Skills mismatch a massive economic cost Education system must be reformed

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By 2017-10-16

By Rathindra Kuruwita

Sri Lankan industries continue to incur immense economic costs due to the country's inability to create skilled workers by making the necessary education reforms, Dr. Nisha Arunatilake, Research Fellow at the Institute of Policy Studies of Sri Lanka said talking to Ceylon Today.

As someone who has done extensive research on the demographic and labour landscape of the country, can you give us a brief introduction on these areas?

A: I would like to start by stating a few facts from the State of the Economy 2017 Report on demographics, labour markets and growth. If you look at the competitiveness index, Sri Lanka is ranked low, 128 out of 138 countries, which is very low, and the main reason for this the low ranking we get for the labour market. Three factors that are crucial in keeping us from being competitive are: low female labour force participation; very high redundancy costs and our inability to retain skilled workers, i.e. we don't produce enough skilled workers and those we produce are quickly absorbed by other countries, this is why we have skills mismatches.

What do you mean by high redundancy costs?

A: For example we have this termination of workers act of 1971 which stipulates how a company can lay off workers. According to this if a worker is employed at a company for 20 years the organization has to pay him 39 months of salary to lay him off. This is a very high number compared to Organization for Economic Co-operation and Development (OECD) countries (6 months). While it is true that workers must be compensated if they are being laid off, but when the cost of redundancy is so high, organizations don't really hire workers.

Because of this there are secondary distortions in the labour market. One thing is that workers remain in the same company for a long period of time, it might be good for the worker but actually in terms of productivity it's not a good thing for anyone. As Sri Lanka no longer is a low income country, we have to be more competitive because people are getting paid more and we can't capitalize on cheap labour anymore.

And our industries need productive and efficient workers. Right now the technology we use is changing continuously and sometimes the workers a company hired five years ago might no longer fit with the company. But because you can't fire a worker five years ago and you can't get rid of him now, you don't hire another worker that suits the new direction you are taking. On the other hand since the workers know it's difficult to fire them, they also have no incentive to learn new skills and improve themselves. All of that lowers the productivity of a company and the economy.

One of the problems is, now it's the company that needs to compensate the worker. In other countries,they have a fund which pays the workers that the companies lay off. They also provide temporary training to get another job. This is better because the workers get trained and they get new skills and the economy benefits. And companies can get workers. That's one main reason that keeps our labour market from being efficient.

Sri Lanka has low female labour force participation, around 35 per cent, however, this is mostly an issue of lower skilled women not taking up jobs. What is the reason for this?

A: Yes, the female labour participation is about 35 per cent, but if you look at women who have basic degrees and above, their participation is equal to that of men with similar educational attainments. The problem is that the low participation of lower skilled women and if we want to increase female labour force participation, we must come up with policies that target these women.

Another factor is that the salaries offered to then are very low and as we know women have more family responsibilities and unless they can get a good pay it is unlikely that they will want to join the labour force.

Another issue is the lack of affordable and good child care facilities. Right now, only the relatively affluent can afford decent day care for their children. Unless this issue is addressed women with lesser educational qualifications will always choose to look after their own children as against choosing to work.

You have also done extensive research on pensions and one of the biggest problems we have is that only about 20 per cent of the elderly population receives a pension, which will become a crisis as the population ages?

A: That is true. Our population is ageing. We need to provide some kind of income to the older workers and they must get an income to keep them out of poverty. If you look at Sri Lanka only those who work in the public sector get a pension that is sufficient to keep them out of poverty.

People in the formal private sector get a lump sum in the form of the EPF, after they are 55, but there is no system to invest that money and get a pension. Most people spend this lump sum in a few years and when they are old, either they become destitute or have to depend on someone for survival. The really poor people keep on working until they can't or die.

If people have a regular income, not only are they not a burden to anyone but as they also keep on spending, it will be good for the economy.

