation on a larger scale of such services will require the backbone of measures to expand the number of PES offices, as well as staffing levels. In considering these measures, it will be important to give priority to the most remote regions, where shortages in infrastructure and human resources are largest. Since the recruitment and the training of new staff to equip them with the skills needed to operate effectively may require some time, partnerships with private employment agencies provides a viable option to alleviate the capacity constraints of the Centro de Empleo in the short to medium-term.

Strengthening the training component of ALMPs

Averting the risk that low-skilled young people become NEETs, or work in the informal sector, requires strengthening the emphasis that Peruvian activation policies place on training. Studies on ALMPs in Latin America point to the positive impact of dual training-with-apprenticeship programmes on the probability for youth participants to be hired in the formal sector, therefore accessing higher earnings and better career opportunities (Escudero et. al, 2017; OECD, CAF and ECLAC, 2016). These studies also show that much of the success of on-the-job training depends upon the capacity to engage employers. Countries typically have a range of employment and/or wage subsidies in place to reinforce such an engagement and Peru is no exception. As part of Jóvenos Productivos, for example, Peruvian businesses already participate in the design and implementation of training in collaboration with the training centres and the government.

Nevertheless, the private sector in Peru makes little use of apprenticeship incentives. One explanation behind this include the obligation to use the tax benefits exclusively for employees listed in the electronic payroll system of the company. Since many youth candidates to become training apprentices do not have a job contract, they do not appear in the electronic payroll and therefore are not eligible for the tax benefit. In addition, the tax authority can apply considerable discretion when it decides which parts of the training expenses are eligible for the tax benefits. Given that this discretionary power is not precisely defined, firms prefer to err on the side of caution, which results in an underinvestment in training for fear of being declared ineligible for the benefit. 

Public work programmes to boost incomes and work experience

Besides providing income support, public works programmes could bring a number of other benefits (Subbarao et al., 2013). Because they provide individuals with work experience, they help maintain and/or improve skills and therefore promote labour force participation and more permanent pathways out of poverty than simple cash transfer programmes. They can be particularly helpful for groups at the margins of the labour market, such as women, NEETs and the low-skilled, and help them raise their bargaining power by guaranteeing work at the minimum wage rate and, therefore, enforcing a minimum wage rate on all casual work. Public works also tend to rely on self-selection as the primary targeting mechanism, with the central parameter being the wage at which a public work is rewarded. This wage must be set out at a level low enough to attract only those in need of a temporary work, but high enough to provide an adequate source of income. In addition, public works involve several secondary benefits, including the creation of public goods and the promotion of social cohesion. In some countries, they have also been used for environmental (e.g. generation of water storage, afforestation, and compost generation) and social purposes (running child-care centres, nursing homes, school kitchens, and so on; Lieuw-Kie-Song et al., 2010).

More recently, some programmes have moved beyond the mere provision of temporary work to include training opportunities to prepare participants for possible longer-term employment, self-employment, or further education and training. The motivation for this approach is to provide individuals with a more permanent pathway out of workfare and poverty. The type of training provided can include vocational training, basic skills training (literacy and numeracy) as well as entrepreneurship training. These considerations suggest that Trabaja Perù could benefit from a strong training component.

The supportive role of certification

In order to strengthen the labour market prospects of youth, on-the-job training experiences should be certified by an independent certification body. Recent work by Cahuc, Carcillo and Minea (2018) sheds new light on the effects of various forms of labour market experience for youth who have dropped out of high school. Building on information collected through a field randomized experiment (i.e. after sending fictitious résumés to real job postings), their results indicate that the likelihood of receiving a call-back from employers sharply improves when youth get a certification of their skills. Pathways to the labour market without skills certification seem unable to improve the employment outlook of unskilled youth. Notably subsidized or non-subsidized work experience, either in the market or non-market sector, even for a few years does not significantly improve the chances to be contacted by employers compared to an unemployment spell of the same duration. These results suggest that accruing work experience is not always enough to more frequently get call-backs. Employment support measures, such as temporary jobs or hiring subsidies, should be conditional on getting a certification of skills at the end of the employment period, at least for previously unskilled youth.

The importance to nurture a culture of monitoring

Developing an impact evaluation culture is also critical. One challenge relates to the limited access to data and information on the outcomes of ALMPs; for example, randomized experiments about these outcomes are scarce in Peru. To fill this gap, the Ministry of Labour and Employment Promotion could build on the experience of the Ministry of Education, which launched MineduLAB in 2016. Working in partnership with the regional arm of the Abdul Latif Jameel Poverty Action Lab (J-PAL LAC) and Innovation for Poverty Action Peru, MineduLAB is actively engaged in evaluating the effectiveness of innovative education policies to improve children’s learning in the country. To this effect, it makes extensive recourse to randomized controlled trial field experiments. A similar approach could be used to assess the performance of ALMPs.

Strengthening income support to unemployed youth, conditional on active job search in the formal sector

Upon loosing labour income Peruvians find themselves at high risk of falling into poverty. OECD countries on average protect around 40% of the youth and 50% of prime age individuals (30-64) from falling below national poverty lines, thanks to social transfers. In Peru, the proportion of people effectively protected from (relative) poverty through provisions from the social protection system equals around 2% for both age groups.

From the institutional perspective, as a counterpart to the abolition of the severance pay in the occurrence of justified dismissals, Peru established a system of Individual Unemployment Savings Accounts (IUSAs) in the early 1990s, at a time when other Latin American countries were undertaking similar initiatives (Brazil, 1989, and Colombia, 1990; other countries, Chile and Ecuador, for example, introduced their programmes in the early 2000s). Up until then there used to be a tenure bonus, which became the Compensation for the Length of Service (Compensation por Tiempo de Servicio, henceforth CTS). This individual saving scheme is financed by the employer with a deposit equivalent to half of the employee’s monthly salary payable every six months (May and December). The scheme is intended for private employees not covered by other special regimes. Each worker can choose the financial institution where to deposit the fund. Employers and employees can agree, through a private arrangement, that the employer is responsible for the deposit.

Important amendments introduced since 1996 have considerably diluted the capacity of the CTS to protect the employees against the risk of unemployment. Particularly, workers have been allowed to withdraw all or part of their CTS deposits in case of an emergency other than unemployment (for instance to cancel loans and debts incurred with financial institutions), or at cases to help “stimulate domestic demand”. They were also allowed to use the funds as loan guarantees against the purchase or construction of a property, a renovations or the acquisition of land. According to the latest law adjustments (Emergency Decree 001-2014), workers can withdraw 100% of their contributions above four monthly gross salaries accumulated in the CTS. This means that an equivalent of only four gross monthly salaries must be kept in the individual’s CTS deposit to prepare for the eventuality of unemployment.

For youth jobseekers, the limited capacity of the Peruvian unemployment benefit system to work as a safety net is compounded by two additional factors. First, more precarious employment conditions for youth workers than adult workers mean that their contribution records are more volatile, which prevents them from accumulating enough savings in their CTS account. Second, young people are disproportionately hired by micro and small enterprises, which are fully (micro enterprises), or partially (small enterprises) exempt from the payment of the CTS. The combinations between these factors means that merely one in ten youth employees have their CTS accounts contributed parallel to the payment of their wage bill.

