Skills, Human Capital, and Economic Development

This paper presents a skills index for developing countries in Asia as a first step towarddeveloping a Global Skills Index. The Asian Skills Index is roughly modeled on the European Skills Index forOrganisation for Economic Co-operation and Development countries. However, the Asian Skills Index is substantiallymore complicated to develop. In addition to data limitations, the Asian Skills Index incorporates severalstructural and institutional features of labor markets in Asian countries, such as vulnerable employment andunemployment among the highly educated, which are specific to Asian countries. In addition, the newly developedlearning-adjusted years of schooling indicator plays an integral role in the Asian Skills Index. Using the k-meansclustering algorithm, the paper identifies a comparable group of Asian developing countries for which it develops anindex of the country’s skills system. While studies on human capital focus only on education, the Asian Skills Index is amore comprehensive construct since it goes beyond just education and skills development. By incorporating labormarket conditions within which education and skills can thrive and be translated into productive output, a skillssystem provides crucial economic context for the human capital development process. Using the Asian Skills Index,the paper provides some economic estimates and policy recommendations.