Governments around the world assign top priority to job creation and productivity growth.
Developing the right skills among potential and actual workers not only makes capital and labor
more productive, it also makes the adoption and invention of new technologies possible. Recent
research also indicates that skill acquisition has a long-lasting impact on the trajectory of a person’s
life and that inequality in skills is associated with inequality in income.
Low-productivity employment is a distinctive challenge for the labor market in Armenia. Many
existing jobs do not pay enough to lift people out of poverty. Nearly 40 percent of workers are
employed in agriculture, while the sector accounts for only 17 percent of GDP (Rutkowski, 2012). This
discrepancy between input and output implies that most agricultural jobs are of low productivity.
The share of the non-agricultural sector has increased by less than one percentage point in the last
five years. The modern, high-productivity sector is small and it is barely expanding.
Moreover, the proportion of non-agricultural low-earning jobs is high in Armenia. Low-earning jobs
are defined as those that earn less than two-thirds of the median wage. By this criterion, one in four
jobs in Armenia falls into this category, which represents a significantly higher share than that in
most European countries, where the incidence of low pay is within the 15-20 percent range. The
significant presence of informality in non-agricultural sectors is another factor that contributes to the
low-productivity and low-earnings employment.
Creating modern and high-earning jobs in the formal sectors can only benefit the economy if these
jobs can be filled quickly by capable Armenian workers. It is therefore important for Armenia’s
workforce to be equipped with the right skills to prepare for new and modern jobs as well as with
skills that can foster entrepreneurship and innovation. In terms of educational attainment, Armenia
stands out in the region with a high tertiary education enrollment— 46 percent in 2012. An important
question then is whether this high educational attainment is translating into skills relevant for the
labor market, and not just producing diplomas (Sondergaard and Murthi, 2012). In fact, despite the
high availability of labor and these high educational levels, Armenia’s employers are struggling to
find the right workers, which seems to point to a problem of skills in the labor force.