In principle, severance pay remains an option in the event of unjustified dismissal. As an alternative to the constitutionally backed right of reinstatement, dismissed workers can choose a termination payment equal to 1.5 monthly salary per each full year of service (if employed under a permanent contract) and 1.5 monthly salary per each full month of remaining service up to a maximum of an annual salary (if the work agreement was fixed-term). However, OECD calculations based on ENAHO figures suggest that in 2015, it was paid to less than 1% of dismissed youth.

Improving the unemployment benefit system

As a short-term policy option, Peru could consider strengthening the requirements for CTS withdrawals in the event of unemployment. For example, the threshold above which workers are allowed to withdraw 100% of the CTS funds could be raised to six monthly gross salaries from the current level of four monthly salaries. This means that the equivalent of at least six gross monthly salaries would have to be kept in the individual’s CTS account to prepare for the eventuality of unemployment, corresponding to an increase of 50% from today’s threshold. In addition, access to the core part of the CTS account could be made at least partly contingent upon the jobseeker’s active job search in the formal sector.

A more ambitious approach would involve reforming the current unemployment insurance system to include two main funding schemes building on the experience of the Chilean model. Under the first pillar, individual savings accounts for each worker would be financed by contributions from the worker and the employer in the case of open ended contracts, and only by the employer in the case of workers with temporary contracts. Under the second pillar, the system would generate a solidarity fund (Fondo de Cesantía Solidario in the Chilean UISAs scheme), that would be financed by the employers and from the government budget. Unemployed workers would only receive payments from the solidarity fund if their own savings are insufficient to cover their period of unemployment. Also, the number of payments from the solidarity fund would be limited – for example, payments can be withdrawn at most twice over a five-year period in the Chilean system.

On top of the inclusion of the solidarity fund, another salient characteristic that sets the Chilean model apart from other income support schemes for the unemployed in Latin America is the incorporation of a strong link to labour market activation (Sehnbruch and Carranza, 2015). For example, registration with the PES is automatic under the Chilean UISA. This ensures that unemployed workers receiving insurance payments and made redundant for economic reasons benefit preferential access to the vocational education and training programmes provided by the country’s national training and employment service. At the same time, insurance payments are contingent upon the worker’s acceptance of a place in the publicly provided vocational training programme.

In thinking about the implementation of a system modelled along the Chilean UISA, some decisions would have to be taken and policy makers will face some key implementation challenges. One challenge relates to the existing high level of turnover induced by the extensive use of temporary contracts in a context of strong labour market duality. The other challenge stems from the extent of the administrative and budgetary efforts required to implement effectively strong mutual obligation requirements in an economic environment characterised by a sizeable informal sector, which implies that abuses may be difficult to monitor. These considerations suggest that initially it might be more prudent to keep replacement rates relatively low and benefits durations short. From a broader strategic perspective, they underscore the importance of following an integrated policy approach that takes into account the policies discussed in Chapters 2 and 3. The policy insights of Chapter 2 precisely aim to reduce labour market duality. The previous sections of Chapter 3 provide useful insights as to how to improve the effectiveness of activation.

Targeting social assistance at NEETs who actively search a job in the formal sector

The Peruvian government should also gear the provisions of social assistance to better respond to the needs of jobless youth who are totally deprived of unemployment benefits because their work history is too short. However, in order to counter the risk of dependence on welfare transfers, social assistance policy should be linked to activation in order to ensure that on top of supporting incomes it also aims at keeping capable individuals connected to the labour market until they are brought back into job.

Implementing a mean tested jobseeker allowance (JA) that provides financial support to unemployed persons not eligible for any kind of benefits, could represent a desirable option. A key feature of a JA scheme is that as a counterpart to the unemployment subsidy candidates would be mandated to register with PES and to engage intensely in job search. Beneficiaries would not be in a position to reject suitable job offers.

An alternative solution would involve subordinating access to existing social assistance transfers (i.e., Juntos) to the effort to actively search for a job. Roughly 10% of Peruvian NEETs, i.e. 180 000 youth, live in households entitled to the Juntos transfer. The requirement that capable members of families receiving the subsidy register with the PES and participate in activation could be a viable way to motivate youth to search for a job. At the same time, following the example of other countries from the LAC region Peru could also use Juntos as a tool to reward achievements. The Chilean programme Ethical Family Income does so by providing an extra support to beneficiaries who have integrated the formal sector after obtaining an educational degree.

Supporting the development of social protection through ICT

ICT can provide a useful support to the development of social protection transfers. For example, it can facilitate the identification of individuals registered with the PES and who are beneficiaries of welfare programmes. This could help conditioning the transfer of unemployment benefits on active participation in PES services.

Recourse to systems of unique identification number and unified contribution collections has been marked across LAC countries since the early 2000s. In Peru, the civil identification system, Reniec, allows social security services to reach out to remote populations in the Andean and Amazonian areas and to indigenous communities (Reuben and Carbonari, 2017). The benefits to the population are visible in reduced fragmentation of services and reduced administrative costs and errors. The administration gains in terms of improved data exchanges across institutions and less abuses.

Overall, these advantages mean that ICT can play an important role to help strengthening institutional coordination of social protection. Yet, the digital divide remains strong in Peru, where 34% of NEETs still declared not using the internet in 2016. Increasing access to affordable digital infrastructure, especially in remote rural areas, is a key to strengthening regional development and improving the labour market integration of disadvantaged youth. An intermediate solution that could ease the lack of access to the internet, while at the same time attracting youth to PES, may require the creation of toll-free kiosks with personal computer terminals in regional offices of the Centro de Empleo.

Reducing the skills mismatch

Skill mismatch typically arises along two dimensions, a vertical dimension that relates to qualification and a horizontal dimension, related to field-of-study. Qualification mismatch arises when workers have an educational attainment that is higher or lower than that required by their occupation. If their education level is higher than the requisite, workers are over-qualified; if it is lower, they are under-qualified. Field-of-study mismatch arises, instead, when workers are employed in a different field than what they have specialized in. Investing in Youth Peru applies the OECD’s newly developed Skills for Jobs Database to obtain information about data on qualification and field-of-study mismatch, as well as gauging skills demands and surpluses. The database focusses on a wide range of skills, including cognitive skill, social skills, physical skills and a set of knowledge types.

Analysis of the two indicators suggests that skill mismatches are pervasive in Peru, both in terms of misalignment of education levels with respect to jobs that are in demand and field-of-study. Nearly 38% of Peruvians aged 15-64 are employed in jobs that require a different qualification level and almost 50% (of those aged 15-34) are mismatched by the field of study. Importantly, while the overall degree of qualification misalignment in Peru is in line with the OECD average, the nature differs. Unlike in the OECD, where under-qualification tends to be more prevalent, in Peru roughly three-quarters of qualification mismatch is due to over-qualification. About 28% Peruvians work in jobs that require lower educational levels than they hold, while around 8% perform jobs without sufficient qualifications. Over-qualification seems to be a common pattern across the LAC countries. Mexico and Chile, whose over-qualification rates equal 38% and 30% respectively, score worse than Peru, while Argentina does slightly better with an over-qualification rate equal to 27%.

Field-of-study mismatch fuels additional skill imbalances in Peru. With virtually half of graduates working in a different profession than the one for which they pursued education, Peru lags far behind the OECD countries. This means that obtaining a tertiary level education, or specialized secondary education, does not necessarily help smoothing the transition to the labour market since the field of study is not well aligned with labour market needs.

