The education component of human capital: explorations with an indicator for Sri Lanka

Abstract

Introduction

Education is a primary component of ‘human capital’, a key factor of production (Becker 1992, 1964; Romer, 1986; Lucas, 1988). Physical indicators of education are either ‘input-based’, as in years of schooling and enrollment ratios, or ‘outcome-based’ as in literacy rate and ‘Learning- Adjusted Years of Schooling’ (World Bank, 2019).

A recent approach (Sumaiya and Abayasekara, 2016; Kariyapperuma, 2018) measures the human capital of the employed population for Sri Lanka through an ‘Education-adjusted Employment Index’ (EAEI), to account for the changing composition of education over time. The computed index does not cover the unemployed and those outside the labor force; nor does it differentiate between genders. It has also not been ‘validated’ as an alternative indicator to others in use. The research problem therefore constitutes the following questions: How does the index and its rate of change compare among males and females, employed and unemployed, and those within and outside the labor force in Sri Lanka; and does public expenditure on human capital have an impact on education-based human capital accumulation as measured by the index?.