2. The Education-Employment Mismatch: A Diagnostic
The primary failure of the Sri Lankan education system lies in its inability to align the supply of graduates with the evolving demands of the global and domestic labor markets. This mismatch is not merely a quantitative shortage of graduates but a qualitative divergence in skills.
The 40% Skills Gap and Credentialism
The PIP 2026–2030 explicitly cites a 40% skills gap, particularly in technical and vocational areas [3]. From the perspective of Human Capital Theory, education should enhance an individual's productive capacity, thereby increasing their marginal productivity and earnings. However, the Sri Lankan context often aligns more closely with Signalling Theory (or Screening Theory), where educational qualifications serve as a signal of innate ability or social status rather than a measure of acquired productive skills. This is evidenced by the high demand for "paper qualifications" in the public sector, which incentivizes students to pursue degrees in arts and humanities—fields with low private sector demand—simply to qualify for administrative government roles.
Dropout Dynamics and the "Missing Middle"
The education pipeline exhibits significant leakages at critical junctures. According to the PIP, approximately 40,000 students drop out before completing the G.C.E. Ordinary Level (O/L) examination, and an additional 80,000 leave the system after O/Ls [3]. These individuals enter the labor market with minimal vocational training, often relegated to low-productivity informal sectors or manual labor. This "missing middle"—the large cohort of youth who are neither in higher education nor equipped with marketable technical skills—represents a massive underutilization of the nation's demographic potential.
|
Educational Milestone |
Annual Student Flow / Outcome |
|
Grade
1 Enrollment |
~287,000 students [3] |
|
Pre-O/L
Dropouts |
~40,000 students [3] |
|
Post-O/L
Exit |
~80,000 students [3] |
|
University
Eligibility (A/L) |
~170,000 students (eligible) [3] |
|
University
Admission |
~44,000 students (26% of eligible) [3] |
|
Table
1: The Education Pipeline and Leakages (2023-2024 Data) [3] |
|
3. The Heckman Curve and the Misallocation of Investment
A central theme in the PIP’s human capital strategy is the Heckman Curve, which illustrates that the rate of return on human capital investment is highest in early childhood and decreases as an individual ages [3].
The Early Childhood Development (ECDE) Deficit
Despite the theoretical recognition of the Heckman Curve, Sri Lanka’s investment pattern remains skewed. Enrollment in Early Childhood Development Education (ECDE) ranges from only 55% to 60%, and the sector lacks a nationally accepted curriculum and regulatory framework [3]. By the time students reach the general education system, disparities in cognitive and non-cognitive development are already entrenched. Causal reasoning suggests that the failure to invest in the "base" of the Heckman Curve leads to higher remedial costs at the secondary and tertiary levels, where the returns are significantly lower.
The Tertiary Bottleneck
At the other end of the spectrum, the higher education sector suffers from a severe capacity constraint. Only 26% of students who qualify for university admission are actually admitted to state universities [3]. This bottleneck creates an intensely competitive, exam-oriented environment that prioritizes rote learning over critical thinking and soft skills—the very competencies demanded by the 21st-century labor market. The persistent shortage of academic staff in STEM fields (Medicine, Engineering, Agriculture) further exacerbates this mismatch, as the system continues to produce a surplus of graduates in fields with low labor absorption [3].
4. The Gender Dimension: The 33% Ceiling
Perhaps the most glaring inefficiency in Sri Lanka’s labor market is the low Female Labour Force Participation (FLFP), which has remained stagnant at around 33-35% for decades, despite women consistently outperforming men in educational attainment [2].
Structural Barriers to Absorption
The disconnect between female human capital accumulation
and labor market participation is driven by several structural factors:
1
Unpaid
Care Work: The lack of affordable childcare (creches) and the
cultural expectation of women as primary caregivers.
2
Safety
and Mobility: Inadequate and unsafe public transport systems that
deter women from seeking employment far from home.
3 The "Pink-Collar" Trap: Concentration of female employment in low-value sectors like tea plucking and apparel, with limited pathways to high-value service or tech roles.
The PIP 2026–2030 proposes increasing FLFP by encouraging firms to provide creches and safe transport [3]. However, from a development economics perspective, the opportunity cost of excluding 67% of the female population from the formal workforce is a significant drag on GDP growth. Achieving the 3.1% growth target will be nearly impossible without a structural shift that facilitates the entry of educated women into the labor market.
|
Country |
Female Labour Force Participation Rate (%) |
|
Vietnam |
~70% |
|
Thailand |
~59% |
|
Bangladesh |
~38% |
|
Sri
Lanka |
~33% |
|
Table
2: Regional Comparison of FLFP (Approximate 2023-2024 Data) [2] [3] |
|
5. Labour Absorption and Education-Employment Elasticity
The concept of education-employment elasticity measures how responsive employment growth is to changes in the educational stock of the workforce. In Sri Lanka, this elasticity is remarkably low for high-skilled roles in the private sector, but high for low-skilled informal work and public sector administrative roles.
The Public Sector Preference
A significant portion of graduate unemployment is "voluntary" or "wait-unemployment," where graduates remain unemployed for years while waiting for a stable, pensionable public sector job. This behavior is a rational response to the distorted incentive structure of the labor market, where the public sector offers higher job security and benefits compared to a volatile and often unprotected private sector. This preference drains the most educated talent away from productive, export-oriented industries, stifling innovation and structural transformation.
The Brain Drain and Productivity Loss
The PIP notes that the migration of skilled professionals (300,000 in 2022) creates "significant financial costs and welfare losses" [3]. This is a classic case of human capital flight, where the state bears the cost of free education, but the productive returns are captured by foreign economies. The structural condition that must change is the investment-to-productivity link: Sri Lanka must move from being a "supplier of labor" to the world to being a "creator of value" domestically.
6. Conclusion: Why Accumulation Does Not Equal Absorption
Sri Lanka exhibits a classic case of human capital accumulation without effective labor market absorption. The evidence suggests that the "free education" model, while successful in achieving high literacy and basic enrollment, has failed to evolve into a "quality education" model that fosters productivity.
Structural Conditions for Correction
To correct this imbalance, the following structural
changes are imperative:
4
Curriculum
Decoupling: Moving away from a centralized, exam-centric model to
a flexible, industry-aligned curriculum that prioritizes STEM and soft skills.
5
Regulatory
Reform for FLFP: Implementing mandatory workplace childcare
policies and safe transport initiatives as "economic" rather than
"social" priorities.
6
Incentivizing
Private Sector Training: Shifting the burden of vocational
training from the state to a public-private partnership model, reducing the 40%
skills gap through direct industry engagement.
7 DPI and the Digital ID: As highlighted in the PIP, the implementation of a Digital ID and Digital Public Infrastructure (DPI) can streamline labor market matching, reduce recruitment costs, and facilitate the growth of the gig and digital economies [3].
In summary, the PIP 2026–2030 correctly identifies the symptoms of the human capital paradox. However, the cure lies in a fundamental restructuring of the labor market's incentive systems. Without these changes, Sri Lanka will continue to produce "educated" citizens who are structurally excluded from the very growth they were meant to drive.
References
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