Another factor compounding the misalignment of skill supply with labour market needs in Peru is the lack of demand for skills. Despite two decades of robust economic development, the overall distribution of jobs in Peru has remained relatively skewed towards low skilled occupations. Compared to 2005, when the low-skilled occupations accounted for roughly two-thirds of total employment, and jobs for medium- and high-skilled comprised merely one-third of the market, there is visible progress towards creating opportunities for highly educated workforce. However, roughly half of the jobs available in the labour market were still at the low skills level in 2016, requiring at most lower secondary education. Jobs for middle-skilled workers with education corresponding to upper-level secondary school constituted around 35% of the market, while some 15% of jobs were related to positions demanding tertiary education.

Supporting better education and career choices and delivering evidence-based policy making

Peru has achieved important progress on the creation of the institutional capacity needed to produce indicators for evidence-based skills policies. However, as in many OECD countries challenges remains to ensure that these indicators are used to guide policy making (OECD, 2017b). Moreover, Peruvian students on average do not have the information they need to orient their study and career choices, especially as the upper-secondary education system has become increasingly complex and somewhat opaque.

Web portals, such as the Ponte en Carrera -- which collects relevant and quality information on educational offerings and labour market demands -- and other instruments such as SOVIO and Proyecta tu Futuro should be strengthened to provide students with information about available study options and professional career paths after graduation (see also Ministerio De Trabajo y Promoción del Empleo, MTPE, 2018). In line with the above discussion on activation, workers and job seekers could make better use of labour market information, if it were more accessible. As a promising initiative, Proyecta tu Futuro (Project your Future) aims to accompany the youth in the search of a vocational study or training and to provide job orientation.

Furthermore, skills assessment and anticipation exercises -- such as those already conducted in a number of OECD countries -- could be developed in Peru to provide guidance on future skills demands, thereby mitigating the incidence of skills shortages and mismatches. In addition, a regular assessment framework would allow tracking progress towards the achievement of policy objectives. For example, stronger monitoring would help addressing the issue of the low quality of tertiary education institutions to ensure that universities meet the expectation of students as well as international standards.

Improving co-ordination to achieve better skills outcomes

Peru could improve its skills outcomes by strengthening horizontal collaboration among different ministries and vertical collaboration across different levels of government. Many ministries and authorities in Peru have an impact on the development, activation and use of skills, but systems of inter- ministerial collaboration are relatively underdeveloped. In many cases, more than one level of government has responsibility for the same policy area, with unclear division between national, regional and local levels. This issue is particularly visible in the case of education. To achieve a more efficient decentralisation, the capacity of regions and local authorities should be strengthened to allow for a more thorough implementation of place-based policies with the goal of reducing regional and urban-rural disparities in skills outcomes.

Building partnerships to ensure that policies are responsive to changing skills needs

To improve countries’ performances in the development, activation and effective use of skills, governments must foster collaboration and co-ordination among the actors with both a stake in, and an influence on, skills outcomes. Stronger partnerships can increase the relevance of skills developed in Vocational Education and Training (VET) and higher education. Peru’s VET system is characterised by the existence of strong sectorial schools, which are designed to respond to the skills demand of specific economic sectors, and a weaker public and private system for the rest of the economy. Engaging firms in the co-design and running of training programmes in non-sectorial schools would ensure a better alignment between the skills developed and labour market demands.

At the same time, employers should play a more active role in the design and implementation of ALMPs. Their involvement in training and activation programmes would enhance the skills quality and relevance of those still searching for jobs and build up a ready-to-use talent pipeline. A more active participation of employers in skills assessment and anticipation exercises would ensure better alignment between skills supply and demand. Partnerships between higher education institutions and the private sector could ensure that local demand for highly skilled workers is met by a relevant tertiary education offering. Partnerships between academia and the private sector could help knowledge dissemination and foster a more productive use of academic researchers’ skills. Engagement with the Socio-Economic and Labor Observatories (OSEL) could also be helpful to provide local labor market information to end users (Ministerio De Trabajo y Promoción del Empleo, MTPE, 2018).

Complementary policies to support the demand of quality jobs for youth

Higher levels of skills enable the introduction of new products, while also ensuring that workers can adapt more quickly to the technological and organisational transformations required by the transition towards a more diversified economy. However, important as they are, the policies to support the supply of qualifications and skills will hardly be enough, if left alone, to boost youth employment in Peru. Given the massive over-qualification, any further efforts on the human capital side are likely to be ineffective, while fuelling discontent, without the creation of more productive jobs. In fact, as the evidence provided in a specific section of Investing in Youth Peru shows, policy makers will also need to factor in the essential role played by the complementary policies to sustain strong economic growth and to improve the country’s record on the creation of quality jobs.

As discussed in the OECD Multi-dimensional Review of Peru, this means maintaining the focus on a broad mix of macroeconomic policies, combined with addressing a range of structural weaknesses that have to date prevented economic growth from being more diversified and inclusive (OECD, 2015b, 2016). Many of the policies that could set Peru on such a growth path -- fuelled by technological progress and the diffusion of added-value activities, capable of generating a stable demand for new, more productive and better qualified jobs -- pertain to areas that are beyond the scope of this report. In addition, they must include the actions to bring down structural labour market barriers that affect the willingness and ability of employers to hire youth. Activation policies and social protection systems will also need to be strengthened, given the key role they play in providing an adequate safety net for youth who are out of work.

Summary of key recommendations for strengthening the employability of Peruvian youth

To eliminate the barriers hampering the employability of Peruvian youth the OECD suggests to:

Increase resources and staff for Public Employment Services (PES)

• Expand and increase the efficiency of PES by strengthening recruitment and training programmes for caseworkers.

• Widen the range of modern outreach methods to engage with the most deprived NEETs. The recent experience of the OECD-EU countries suggests that a key to reach out to the NEETs population is by bringing PES services closer to the places where the NEETs meet.

• Compatible with the resources that PES can display, strengthen the efforts to provide the NEETs with tailored job placement and intermediation services relying on personalised approaches.

Enhance ALMP provision

• Remove current administrative barriers that hamper the engagement of the Peruvian business sector in on-the-job training programmes.

• Strengthen the training component of public work programmes. Further to providing income support, public work programmes have the potential to improve skills and therefore promote labour force participation. Trabaja Perù could benefit from a strong training component.

• Make employment support measures, such as temporary jobs in the non-market sector or hiring subsidies in the market sector, conditional upon getting a certification of skills at the end of the employment period, at least for previously unskilled youth.

• Support the development of an impact evaluation culture. For example, the Ministry of Labour and Employment Promotion could build on the experience of the Ministry of Education that launched the MineduLAB in 2016. A similar approach could be used to assess the performance of ALMPs.

Re-design the unemployment benefit system

• Improve the effectiveness of the unemployment benefit system. An immediate solution would involve strengthening restrictions on CTS withdrawals until the event of unemployment.

• As a long term strategy, consider re-designing the current unemployment benefit scheme. This could be achieved by drawing, for example, on the strengths of the Chilean system that combines a system of individual saving accounts with a common solidarity fund and encourages job search.

Target social assistance to unemployed people

• Tackle social assistance programmes to make them better geared to the needs of jobless youth deprived of unemployment benefit, while at the same time making recipiency conditional upon active job search. This may require introducing a Jobseeker Allowance, in the form of a non-contributory unemployment benefit conditional upon registering with PES and intensely engaging in job search. Adding conditionality to Juntos transfer obliging capable beneficiaries to participate in a comprehensive activation strategy could be a viable alternative.

