Human capital index - developing human capital across Australia

27 Mar 2017

The concept of Human Capital describes the skills and capacities that reside in people that are put to productive use. It represents the value of the skills, knowledge, talents and abilities of people and their potential to drive innovation and economic growth.

Although natural resources remain a competitive advantage for regions, not least those in Australia, over the past few decades, new technology has continually challenged and altered how we work and live. There are many predictions and projections about how different jobs will be in 2030. Whatever the future of work looks like, with each new disruption there is a change in the demands placed upon people. More than ever it is the capabilities of people which are central to success.

The World Economic Forum has even gone so far to say that 'a nation’s human capital endowment …can be a more important determinant of its long term economic success than virtually any other resource'.

 Developing a region's Human Capital is therefore critical to its future. The capacity to respond to challenges such as those identified above is founded in the development of people in early childhood, through the formal education system, in the transition to work and in the continual development of skills once in the workforce.

This update of the Regional Australia Institute's [In]Sight Human Capital Index focusses on development through the lifecycle, firstly during early childhood, the acquisition of foundational skills of literacy and numeracy in primary and secondary school, completion of high school, and attainment of further skills in technical and university-level qualifications. This update to [In]Sight also provides a measure of the extent to which young people are learning or earning, and a measure of adult learning. Finally, for each region, an overall assessment of the skill level of the engaged workforce is provided.

As this report clearly shows, it is regional areas that exhibit lower measures of Human Capital development. There are higher rates of children who are considered 'developmentally vulnerable' in regional areas. Analysis of the 2009, 2012 and 2015 Early Childhood Development Census shows that the rate is 2 percentage points higher across regional local government areas - 12.4 per cent compared to the metropolitan average of 10.4 per cent. The foundation for continued learning and higher-skilled employment, teaching of literacy and numeracy in schools is critical for development of Human Capital. The 2015 NAPLAN test results show clearly that outcomes remain significantly poorer in regional Australia.

Rates of high school completion have increased tremendously over the past several decades, however the improvements have not been evenly distributed. Standards of schooling and parental characteristics are significant determinants of whether a child complete high school, however accessibility of high school campuses is an additional burden for regional families, particularly in smaller communities. Dramatically low levels of 'learning or earning' - participation in either education or the workforce for youth (15-24 years) – are a significant problem for many regional communities: 91 of the lowest 100 LGAs in terms of youth engagement are Heartland Regions. Although youth disengagement may be a considerable problem in some communities, the problem of disengagement is not confined to school-leavers: there is substantial evidence that a large number of older Australians are dropping out of the workforce.

In regional areas it is likely that the decline in net workforce requirements for relatively low skilled roles within traditional rural industries (such as agriculture, mining and forestry) may be resulting in significant numbers of older workers becoming disengaged. For such people, opportunities for re-skilling are likely to be particularly limited in regional areas. The problem may be exacerbated in regional areas where long-term decreases in the requirement for low-skilled labour in traditional rural industries, poor access to opportunities for re-skilling, and remoteness from alternative employment combine to result in disengagement of a significant number of older workers.

There is a significant differential in achievement of technical and university qualifications between metropolitan and regional Australians. High school completion and levels of higher education have improved markedly since the 1970s, however once the initial post-school education is undertaken in late teens and early 20s, rates of adult learning across Australia are below 10 per cent for the over-30s. Rates of attendance are highest for those in the CBDs and decline from there by remoteness. Again, the accessibility of educational opportunities is likely a significant problem. Access to quality, industry-relevant training – potentially delivered online – may be important, yet ultimately the regional economies will also need to develop their opportunities for higher-skilled work to lift demand for adult learning as well.

The summary workforce skills indicator provided within this release of [In]Sight reflects the structure of regional economies – their industry strengths and the labour requirements of those industries. Continued out-migration of young people creates a much sharper problem for regional development. This brain drain – the pattern of young people leaving to access post-school education in large metropolitan areas sometimes never to return – has become one of the biggest factors in the shortages of skills and knowledge across regional Australiav. This spatial redistribution of Human Capital out of the regions creates an environment where it is increasingly difficult for regions to fully realise their potential.

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