Human capital for growth

  • The economic and political landscape for the rest of the century will be influenced by the international flow of human capital.

May 7, 2019-

The current government has claimed high and sustainable economic growth to be its top priority. But to achieve this goal, a breakaway from the traditional mindset is needed. The discourse on the new budget must go beyond ineffective resource allocation tendencies based on balanced distribution, scattering resources and appeasement to certain sections of the society.

The general methods of accelerating economic growth are either to increase inputs or to increase total factor productivity. The demographic dividend that Nepal is experiencing, and the injection of new capital for investment, can certainly boost economic growth, and so can the adoption of new technologies and total factor productivity. However, in recent times, the importance of human capital has been too high to limit it to the conventional discourse on economic growth through labour-capital-technology enhancement. Human capital is now recognised as an unlimited source in new endogenous economic growth model.

Although a highly skilled labour force has always been the essential factor for attaining high economic growth, the new emphasis on human capital deserves special attention in the new era of the fourth industrial revolution. The complex issue of human capital accumulation must be addressed comprehensively and emphatically.

Human capital involves a wide range of constructs including knowledge, skills, training and education, experiences, judgment, wisdom and creativity. It encompasses the notion that there are investments in people—education, training and health, for example—and that these investments increase an individual’s productivity. If the government could introduce policies that altered the efficiency of human capital accumulation or the allocation of labour time, it could alter the rate of economic growth. In Nepal’s context, there is much to do in this area.

The Nepal Labor Force Survey (NLFS III) 2017-18 has shown that the working age population (15 years) had a share of 71.5 percent (20.7 million) of the total population, of which 55.6 percent were females. The unemployment rate was 11.4 percent. Females reported a higher unemployment rate of 13.1 percent, which is 2.8 percentage points higher compared to males.

Likewise, one in every five people who had jobs in Nepal, were employed in agriculture—the biggest employing industry. The trade sector had the second largest share of employment (17.5 percent), followed by construction (13.8 percent). The informal sector had a bigger share of 62.2 percent.  Close to a quarter of all employed people (23.8 percent) were employed in service and sales occupations, followed by elementary occupations with just over 20 percent. Clearly, a large part of the labour force is unskilled and involved in disguised employment of agricultural activities and low-skilled informal sectors.

The large percentage of unemployment is often due to a lack of skills and the occasional skill mismatch between supply and demand. For example, out of half a million new entrants into the labour market, 150,000 possess technical and vocational skills. The Gross Enrolment Rate (GER) in secondary education (grade 9-12) is less than 50 percent, and in higher education is 15 percent. Exodus of educated human resource is also increasing significantly.

If we look at international labour migration, more than two-thirds of the migrants are unskilled.

More focus should be given on increasing enrolment in secondary education, reducing the number of dropouts. People who have completed primary education but have not enrolled in secondary school must be provided with skill training. All those who could not complete primary education must be provided basic technical skills freely. For better results, these must be connected to entrepreneurship development programmes.  

Credible projection of demand, at least for some years to come, becomes a must too. This may help to reduce mismatch between demand and supply of human capital in the market. Continuous educational advancement in both public and private sectors must be incentivised and encouraged. Educational loan schemes for higher technical education should be considered. Ultimately, quality of education depends on credible research activities. Therefore, at least one percent of the country’s GDP must be allocated to support research institutions, activities and programmes.

When it comes to the health sector, the government should spend more on preventive healthcare and civic health education programmes. The right to health, as ensured by provisions in the constitution, must be put into practice.

It is predicted that international flows of human capital are likely to play an influential role in shaping the political and economic landscape in the rest of this century, driven by structural factors, both demographic and technological, in both developing and developed countries. Therefore, a comprehensive human capital accumulation strategy should be devised and implemented in a coordinated manner to cope with changing circumstances effectively and to ensure high and sustainable economic growth.

Wagle is a section officer at the Ministry of Foreign Affairs.

Published: 07-05-2019 08:22

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