• Take measures to increase access to affordable digital infrastructure, especially in remote rural areas. An immediate solution that could ease the lack of access to Internet could consist in the creation of toll-free kiosks with PC terminals in regional offices of the Centro de Empleo.

Continue efforts to reduce the prevalence of over-qualification and field-of-study mismatch

• Strengthen the role of existing web portals, such as the Ponte en Carrera observatory and other instruments, such as SOVIO and Proyecta tu Futuro, to ensure that they can support students with effective information about available study options and professional career paths after graduation.

• Develop skills assessment and anticipation exercises to provide guidance on future skills demands as tools to mitigate the incidence of skills shortages and mismatches. In addition, a regular assessment framework would allow tracking progress towards the achievement of policy objectives.

• Strengthen the role of policy co-ordination to achieve better skills outcomes through expanding horizontal collaborations among ministries and vertical collaborations across levels of government.

• Continue efforts to foster the role of collaborations between public and private sector actors with a stake in, and an influence on, skills outcomes. Stronger partnership can increase the relevance of skills developed in VET and higher education.

• Similarly, consider measures to engage the business sector in the design and implementation of ALMPs. Their involvement in training and activation could enhance the skills impact of these programmes and their attractiveness to those searching for jobs.

Strengthen the demand for quality jobs for youth as recommended by the OECD Multi-dimensional Review of Peru

• In depth analysis using the OECD’s Skills for Job Indicators, confirms the importance for policy makers to factor in the complementary role of pro-growth policies, which are essential to sustain the creation of more and better quality jobs. In line with the recommendations of the OECD Multi-dimensional Review of Peru, this highlights the importance of maintaining the focus on the broad mix of macroeconomic and structural reform policies that have the highest potential to set Peru on path of more diversified and inclusive long-term economic growth. Important as they are the policies to strengthen employability and to support the supply of qualifications and skills will hardly be enough, if left alone, to boost youth employment in Peru.

Specific policies for the most vulnerable youth

If the NEETs typically suffer from economic vulnerability, so do youth people of strongly disadvantaged background who cannot even become NEETs because they have to engage in subsistence employment. A total of close to two in five Peruvian youth are vulnerable, 39% in 2016. This level is defined as the sum between the level of the NEET (22%) and the percentage share of the individuals in subsistence employment (17%) -- this latter obtained as (i) youth working in the informal sector and (ii) earning an annual salary below the median annual salary earned by Peruvian youth.

This decomposition points to the importance of carrying out a deeper analysis than focussing on the NEETs alone, since this would amount to excluding a substantial part of youth at high risk of vulnerability and largely composed of very poor individuals. The final chapter of Investing in Youth Peru complements the other chapters by providing a zoom into the policies for three vulnerable groups: early school leavers, women and indigenous and Afro-Peruvian youth.

Averting early school leaves

Awareness of the importance to send children to school can be very difficult to acquire for poor families. This reflects a combination of disadvantages, including the lack of access to proper information, poor literacy and numeracy skills of parents and the extra burden induced by a heavy financial resource constraint, which implies that many of these families cannot afford to dispense with their children’s labour in order to meet their ends. Even when they go to school, children of disadvantage background will find it more difficult to meet academic requirements if the surrounding home environment does not provide a supportive ground for their physical, social, emotional and cognitive growth. Undernourished children generally score poorly on cognitive tests compared to better-nourished children and complete fewer years of schooling. Unsurprisingly, children of disadvantaged background are more prone to negative self-stereotyping since the perception of a wide economic and social gap to fill creates discouragements and damages performances, undermining their capacity to perceive themselves as worthy. Overall, the perceived costs of education can be particularly high for children of poor background to surmount exacerbating the exposure of these children to the risk of becoming early school leavers and of child labour.

Early school leavers are substantially overrepresented among youth of disadvantaged background in Peru. Specifically, young individuals whose parents belong to the poorest 25% are four times more likely to become early school leavers than young individuals whose parents belong to the richest 25%. The resulting wide gap in pupils’ educational outcomes by socioeconomic group points to the critical importance to step up efforts to increase the enrolment and learning performance of students of disadvantaged background in Peru.

Improving the perceived benefits of schooling nationwide

In 2015 and 2016 MineduLAB implemented Decidiendo para un futuro mejor (Deciding for a better future) a pilot randomized experiment, aimed at informing students about the returns to education. This is particularly important, given that Peruvian students, especially those of disadvantaged background, substantially underestimate the potential benefits of a learning curriculum at all educational levels. The implementation of the initial pilot resulted in a significant decrease of the number of dropouts, while at the same time improving the academic achievement of the students who most strongly underestimated the returns to education before being informed of their real value. Replicating this experiment nationwide could help reducing the share of early school leavers among Peruvian youth. This seems even more desirable in light of the fact that the information campaign has proven to be highly cost-effective.

Decreasing the opportunity cost of sending children to school

Free education is a necessary condition to help decreasing the opportunity cost of sending children to school, especially for poor families. Under particular conditions, conditional cash transfers (CCTs) could provide an extra incentive, by granting regular transfer benefits to parents of poor background who chose to keep their children at school. Evidence from a wide range of CCTs programmes shows that participation boosts school enrolments and attendances, reducing school dropouts. It also reduces the exposure of children to child labour.

In Peru the programme Juntos, introduced in 2005 and operated by the Ministry of Development and Social Inclusion, provides a bi-monthly transfer of PEN 200 (Peruvian sol; approximately USD 70) to 660 000 poor women conditional on the mother providing access to education, nutrition, and health services to their children. However, experience with Juntos suggests that accessing the transfer may proof to be excessively difficult for some beneficiaries, which possibly discourages enrolments. For example, the average recipient of a CCT payment has to travel five hours to get to the nearest point equipped to perform a financial transaction. This implies a disbursement of 10% of the payment in transportation costs. To enhance the positive impact of Juntos on schooling outcomes, easing mothers’ access to the payment is a key priority. One currently envisioned option is to potentiate the branchless banking network in Peru. Local agents, typically shopkeepers, would serve as deposit and withdrawal points enabling customers to recuperate the funding with a debit card. This option is under evaluation in partnership with Innovation for Poverty Action (IPA), using a randomized experiment.

Enhancing the quality of early childhood development

In 2012, the Peruvian MIDIS created Cuna Más, a large-scale early childhood development (ECD) intervention that replaced the former and less comprehensive Wawa Wasi programme. Cuna Más aims to support the development of children aged below three years who live in poverty, to improve families’ childrearing and to strengthen attachments between caregivers and children. Preliminary results from an experimental impact evaluation by the Inter-American Development Bank of the home visiting services provided by Cuna Más points to a robust and positive impact of the programme on children’s cognitive development (problem solving) and language proficiency (Araujo et al., 2016). What is more, this impact is concentrated on kids living in the poorest households.

However, there are also margins for improvements. Evaluation points in particular to a significant scope for extending the coverage capacity of the service and strengthening effectiveness through increasing the number of Cuna Más care workers, while also providing them with adequate compensations and better career prospects. Addressing these challenges is a key priority to keep the morale of a staff that reports a strong identification with the objective of improving the lives of vulnerable children.

There exist two mandatory pre-schooling services in Peru targeting the development of cognitive and non-cognitive skills for children aged between three and five years. Jardines are formal pre-schools mainly located in densely populated urban areas. The Programas No Escolarizados Educación Inicial (PRONOEI) is a public community-based programme created in the late 1960s for children living in marginalized urban and rural areas not having access to Jardines. Unlike Jardines, who relies on certified teachers, PRONOEI’s teachers are mothers from the community who receive training in child development and teaching techniques from a certified teacher hired by the Ministry of Education.

