- There are significant skills gaps in the urban labor force.  A number of these are skills best provided by the general education system and in some cases, the private sector.  It would be important not simply to assume that the public post-general education system is the appropriate vehicle for skills development.

- Training of workers is happening, both in-house and by external suppliers.  At the same time, employers have low confidence in existing training providers, most notably polytechnics and schools and training institutions which rely on long-course training.

- Firms identify primarily supply-side factors as major barriers to development of a more skilled workforce.  Funding of training is, however, an issue.  The introduction of an appropriate training accreditation and certification system is a clear need of firms.

69. A number of recommendations emerge from the snapshot of the urban labor market in Timor-Leste provided by the UES. They include:

- There are several elements of the broader business environment which would benefit from further reform if Timor Leste is to attract domestic and foreign investment beyond the petroleum industry, which can in turn promote employment growth.  Such reforms can not single-handedly solve broader challenges of economic backwardness nor insulate the labor market from exogenous shocks, but they can play a significant role at the margin in maximizing employment growth given the initial conditions and emerging shocks. These relate to contract enforcement, provisions in labor regulations for hiring of workers, and the costs of starting a business.  Not only are such onerous provisions likely to impinge directly on employment growth in the formal sector, but they also risk encouraging rent seeking by officials responsible for their enforcement.

- Further research on the urban labor market would be useful.  While the UES is a useful first step, serious informational gaps remain, in particular on informal sector wage structure and trends.  It would also be desirable to explore the interactions between urban and rural labor markets, in particular seasonal flows between them and whether inflows to urban labor markets are becoming more permanent over time, or alternatively weakening in the face of donor withdrawal from Dili.

- Any moves to formalize a minimum wage for Timor-Leste would benefit from more benchmarking of local wage levels and those of neighboring countries.  The current informal MW is high and is not an advisable starting point.  A MW at 50-60 percent of average wage is very high by international standards (see Table 20), as is the absolute value of the informal MW relative to countries at TL’s level of per capita income.<sup>11</sup> In addition, current wage patterns, the demographics of the urban labor market and international practice suggest that a youth minimum wage could be considered if a formal MW is introduced.  International evidence indicates that high minimum wages can have negative impacts on employment generation for young people, and Timor Leste has a clear need with its demographic structure to promote a wage policy that facilitates to the maximum extent possible job growth for young people.

> 11 Details on international comparators are provided in relation toTimor Lestein Das, 2004.

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