M-RCBG Associate Working Paper No. 20

Innovations in Workforce Training Programs in Ghana:
Using Pay for Performance Contracts

Ning Fu and Shunde Tu

2013

Abstract

The Technical and Vocational Education and Training (TVET) has the potential to serve Ghana’s urban working population by bridging the skills gap and help improve the productivity and diversify the economy. However, the current TVET system has faced many challenges, including insufficient funding and lack of measureable outcomes to align the incentives in the system, a theme that is consistent in both literature review and our own interviews and analysis.

In our empirical analysis based on household survey data, we used public schools as a proxy for better funding, and certificates as a form of measurable training outcome. Our result shows that among wage earners, those who graduated from better funded TVET providers (i.e., public schools) earn 58% more than those from less well-funded schools, controlling for other variables. More importantly, among all TVET graduates working in the formal sectors (i.e., as wager-earners), those who possess well-recognized TVET certificates1 earn 94% more than those who don’t have any certificates, while the difference is 58% in informal sectors (i.e., as self-employed).

We therefore recommend that the Skill Development Fund (SDF) condition its grants on a set of measurable training outcomes, such as certificates obtained by trainees, which will help improve the current evaluation and disbursement process, where grant decisions are made based on limited ex-ante information and grantees are not held accountable for the actual results.

In our package of recommendations, we advocate for better outreach and transparency, introducing plain vanilla pay for success contracting in the short term, and involving socially-minded investors (i.e., the social impact bond model) in the long term. We believe that such gradual improvement would help the SDF better achieve its mission of building capacity in the TVET sector, and instill greater accountability in the system while addressing the SDF’s immediate challenges in disbursing the grants to the most eligible in a timely manner.

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