Assessment of the two programmes reveals that primary school achievements are generally poorer for pupils previously enrolled in PRONOEI. This outcome reflects the less specialised qualifications of PRONOEI teachers and the fact that PRONOEI typically provides a lower number of class-days per week, compared to Jardines (Cueto et al., 2016). However, no study has so far exhaustively addressed the critical question as to whether the children who attend PRONOEI or Jardines perform better than those in a counterfactual situation that does not grant access to these programmes. Such an impact evaluation would provide useful insights on how to raise the impact of the two programmes.

Interactions with nutritional objectives

ECD intervention also encompasses nutrition programmes directed at pre-primary and primary school students. A focus on the nutritional dimension can be a key to persuade parents from poor household to keep children at school. In 2012, the Peruvian Ministry of Development and Social Inclusion launched the programme Qali Warma (“strong child” in Quechua language), which aims to provide access to quality food to children who attend pre-primary and primary public educational institutions located in poor and extremely poor districts.

Qali Warma report carried out by the Contraloría General De La República (Office of the Comptroller General) highlights several areas for improvements (La Contraloría General de la República, 2017). First, most of the educational institutions visited lack a copy of the contract signed between Qali Warma and the food suppliers. This hinders the possibility to check if the quantity and quality of the rations received correspond to those agreed by contract. Second, educational institutions do not have a list of the children targeted by the programme, which prevents keeping track of their number and evaluating beneficial effects. Third, it often happens that the food is delivered late, which disrupts the organisation of classes and damages the proper assimilation of food by the children. Finally, there are concerns with regard to the poor nutritional contribution of some foods. Addressing these deficiencies is critical in order to allow Peruvian children reaping the full benefits of Qali Warma.

Developing key non-cognitive skills

The strategies for raising awareness about the importance of personality traits (also referred to as non-cognitive, soft or socioemotional, skills) in supporting learning and later on the transition to the labour market can also yield promising results in keeping at-risk students in education. Among these traits, consciousness stands out in the empirical evidence as a key for increasing schooling years and school grades at all levels of education is (Carcillo et al., 2015). For example, conscientious students typically put a stronger and more regular effort into succeeding their studies. In addition, the learning attitude and curiosity shown by these students allow them to appreciate the importance of certain tasks that may considerably enhance the long-term returns of schooling, although near term returns may be less visible. These traits include, for example, paying attention in class, being well organised and avoid procrastination.

In this context, the MineduLAB proposed initiative to devise an innovative intervention to help students combat procrastination through in-class training could deserve attention. If this training option is implemented, it might be desirable to complement the in-class component with some out-of-class mentoring. Indeed, mentoring is a proven tool amenable to fill certain behavioural gaps of youth from disadvantaged background who are more likely to lack positive role models at home and guidance on how to develop socio-emotional skills.

Scaling up strategies to counter negative self-stereotyping by poor students

Peru should be commended for the initiative !Expande Tu Mente! (Expand your mind!), which was implemented in 2015. Taking advantage of a short and cheap-to-implement in-class training (90 minutes), students learned how the brain works as a “muscle”, implying that intelligence is malleable and accordingly can be expanded. The initiative aimed to change students’ perception of their own intelligence and develop a sense of effort, perseverance, achievements and control. As one option to effectively counter negative self-stereotyping by poor students, Peru could consider scaling up !Expande Tu Mente!

Tackling the vulnerability of young Peruvian women

Young women are nearly twice more likely to be NEETs than young men. This is particularly the case for women with at least one dependent child. Women often have no other choice but to drop out of school in case of teenage pregnancy or to renounce participating in the labour market when they are adults, following the birth of their child. However, the gender gap in NEET rates also prevails among childless women due to the existence of additional barriers that hinder female labour force participation. Particularly, violence against women in public transports and related public spaces leads many women to forgo job opportunities, irrespective of their maternal status.

Investing in girls’ education

In a context where teenage mothers predominantly come from poor families, the set of policies already reviewed to limit the risk that children from disadvantaged backgrounds drop out from school are particularly promising in order to reduce adolescent fertility rates. As an illustration, CCT programmes have proven to be effective at dampening teenage pregnancy, but only if they are “conditional enough” (see Cortés, Gallego and Maldonado (2016) based on CCT programmes in Colombia). More precisely, CCT programmes whereby receiving the subsidy is contingent upon certain pre-defined criteria of school success and regular attendance are likely to have a stronger effect on teenage pregnancy. These findings suggest that strengthening the conditionality of Juntos may be an effective strategy to lower the number of teenage mothers in Peru. In particular, the government could envision that students receiving a subsidy under Juntos must complete the school year and enrol in the following grade in order to continue receiving the subsidy and/or that the subsidy cannot be recuperated after a too long interruption in the programme.

Extended school-hours programmes

Empirical findings corroborate the presumption that longer school hours play a useful role in limiting the exposure of adolescents to risky behaviours. For instance, Jacob and Lefgren (2003) and Luallen (2006) find that extended school hours significantly reduce the incidence of certain types of juvenile crimes. Extended school hours can also reduce teenage pregnancy. Work by Berthelon and Kruger (2011) has analysed the effects of the school reform that was launched by Chile in the late 1990s to gradually lengthen school days from half to full-day shifts on certain days of the week. The authors find that the amount of time that students spend in school has increased by almost 22% (from 32 to 39 hours per week) and that concomitantly the probability of motherhood for teens living in municipalities with greater access to full-day high schools has lowered. This effect is concentrated on the population that is typically the target of poverty alleviation programmes, i.e. poor young women. These results suggest that the extended school programme (Jornada Escolar Completa) launched by the Peruvian Ministry of Education in 2015 represents a policy move in the right direction. The initiative should be generalised to all urban and rural settings where commuting times between home and school are sufficiently short to enable implementation.

School-based sexual education programmes

Comprehensive school-based sexual education programmes (UNESCO, 2018) include two key objectives: (i) to disseminate the message that teenage pregnancy can and must be avoided; and (ii) to provide competent information explaining how to avoid pregnancy. However, programmes can vary in terms of the approaches used implying that discerning those that have proven to be most effective is a key priority.

To convince students that teenage pregnancy is to be avoided, the approach often consists in explaining the related long-term costs. Particularly, that due to child caregiving responsibilities it may become impossible for teenage parents to finish school, preventing them from reaping the economic and social returns of acquiring a good education. This is the main objective of the campaign Todo a su tiempo! (All in good time!) that was launched by the Peruvian Ministry of Health following the publication of the National Action Plan for Childhood and Adolescence (2012-2021). Stressing the short-term burdensome implications of early parenthood, at an age when people are usually eager to enjoy life, rather than taking care of children, would also be important (Azevedo et al., 2012).

Concerning the issue about how to avoid pregnancy, until now sexual education programmes have for the main focussed on abstinence in Peru. Accordingly, delaying sexual initiation is the primary objective of these programmes. However, the conclusions of a strong body of evidence underscore that “abstinence only” programmes are of very little help to reduce teen pregnancy (Santelli et al., 2017, Dupas, 2011 and Duflo, Dupas and Kremer, 2015). The role played by the complementary approaches that inform students about the contraceptives that exist is a key in this context.

Who should deliver school-based sexual education programmes and to whom?

