Labour markets have become increasingly global in recent decades, largely due to the influence of economic globalisation. This has happened in spite of the fact that the national governments have not been too liberal in dealing with cross border migration of people. The proportion of the adult world population engaged in overseas employment continues to increase, contributing to lower unemployment rates in sending countries. The economic boom in the Middle East due to the increasing oil wealth there has attracted millions of unskilled as well as skilled workers on the basis of fixed term labour contracts. In some of the Middle East countries, migrant worker population exceeds the local population. The developed western countries have also continued to attract labour, in particular highly - skilled workers from the developing world. This often is a big drain on the limited skilled human resources in these countries.
Economic globalisation has paved the way for a new global division of labour. On the one hand, countries with large pools of cheap labour such as China, India, Indonesia, Bangladesh and Vietnam in the Asian region have attracted FDI to establish labour intensive industries there. On the other hand, technologically more advanced countries in general have continued to diversify their economies into technology intensive industries, often requiring them to attract highly skilled-labour from the developing world.
" THE EXODUS OF HIGHLY SKILLED PEOPLE IS A MAJOR OBSTACLE TO MUCH NEEDED ECONOMIC DIVERSIFICATION IN THE COUNTRY. THIS IS PARTICULARLY SO GIVEN THE FACT THAT THE COUNTRY’S EDUCATION SYSTEM, AS IT IS STRUCTURED AND ORGANISED TODAY, DOES NOT PRODUCE A LARGE POOL OF HIGHLY-SKILLED LABOUR. "
The new global division of labour has not impacted on all countries equally. Migration of labour -intensive industries from developed to developing countries resulted in higher unemployment in some industrialised countries like the USA, compelling the governments in these countries to come up with appropriate policy measures to deal with the situation. On the other hand, continuing technological advances have enabled many industrialised countries to expand their economies into technology intensive sectors. It is also noteworthy that not all developing countries that have benefitted from FDI remain confined to labour intensive industries. Countries like China and Brazil are steadily diversifying their economies by establishing technology intensive industries themselves. While this is necessary to cope with increasing wages in these countries, they also create more and more opportunities for highly skilled domestic labour. This transition is not something new. It had already happened in countries like South Korea and Singapore. The result is often a reverse flow of skilled labour into these countries.
Sri Lanka attracted FDI into the country since the late 1970s when the economic liberalisation policy of the post 1977 regime offered incentives to foreign investors to establish labour intensive industries in the newly established Free Trade Zones. There were many unemployed people in the country at the time and the labour was also very cheap. The average daily wage of an unskilled worker in the mid 1970’s was around 50 US cents. The expansion of the economy and the exodus of labour over the last several decades have reduced overall unemployment to about 5% of the labour force while the daily wage of an unskilled worker had risen at least hundred times, to about three US dollars. Even though the latter is a fraction of the wage of an unskilled worker in a developed country, it is still much higher than the comparable wages in other south Asian countries like Bangladesh and India.
Increasing wages have raised the cost of production in all sectors, making certain economic activities no longer profitable. For instance, many farmers have moved away from small holder paddy production in the Wet Zone. The urban informal sector has attracted many workers from rural areas, as is clearly evident in small and large congested towns in all parts of the country. In spite of increasing wages in the garments industry and the plantation sector, increasing cost of living compels both skilled and unskilled workers to look for employment outside Sri Lanka. Almost total absence of technology intensive industries continues to compel highly-skilled youth to migrate overseas. This has also made the country almost totally dependent on imports of industrial and technology intensive products ranging from modern medicines to transport and communication equipment. Increasing dependence on imported consumer goods has resulted in steadily rising cost of living, encouraging even professionally qualified groups like doctors, engineers, IT specialists and accountants to leave the country, looking for much higher wages and better living conditions in the developed west.
The exodus of highly skilled people is a major obstacle to much needed economic diversification in the country. This is particularly so given the fact that the country’s education system, as it is structured and organised today, does not produce a large pool of highly-skilled labour. As I pointed out in an earlier essay in this column, a large majority of graduates passing out from the local universities remain unemployed for many years, largely due to their lack of specialised skills. So, when even those few with technical and professional skills leave the country, prospects for economic diversification become even bleaker, a critical issue that is not discussed very much in the mainstream media or in policy circles.
Skill formation and economic diversification are two sides of the same coin: one does not happen in isolation of the other. So, economic planning and educational planning should go hand in hand. As for economic planning, the most critical question is what kind of an economy that we are aiming at. For instance, China, a country that we talk a great deal about, is clearly moving towards an innovation economy, even though labour intensive industries are not going to disappear from China in the near future. This is evident from the fact that the country’s investments in Research and Development are second only to those of the USA. China is already among the countries that have the highest rates of R&D investment in the world as a proportion of the GDP. The countries that are technologically most advanced not only have the highest investments in R&D but also invest heavily in education in general and higher education in particular. These include South Korea, Japan in Asia and Sweden, Finland, Germany and Switzerland in Europe. These countries have already passed the EU recommended target for R&D investment, namely, 3% of the GDP. China seems to be determined to follow suit, in order to move into a technology intensive development path.
Given the small size of the pool of highly-skilled human resources that the country’s education system produces, our chances of retaining sufficient, highly-skilled human resources in the country are not very great.
" A LARGE MAJORITY OF GRADUATES PASSING OUT FROM THE LOCAL UNIVERSITIES REMAIN UNEMPLOYED FOR MANY YEARS, LARGELY DUE TO THEIR LACK OF SPECIALISED SKILLS. "
Moreover, when our professionally and technically qualified graduates leave for further education in more developed countries, the chances of their returning to the country after their training are not very great either. There are several reasons for this.
Firstly, even if they return after their specialised training in a particular technical field, there are no large industrial firms that can provide them with challenging opportunities, either to do new product development or undertake further research. Secondly, the country’s universities do not have well developed research infrastructure to promote cutting edge research. Thirdly, the social, economic and political conditions that prevail in more developed countries are far more attractive to upwardly mobile young professionals and these often encourage them to settle down in the destination countries. We are too familiar with the conditions prevailing in this country in the above respect to require any elaboration here.
Brain drain depletes not only the domestic scientific community but also a whole range of other categories of highly- skilled human resources needed to strengthen a range of national and local institutions. For instance, the exodus of highly competent social science graduates deprives the above institutions of much needed planners, researchers and managers.
There is no need to mention that the efficiency and productivity of institutions depend a great deal on the availability of highly-skilled personnel. In short, the future prospects of the country depend as much on the shape of the economy as on the nature of national and local institutions.