There are different examples we can learn from, for example we can turn the EPF and ETF into a pension at retirement or make available financial mechanisms that people can invest their money and get a pension. But these are options that are available for the formal sector but as we know most of the people are employed in the informal sector. Some Samurdhi beneficiaries, farmers and fishermen also get pensions, but those amounts are very small. Most often these pensions amount to around Rs 1,000 a month and to keep someone out of poverty one needs at least Rs 3,500. So the Rs 1,000 that some Samurdhi beneficiaries like farmers and fishermen get is not at all sufficient.

If we look at the structure of jobs we only have a significantly smaller percentage of professionals and technical workers. What is the impact of that on our economy?

A: If we look at OECD countries 40 per cent of the workers are either professional or work in the technical sector, but, in Sri Lanka that number is only 13 per cent. This is a big problem because you need this type of workers to create employment for lower skilled workers, for example if you want to open a hotel you need a hotel manager, without a manager there will not be work for others. We have a significant shortage of this kind of employees and I know that there are many companies that can't expand because of that. Moreover a lot of professionals are leaving the country for higher pay and better working conditions.

How do we do fix this problem, what can we do to stop people from leaving for greener pastures?

A: I think one of the best ways is to encourage Foreign Direct Investments (FDIs). This is how a lot of East Asian countries developed. In the late 80s and early 90s the garment sector opened up and created jobs for lower skilled female labour and maybe with FDI the Government can create jobs for higher skilled workers.

Another problem is that the most skilled and trained segments, with university education, often join the public sector without joining the private sector or become entrepreneurs. Our education system is exam oriented and students have no time to think, innovate, enjoy, play sports and network, which are important in the modern working environment. Anyone who is in the corporate or even the government sector know the importance of team work and networking, but these are skills that often lacking in Sri Lankan graduates because the education system does not pay much attention to such aspects.

What is the economic cost of this mismatch?

A: We have a very small number of students entering universities, they are the best and they get free education. But when they come out they can't find jobs, so all the money the country has spent on them is lost and the Government has to create jobs to employ them. These graduates work for 20 - 30 years in these unproductive jobs and the country does not get anything from the investment in these graduates. This system has to change because it's a huge cost. The country has invested so much on them and when they can't fit into work that is available you have to bring in foreign workers, this is not very desirable as it's so much better to give those jobs to Sri Lankans. Yes, there may be times when you have to bring in foreign skilled workers because they might be able to create jobs but the best strategy is to find the necessary talent domestically.

Another problem is that a lot of people who are doing 'skilled work' do not have university degrees or higher national diplomas.

Isn't that also a problem, because while people without the necessary theoretical knowledge and training might be able to do business as usual, they can't move beyond a certain point?

A: In the OECD countries, usually you need a degree or higher level diploma if it's vocational training to do science and technology jobs, but in Sri Lanka those who do these jobs don't have that level of education or training. So they might be doing a good job but they are not as productive, as a person who has been trained in those areas.

This is where the mismatch is, the universities are putting out graduates but they are not the kind we need. Ideally graduates who are in science and technology jobs, but most of them want State jobs, or are doing jobs that are below their qualifications.

Good example is teaching, in many OECD countries you need a degree and also specialization training to be a teacher. But in Sri Lanka you don't need both. Even when graduates want to teach they don't get the required pedagogical training, so it takes a few years for them to figure it out and what happens to the students that they teach until then? If you look at GCE OL, 45 per cent of students fail the exam because they fail mathematics and one of the reasons is the teachers are not properly trained to teach. So unless we improve all of that and also the skill problem starts with the recruitment of teachers.

In the late 1970s the country opened up for liberalization but the education system was never changed. The main problem is that here is so much that needs to be improved. One thing is the teachers because what you can get out of the system depends on how good the teachers are. I was very surprised to find that there are only a very few institutions to train teachers that teach mathematics and science. A few universities have departments of education but they are open only to those who offer Arts subjects and are not open for those who study the Sciences.

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Picture Credit: Ashan Gamage

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