Another important aspect of school-based sexual education relates to the question about who actually should be in charge of delivering the training and to whom. Of essence here is ensuring that both girls and boys feel that they can safely and comfortably raise questions, clarify doubts and address concerns. Creating such a supportive setting requires that the sexual education programme be delivered by a trained young person who the students can easily identify as a peer, rather than by their regular teachers.

The composition of the audience also matters. Building on a set of rigorous randomized control trials aimed at reducing teenage pregnancy, the US Department of Health and Human Services finds that school-based interventions tend to be more effective when they target students above 13. In addition, the impact appears to be much lower when the gender composition of attending students is mixed, an outcome that reflects the reluctance by many to ask sexuality-related questions in front of the other sex. In this context, it may be preferable to organize at least part of the sessions in subgroups of students of the same gender. Appropriate engagement of the parents, by teaching them how to communicate with their children on avoiding teen pregnancy, is also important.

Providing low-threshold, well-informed access to modern contraceptives

Despite the campaigns implemented thus far, the use of modern contraceptive has plateaued since 2000 in Peru and remains low in the international comparison. Particularly, the share of Peruvian women who rely on modern family planning methods is nearly 15 percentage points lower than the OECD and LAC averages, while the share of those who rely on traditional methods is 15 percentage points higher. This situation raises a number of challenges for policymakers since traditional methods are typically associated with a higher risk of unintended pregnancy, as evidenced by comparatively higher failure rates (Sedgh, Ashford and Hussain, 2016).

International best practices also point to the crucial importance of combining free access to modern contraceptives with careful counselling. This reflects the fact that the impact of free modern contraception on teenage pregnancy has both intended and unintended effects. On the one hand, free access to contraceptives reduces the likelihood of an unwanted pregnancy among sexually active teenagers. At the same time, it means that sexual activity is encouraged, possibly leading to increase adolescent fertility rates if teenagers are not well-informed on how to use the contraceptive efficiently.

This background underscores the key importance of developing a well-coordinated system of sexual and reproductive facilities targeted at adolescents. The salient features of such a system include (i) easiness to reach the facility; (ii) youth friendliness of the facility; and (iii) complementing free access to modern contraceptives by the teenagers with a mandatory counselling. Such a system could be part of a partnership between the Ministry of Women and Vulnerable Populations and the Ministry of Health. It could result in the creation of a network of teenage pregnancy prevention units within the local services and facilities that the two ministries are already responsible for. These are the DEMUNA services (Defensoría Municipal del Niño y del Adolescente), which are coordinated and supported by the Ministry of Women and Vulnerable Populations, and the health centres, which are managed by the Ministry of Health.

It is essential that the services provided by these units are youth-friendly to ensure that young people use them (Bhuiya et al., 2006). Various qualitative studies among Latin American teenagers show that access to contraception requires the removal of several psychological barriers that can discourage the youth from requesting the contraceptives (Azevedo et al., 2012). In particular, many adolescents feel very uncomfortable when faced with the prospect of discussing with an adult, with whom they may not want to share that they are planning to have sexual intercourses. Compounding this embarrassment is the attitude of the adults, often described as openly hostile by teenagers. Some training of the providers may be necessary to address these barriers. One additional reason why youth friendly facilities play an important role is that they provide a vehicle for spreading information about types of contraceptives and their effectiveness.

Alleviating the motherhood penalty

Not only entrenched gender roles push girls out of school in case of teenage pregnancy. They also mean that regardless the age women renounce participating in the labour market following the birth of their child. In Peru, like in many other countries, adult women who are mothers of dependent children (age 0-14) are much less likely to be in the labour market than women without dependent children. Descriptive evidence reveals that 25- to 54-year-old Peruvian who are mothers of at least one dependent child are about 10 percentage points less likely to be in paid work than comparably-aged women without dependent children.

Ensure that all mothers can benefit from a decent maternity leave

Maternity leave policies provide mothers with the right to take a limited period of time off work around childbirth as well as when children are very young, and to return to the same position or an equivalent one that is paid at the same wage. The length of maternity leave in Peru has been increased to 14 weeks in March 2018 (Supreme Decree 02/2016). Although this length is lower than the average among OECD countries (20 weeks), it matches the minimum length set by the ILO’s Maternity Protection Convention (No. 183). Moreover, maternity leave in Peru provides mothers with full compensation of their income loss. By term of comparison, mothers receive 85% of their earnings on average in OECD countries. This said, only a minority of women, i.e. those working in the formal sector can access a maternity leave, which suggests that continuing efforts to combat informality will be a key to support access to such an entitlement. The OECD Multi-dimensional Review of Peru provides a broad set of policy recommendations to reduce the cost of formalization while increasing its benefit, for both employers and employees (OECD, 2016).

Improving children’s access to early childhood education and care

Even if supported by more efforts to boost formalisation, the policies to facilitate access to maternity leave will never be enough to boost the participation of women in the labour market. These policies must be integrated by the support of adequate child care options when the maternity leave ends and the mother is back to active work. Yet, access to affordable and good-quality early childhood education and care (ECEC) remains very unevenly distributed in Peru for children below six (the age by when compulsory schooling begins). For example, fewer than 12% of 0- to 2-year-olds children were enrolled in Cuna Más in 2014 (GRADE, 2016). By contrast, enrolments figures have undergone a remarkable increase for Peruvian children in preschool ages, between 3- to 5-year-olds.

Overall, improving children’s access to ECEC remains a key to boost maternal labour supply in Peru where maternal employment is relatively low to begin with (Cattan, 2016). As a priority, this objective would require a significant expansion of Cuna Más day-care services for 0- to 2-year-olds children, as well as of the absorption capacities of Jardines and PRONOEI preschools for three-year old children. Such a service expansion can be expected to be highly cost-effective since it would build on already existing programmes. From the social and economic viewpoints, the first beneficiaries would likely be children from disadvantaged households. As a result, their mothers, for whom the affordability of ECEC is the main barrier to the labour market, would feel encouraged to search for a job. Concomitantly, this policy would have the merit to allow achieving the important goal of promoting child development, while at the same time reducing socio-economic gaps in education (Waldfogel, 2015).

Ensuring women’s safety in public transport and related public spaces

A sizeable gender gap in the NEETs rate is not only observable among women with at least one dependent child. It represents an issue for concerns also among childless women. The traditional gender roles that are behind this outcome appear exacerbated in Peru by a pervasive phenomenon of violence against women in public transports and spaces. This worrisome source of distress leads many Peruvian women to decide to forgo job opportunities, irrespective of the number of their children (VAWG, 2015).

This situation calls for the establishment of a zero tolerance environment to violence against women in general and specifically in public transports and related public spaces in Peru. In this regard, the pilot project Hazme el Paro (Have my back) that the World Bank is conducting in Mexico City is particularly inspiring. It aims to help public transport users become active interveners when they witness violence against women. A similar initiative, of a key importance to improve women’s accessibility to transportation and, hence, to the workplace, could be replicated in Lima.

Gender policies can have disproportionally beneficial effects on a range of youth-specific issues

The case for complementing the above measures with a broader set of policies to combat women’s vulnerability at both the household level (domestic violence) and political level (women’s representation) is also strong in Peru. Domestic violence is widespread in Peru, where 40% of women between 15 and 49 report having experienced physical or sexual violence by their partner at some point in their lives. This places Peru at the high end of Latin American rankings (Bott et al., 2013). Although gender policies have a general role to play, thus generating beneficial effects that go beyond the scope of a youth report, these effects can be disproportionally bigger on a range of youth-specific challenges (OECD, 2017c).

