The World Economic Forum recently released its third Human Capital Report, which ranked 130 countries based on their level of human capital. The World Economic Forum defines human capital as the “knowledge and skills embodies in individuals that enable them to create economic value”. Or in other words human capital measures the economic value of an individual’s set of skill. Sri Lanka ranked 50 in this Human Capital Index (HCI), but what does it really mean?
How is human capital measured?
The Index uses two horizontal themes, Learning and Employment, each comprising 23 indicators, to evaluate the level of Education and Employability. The Index also takes a “life-course approach”, by dividing the people in five age categories; 0-14, 15-24, 25-54, 55-64, and above 65. The indicator scores come from publicly available data compiled by International Organisations as well as the World Economic Forum’s Executive Opinion Survey. The 2016 Index uses the latest available data, and primarily reflects the developments in the 2014-2015 period.
Listing and analysing each and every indicator is beyond the scope of this article, however this list compiled by the World Economic Forum gives out all the indicators and how they are measured. But to briefly explain – first, each of the 46 indicators are converted into a standardised score ranging from 0-100, with the optimal score being 100. Doing this is important as the range of raw scores for each indicators differs. Following this, scores for the indicators under each age category are averaged.
The final score of the HCI is calculated by multiplying the average score of each age category with its respective weight on the Index. The weight assigned to each age group corresponds to the percentage share of each group in the global population. For each country, a rank is given for each indicator, each age category, as well as for the final composite score.
The first HCI report was produced in 2013. However the method the Index was calculated was vastly different from the how the 2015 and 2016 Indexes were calculated. Therefore, it would be only possible to conduct a comparative analysis of the Index values of 2015 and 2016. The 2016 Index reported on 130 countries; six more that the previous year.
When comparing the year-on-year global averages, we find that there was a slight improvement (0.95%) in the level of Human Capital across the globe. The overall scores of the HCI improved for 86 countries, and worsened for 38. Finland, Norway and Switzerland remained at the top of the list with the highest human capital potential. Chad, Yemen and Mauritania remained at the bottom of the list.
Sri Lanka’s Progress
In this year’s Index Sri Lanka was ranked 50, and gained a score of 71.69. This is an improvement of 3.5 points along the Index, and a rank improvement of 10 positions. As shown above, Sri Lanka had one of the best year-on-year score and rank improvements. Sri Lanka remained at the top of the six SAARC countries included in the Index, and surpassed countries like UAE, Serbia, and Vietnam. The report praises Sri Lanka’s achievements by calling Sri Lanka a “bright spot” in the region, and cites Sri Lanka’s high standard of education as the reason for the high Index score.
The only year-on-year decrease was in the 15-24 age group (67.12 to 69.63). The primary reason for this being the reduced economic participation of youth. The report identifies this fall-back by stating that Sri Lanka has underperformed in “translating the potential of its young population to the workforce”. “One in four young people are not active in employment, education or training”. This issue was also identified in our article on the upside down education system in Sri Lanka – where the education system does not cater to the market demands, thus resulting in educated individuals not being able to find employment.
Comparing Sri Lanka’s improvement with other countries
In the Global Peace Index, we discovered that despite the 18 notch improvement, nine position improvements were dependent on the worsening of scores of nine countries. However the same cannot be stated for the HCI. Only one position change was a result of a worsening score of another country – Chile. Thus, nine position changes were solely as a result of Sri Lanka’s large improvement in the score.
While this is highly commendable, another reason for the improvement was the introduction of scores for five indicators, which were not used in the 2015 calculation for Sri Lanka. (When there is missing data, the Index simply averages out the available indicators in each age category to find the composite scores). Each of these five indicators had a score better than 95 points and an indicator rank better than 40. Had these indicators been included in 2015, it is unlikely they would have been very different from those of 2016. Thus, the overall score/rank of Sri Lanka in 2015 should have been better than that was originally reported, thereby reducing the year-on-year improvement of the score/rank of Sri Lanka.
Lastly, we must also question from where the original statistics come from. Even though they come from reputable International Organisations like UNESCO and ILO, we must question from where they source the data. For example, while the HCI takes data for primary enrollment rate from UNESCO, it itself gains this data from national governments. Thus, one must always question the reporting practices of national institutions when reporting data.
What does the future hold?
In summary, it is truly commendable that Sri Lanka climbed 10 spots in the HCI. And Sri Lanka should continue to strive to improve its HCI score. However, the Sri Lankan government must take note of its shortfalls, in particular with regards to increasing and providing opportunities for participation of youth in the labour force. It needs to also provide opportunity for a range of higher education institutions to flourish in Sri Lanka. And in turn we as citizens must urge the government to create such policies.