Misuse of human capital limits growth
• Published: 18/06/2014 at 12:25 AM
• Newspaper section: News
Everyone is looking for change today. Many areas have been proposed for reform, ranging from taxes, energy, to infrastructure investment. One area of reform that Thailand definitely needs, but has not been discussed much so far is human capital management.
Junior secondary school students by the thousand compete in fierce examinations to secure seats in the prestigious TriamUdom School every year. The Thai economy is being hurt by an education policy that does not produce quality vocational education while churning out university degrees that do not meet labour market demands. ChanatKatanyu
What evidence is there to suggests that our human resources are mismanaged?
Several labour market indicators, as well as a business survey by the SCB Economic Intelligence Centre (EIC) suggest that, when it comes to skilled workers, there is a serious mismatch between employers’ expectations and the availability of suitable professionals.
A critical indicator of the difficulty in matching the demand and supply of workers is the amount of time required to fill a position. EIC business interviews conducted earlier this year reveal that significant time is required for businesses to filter suitable bachelor-degree candidates. Thai businesses take about eight 10 weeks on average to fill their professional vacancies — longest among emerging Asean peers plus India (three weeks) and China (five).
At a more macro level, college-educated workers have been joining the informal sector in larger numbers. Today about one third of the workforce with a college degree or higher have gone "informal", up from 22% a decade earlier, with the majority of them taking jobs in small shops and restaurants.
The informal sector comprises mostly the self-employed and very small businesses with fewer than five workers. Given the relatively low pay in the informal economy, the rising share of informal employment among university-educated workers suggests that many job seekers cannot find positions in the formal sector.
This mismatch underlines the mismanagement of our human resources, which comprises two important elements.
The first element is the quality of our university graduates. Evidence suggests that the quality of university-educated workers in Thailand may have declined over the past decade. In 2005, university graduates earned twice as much as vocational school graduates. Today that premium for university graduates has declined by about 10%.
The World Economic Forum (WEF) ranks Thailand 78th in terms of university training quality, much lower than Aseanneighbours such as Malaysia (19th), Indonesia (36th), and the Philippines (40th). Thailand's WEF ranking for maths and science quality provides a similarly troubled picture.
The World Bank has also found that employers report severe skill gaps in innovation, IT, English, and math among Thai professionals. Such gaps are assessed by the lack of skills necessary to perform required tasks. The deficiency in English among Thai professionals is quite worrying, as Aseanneighbours like Malaysia and the Philippines excel in that area. Therefore, once the Aseanlabour market integrates, Thai workers in the hospitality industry are likely to be threatened by Malaysian and Filipino workers who can speak better English.
The second element is the imbalance in the labour supply. Thai students who enroll in vocational schools account for roughly 20% of all tertiary enrollment, much lower than Malaysia (50%) and South Korea (45%). Thailand’s low share of vocational-school students poses a mismatch problem because vocational schools provide students with readily employable skills and their graduates tend to have higher labour market relevance and adaptability than university graduates.
Offering a similar picture, EIC business interviews indicate that most employers value workers with vocational degrees for their flexibility and responsiveness to change.
Thailand also has an extremely large share of tertiary students, approximately 45%, pursuing degrees in social sciences, business, and law, while the share of those studying engineering, manufacturing and science accounts for just 20%.
In contrast, higher-income countries like Japan and South Korea appear to have a much more even distribution of students across disciplines. This lack of diversification has implications for the responsiveness of their labour supply to new demands from businesses.
What is it that makes this kind of mismanagement important?
This mismanagement of human capital has contributed to the weak productivity observed in Thailand over the past decade. EIC estimates that Thailand's productivity growth over the past five years was about half what it was during the early 2000s (as I discussed in this column in March). Productivity growth indicates the efficient use of available resources, including technology and human capital.
Thailand especially needs better management of human capital, because it will no longer enjoy an economic boost from having a younger workforce. The share of the population aged between 15 and 59 reached a peak of 68% in 2010 and has declined steadily since that time. With the ending of the so-called demographic dividend period, we need to act now rather than later to restore our competitiveness.
Policymakers, along with businesses, universities and vocational schools, need to engage in concerted action to deliver higher quality training, and offer fields of study that truly meet the needs of today's and indeed tomorrow’s employers. Many recent economic reforms are focusing on better management of resources, be it energy or infrastructure. Where would our future lie if not in our people.
Failing to develop them, we risk not only being stuck in a low-growth trap, but also forgoing a generation otherwise capable of delivering higher productivity.
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SutapaAmornvivat, PhD, is Chief Economist and First Executive Vice President at the Economic Intelligence Centre, Siam Commercial Bank. She has international work experience at the IMF, ING Group and Booz, Allen, Hamilton. She received a BA from Harvard and a PhD from MIT. eic@scb.co.th | EIC Online: www.scbeic.com
About the author
Writer: SutapaAmornvivat
Position: Chief Economist of SCB bank