The media can play a potentially powerful role to support the fight against domestic violence. As one example, access to cable television in India, including international programming where women are more outspoken, have lead to generate a much welcome momentum against domestic abuses (Jensen and Oster, 2009). The most promising results seem to flow from “edutainment”, which is the integration of educational messaging within popular entertainments (Ball Cooper, Paluck and Fletcher, 2014). In South Africa, “edutainment” triggered a significant increase in the share of abused women who engage in help-seeking behaviours such as contacting supportive organisations and the national helpline (Usdin et al., 2005).

Increasing women’s political representation can also have remarkable effects. For example, reservation policies substantially improve perceptions of female leader effectiveness, especially among men. This is very important to weaken stereotypes about gender roles in the public and domestic spheres (Beaman et al., 2009). This outcome is also consistent with the perception that there are no gaps in qualifications between male and female leaders. More importantly, research has documented an increase in the “overall” level of qualifications among politicians following the implementation of gender quotas. Indeed, on top of being at least as competent as their male counterparts, female candidates boosts electoral competition and push mediocre male leaders to resign, when a good representation is assured (Besley et al., 2017). Finally, by increasing the number of women in leadership positions, reservation policies contribute to raise aspirations and educational attainments for girls, in particular through a role model effect.

Further to the policies aiming to combat domestic violence and improve women’s political representation, another vector for change of gender stereotypes is the reform of the educational curriculum. Many OECD countries, including Germany, Iceland, and Ireland, have launched official guidelines for educational materials to ensure that they foster gender equality. Peru could draw inspiration from the experience of these countries.

Indigenous and Afro-Peruvian youth

Based on survey figures, people who identify themselves as indigenous or Afro-Peruvian make for roughly 27% of the total population in Peru (ENAHO 2016). Although 25% of respondents view themselves as indigenous and 2% as Afro-Peruvian, the latter figure likely corresponds to an underestimate. In effect, the nationally representative survey conducted in 2017 by the Peruvian Ministry of Culture suggests a share of Afro-Peruvians equal to 9%.

Boosting educational attainments of rural indigenous youth

Instituted during the 1970s, bilingual education has expanded significantly during the past 20 years in Peru. At the core of this effort lies the programme Educación Intercultural Bilingüe (EIB), which aims to achieve two main objectives: (i) increasing educational opportunities for indigenous children; and (ii) recognizing the multilingual and multicultural character of Peruvian society. This is in line with the spirit of other constitutional and education laws in Latin American countries, along with international agreements.

In perspective, expanding the coverage of primary schools by EIB in Peru would require to continue to increase the number of bilingual teachers, who are in short supply at present (a situation common to many other Latin American countries, Hynsjö and Damon, 2016). Reinforcing teachers’ access to training opportunities seems essential in this regard. In addition, expanding the EIB programme to secondary education could be a way to help mitigating school dropouts. This could be achieved following a targeted approach that prioritises the geographical areas characterised by the largest shares of children with a limited proficiency in Spanish, among those who access secondary education. In order to increase the potential of this strategy to produce results, more housing facilities could be created as a way of supporting the large number of students who live in remote rural areas. Importantly, in a setting where, reflecting intense rural-to-urban migration flows, about half of indigenous people live in urban areas, it would be worth considering developing bilingual education opportunities also in urban neighbourhoods known for their high density of indigenous inhabitants.

Boosting job opportunities

Development policies in Peru still tend to view rural development and poverty alleviation as interdependent. This means, in practice, that a strong policy attention remains devoted towards providing poor people with short-term relief until they migrate to urban areas where it is unlikely that they will make their lives easier (OECD, 2016b). Poor people of rural origins typically lack the skills to get a decently paid occupation in the informal sector, not to mention a formal job.

In perspective, to boost the outcomes of these initiatives Peru should put more efforts in the creation of a large-scale coordinated strategy for rural development (Banerjee et al., 2015). At present, the geographical coverage of the Haku Wiñay/Noa Jayatai and Sierra y Selva Alta programmes remains relatively limited. In addition, Peru’s strategy for rural policy is highly dispersed across a large number of programmes. Granularity of programmes may facilitate the adaptation of policy responses to local needs. However, it could also lead to duplications and reduced opportunities for critical mass effects and economies of scales. As these initiatives are part of a national strategic framework or governance arrangement, they suffer a problem of lack of coordination, which leaves little scope for exploiting complementarities (OECD, 2016).

The training offered and close mentorship of participants should aim to spur trainees’ engagement in new activities (such as tourism, fish farming, organic farming, flower production and agro-food industries, for example), rather than privileging the focus on traditional farm activities. Moreover, rural development strategies could be tied to the preservation of the ecosystems, notably by taking advantage of the knowledge of local populations on how to avoid unsustainable exploitations of resources. Conditions for access to markets by the newly created businesses would benefit from a scaling up of the local road networks connecting rural areas with provincial and regional capitals (OECD, 2016, 2016b). The experience of the province of San Martín with regards to the implementation of the Sierra y Selva Altapr programme offers an interesting example of good practice to address some of these challenges.

Combating discrimination against indigenous and Afro-Peruvian people

Discrimination is another hurdle faced by indigenous and Afro-descendants in Peru. According to the nationally representative survey conducted by the Peruvian Ministry of Culture in 2017, the share of respondents who consider that (i) Afro-Peruvians; (ii) Quechua and Aimara people; and (iii) the Amazonian population are discriminated is 60%, 59% and 57%, respectively. By contrast, the percentage share of respondents who see mestizos and whites as unfairly treated is smaller, 31% and 16%, respectively. Studies on remuneration and income in Latin America have found that indigenous workers “are confronted with ‘glass ceilings’ or access barriers while trying to obtain high-paid positions” (Ñopo, 2012).

A multi-faceted national strategy to fighting negative prejudice and stereotypes against indigenous and Afro-Peruvian people has been developed recently by the Ministry of Culture (Benavides et al., 2015). This strategy comprises a range of initiatives from awareness-raising campaigns among the general public, to the design of specific training programmes directed at students. For this policy to be impactful, it seems critical that the Ministry of Culture develops a “MincultLAB”, that would be a correlate of the “MineduLAB” in the field of antidiscrimination policies. Indeed, little is known about how best to overcome biases against ethnic minorities in Peru.

To be effective, antidiscrimination policies should also focus on de-biasing teachers at school as well as the employers, rather than just the students and the general public. Numerous studies have documented the incidence of what is known as the “Pygmalion effect”, according to which students perform better (or worse) simply because teachers expect them to do so. Therefore, if teachers’ expectations about minority students are lower, their actual performances will also tend to be lower. Moreover, for a given level of performance, teachers have a propensity to give lower grades to minority students (Hanna and Linden, 2012).

To reinforce the integration of minority students in education, it seems critical to combine de-biasing with affirmative action programmes. In particular, the Beca 18 scholarship programme could include quotas for Afro-Peruvians, as it is already the case for indigenous students from highlands and Amazonian communities. Implementing quotas for both indigenous and Afro-Peruvian youth in the framework of Beca Doble Oportunidad scholarships, which aim to bring early school leavers back to school, should receive attention.

