Summary

An IMF working paper examines one of the key challenges of modern industrial policy: a shortage of technical specialists combined with weak incentives to pursue STEM education due to the limited number of jobs in industry. The authors show that industrial enterprises face particular difficulties in expanding production, as creating new jobs requires significant investment in equipment and infrastructure. High risks and costs reduce firms’ willingness to make such investments. According to the IMF, these constraints explain around 1% of the missing industrial employment, which corresponds to roughly one fifth of the gap between Latin American and East Asian countries. The study also shows that a 1% increase in the share of STEM graduates is associated with a 0.24–0.30% rise in the share of industrial employment. In this regard, the authors emphasize the need to support business investment and expand the training of technical specialists at the same time. Measures aimed at only one side of the problem — labor demand or the supply of skills — are unlikely to produce a sufficient effect.