Skills Training, Corruption and Organisational Capabilities: An Analysis of Bangladesh’s Garment Industry

Skills training programmes are critical for job creation and structural transformation in developing countries. However, they often achieve poor results because of corruption. By looking at evidence of fraud in a group of training providers in Bangladesh, we identify a deeper problem. Many firms have low productivity due to low organisational capabilities and prefer to employ cheaper untrained workers because their production lines do not move fast enough for training to make a difference. At the other end, very high-capability firms also have limited demand for trainees from average training providers. Without addressing this problem, skills training may fail to create employment. What is worse, outcome-based reward schemes create incentives for providers to fraudulently overstate trainee placements, hiding the source of the problem. We test the hypothesis that providers supplying lower-capability firms and very high-capability firms are compelled to engage in higher levels of fraud. We test this non-linear relationship between the propensity to misreport by training providers and the organisational capabilities of firms by utilising a unique dataset from the Sudokkho skills programme, covering the first half of 2018. Our regression results support the hypothesis and demonstrate the importance of jointly addressing firm capabilities with skills training.