Risks of discrimination against indigenous youth and Afro-Peruvians go beyond schools. These youth also face unequal treatment in the labour market. A promising way to reduce labour market exclusion of ethnic minorities in Peru would consist in introducing targets for indigenous and Afro-Peruvian in Active Labour Market Programmes offered by the Public Employment Services, especially in urban areas and giving priority to those that focus on youth. This approach would allow caseworkers to provide a more objective advice to employers about the competences of “minority” applicants, in terms of both cognitive and non-cognitive skills, for example. To reach out to these marginalized populations, a requirement would be to increase the share of indigenous and Afro-Peruvian caseworkers, given that it might be easier for them to connect with vulnerable individuals of the same origin. Peru should take advantage of the broader need to recruit and train more PES caseworkers (Chapter 3) to achieve this objective. The role played by regional Semanas de Empleo (Weeks of Employment), or local Labour Fairs, promoted by the MTPE, could also be reinforced as a vehicle to encourage the labour insertion of these vulnerable groups.

Policy recommendations on specific policies for most vulnerable youth

Early school leavers, women as well as indigenous and Afro-Peruvian youth are at high risk of vulnerability, i.e. to become NEETs or to fall in subsistence employment. To help removing the obstacles that hinder the economic and social inclusion of these three groups, the OECD suggests to:

Continue the efforts to increase the enrolment and learning performance of students of disadvantaged background

• Improve the perceived benefits of schooling nationwide by scaling up the programme Decidiendo para un futuro mejor (Deciding for a better future) devised by the MineduLAB to inform students about the returns to education.

• Further decrease the opportunity cost of sending children to school by easing the existing constraints to the payment of conditional cash transfers from the programme Juntos. Notably, this will require potentiating Peru’s branchless banking network, using local agents, typically shopkeepers, as deposit and withdrawal points where customers can recuperate the funding with a debit card.

• Enhance the quality of early childhood development interventions.

  • For 0- to 2-year-old children, harness the full potential of Cuna Más especially to enhance coverage of disadvantaged children, notably by expanding the staff of care workers, while also providing them with adequate compensations and better career prospects.

  • For children from three years old, evaluate the impact of PRONOEI and Jardines and identify how these interventions could be improved to maximize their effect on Peruvian pre-school children. Addressing the limits revealed by the evaluation of Qali Warma is also critical.

• Develop key non-cognitive skills, a key of which is conscientiousness, using innovative educational approaches implemented by the MineduLAB. In this context, MineduLAB’s proposal to devise a new mechanism to help students limit procrastination could deserve particular attention.

• Counter negative self-stereotyping by poor students by notably scaling up the programme !Expande Tu Mente! (Expand your mind!) devised by MineduLAB.

Engage in ambitious policies to tackle the vulnerability of young Peruvian women

• Actively engage in ambitious policies to tackle the vulnerability of young Peruvian women with a particular emphasis on:

  • Taking actions to encourage willingness to staying in education, including efforts to strengthen the conditionality of the programme Juntos.

  • Generalizing the extended school programme (Jornada Escolar Completa) in urban and rural settings where the commuting time between home and school is sufficiently short to enable such an extension.

  • Organising high-quality school-based sexual education programmes to combat teenage pregnancy.

  • Creating a network of sexual and reproductive health facilities targeted at adolescents that are (i) easy to reach; (ii) youth friendly; and (iii) provide the teenagers with free access to modern contraceptives, in combination with mandatory and effective counselling.

• Alleviate the motherhood penalty in adulthood by:

  • Continuing efforts to ensure that all mothers benefit from a decent maternity leave.

  • Improving children’s access to early childhood education and care (see above).

• Ensure women’s safety in public transport and related public spaces by creating a zero tolerance environment to violence against women in these settings.

• Generate a switch towards greater gender equality by:

  • Taking advantage of the opportunities provided by “edutainment” (the integration of educational messaging with popular entertainment) to decrease domestic violence.

  • Implementing reservation policies to ensure women's political representation, at least at the local level. On top of inducing political measures that better take into account women's policy concerns, these initiatives improve the overall perception of female leader effectiveness (especially among men) and weaken stereotypes about gender roles. They also contribute to raise aspirations and educational attainments for girls, through a role model effect.

  • Strengthening the gender equality component of the 2009 curriculum. This objective requires reinforcing two consensual approaches to female empowerment through school content: the elimination of traditional gender stereotypes and the reduction of gender gaps in science, technology, engineering, and mathematics (STEM) fields.

Create a more inclusive environment for indigenous and Afro-Peruvian youth

• Improve the implementation of the Educación Intercultural Bilingüe (EIB) programme by:

  • Increasing the coverage of EIB in primary schools.

  • Expanding this programme to secondary education in areas where large shares of children enter school with proficiency only in an indigenous language.

  • Creating meal and boarding facilities in bilingual secondary schools to support students at risk of dropout who live far away, in remote rural areas.

  • Developing intercultural bilingual education in city neighbourhoods known to host large shares of rural-to-urban indigenous migrants.

• Boost job opportunities for rural indigenous youth by implementing a national coordinated strategy to help rural populations engage in new and more profitable entrepreneurial activities, such as, for example, tourism, fish farming, organic farming, flower production, agro-food industries.

• Combat discrimination against indigenous and Afro-Peruvian youth by:

  • Creating a “MincultLAB”, that would be the equivalent of the MineduLAB in the field of antidiscrimination policies. This would help the Ministry of Culture to tailor better its awareness-raising campaigns to combat negative stereotypes against indigenous and Afro-Peruvian populations.

  • Introducing quotas for Afro-Peruvians in the Beca 18 scholarship programme, as it is already the case for indigenous students from highlands and Amazonian communities. The implementation of quotas for both indigenous and Afro-Peruvian youth in the framework of Beca Doble Oportunidad scholarships, which aim to bring early school leavers back to school, should also be considered.

  • Setting out targets for indigenous and Afro-Peruvian in the activation programmes offered by PES in urban areas, especially those intended for youth.

  • Reaching out to these marginalized populations also requires increasing the share of indigenous and Afro-Peruvian among PES caseworkers. This reflects the fact that it is easier for them to connect with vulnerable individuals of the same ethnic origin. Peru could take advantage of the necessity to recruit and train more PES caseworkers (Chapter 3) to achieve this objective.

Investing in youth is an integral part of the broader policy objective to achieve better long-term economic and social outcomes in Peru

Investing in youth and giving them a better start in the world of work is a key policy objective for Peru. It is also a very pressing priority, given that the benefits from the growth dividend associated with the demographic transition are set to fade away. If this “window of opportunity” is not used, there is a high risk of persistence, or even exacerbation, of the hard-core groups of youth left behind -- the NEETs and early school leavers, among whom women and indigenous and Afro-Peruvian youth are overrepresented. This report contains the OECD’s recommendations for an integrated approach to support Peru to meet this challenge. As typical of any comprehensive analysis, addressing the concrete policy measures put forward in the report requires a degree of pragmatism, taking into account the fiscal space available. It would therefore be essential to provide clear priorities to those areas where additional resources are required. Although some of the proposals made would require substantial more resources, other are costless, for example, the reform of the employment protection legislation, improvements in co-ordination and the greater engagement of the employer sector in the VET system. Importantly, many proposals have the potential to set Peru on a path of stronger and more sustainable growth (e.g., stemming from a rise of better quality jobs in the formal sector, of women participation in the labour market, a closer matching between the supply and demand of skills and a decline of schools drop outs). The resultant stronger fiscal revenues could be re-directed into areas where more investment is required.

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