roughly to levels observed in 2000 (Patrinos 2022). Educational outcomes are low even in some ECA EU countries, such as Bulgaria, where almost half of teenagers lack basic reading, mathematics, and science skills (against one in five in the EU). In contrast, Poland’s educational outcomes have been high and years of quality-adjusted education have been increasing, especially in the younger cohorts, which has likely contributed to faster catch-up with the EU than among ECA peers (World Bank 2022g).

While several factors seem likely to have contributed to the apparent fall in educational attainment in ECA, insufficient investment, especially in pre-primary and primary education, has likely played a significant role. In ECA as a whole, government spending on education fell from 4.2 to 3.9 percent of GDP between 2009 and 2019. Widening income inequality among the families of students in the region may have also had an effect. Learning outcomes in many ECA countries are considerably higher for socioeconomically advantaged students than for disadvantaged students, who are often effectively segregated from high achievers (OECD 2021a).

But educational challenges not only weigh on an inclusive recovery, but also hinder the private sector and dampen long-term growth prospects.<sup>11</sup> Mismatches between labor market needs and skills form a significant constraint on potential output growth in ECA. ECA countries rank above the EU average in skill mismatches, the gaps being particularly large for Albania and Bulgaria (IMF 2021a). Across ECA, skills of graduates from vocational and higher education are often poorly aligned with needs. One result is the high proportion of young people neither employed nor in education or training (NEETs). NEET rates in 2021 were above the EU average in most ECA countries, and more than 10 percentage points higher for women than men in Bulgaria, Poland, and Romania. High NEET rates may reflect weak labor market policies and lower spending in ECA countries compared to the EU. Participation in training (based on survey data from recent years) ranged from less than 2 percent of the population aged 25-64 years in Bulgaria to 6 percent in Hungary and Türkiye. This compares with an EU average of 11 percent (European Commission 2022).

Other major drivers of TFP growth also slowed in 2011-21. After a boost from EUaccession reforms, governance reform efforts have slowed in many of the new member states and backtracked in others, weakening the business environment and likely hindering competition and innovation. Pervasive corruption and large informal sectors in some countries are major constraints on the ability of private firms to invest, innovate, and close productivity gaps with the EU. In 2018, ECA countries continued to fall short of the EU average in the public institutions component of the Global Competitiveness Index, with already sizable gaps in ethics and corruption widening in some cases. The adverse effects of such poor governance tend to be magnified by the state’s outsized footprint on the economy (figure 9.A-D). Even in ECA’s EU countries, World Bank Enterprise Survey

> 11 Enterprise Survey data from the World Bank indicate that an inadequately educated workforce is one of the largest constraints on firms’ ability to grow in Bulgaria, Poland, and Romania—especially in Bulgaria and Romania, where nearly a quarter of firms identified education as a constraint (World Bank 2022c).