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THE IMPACT OF HUMAN CAPITAL MIGRATION ON ARUBA'S ECONOMY

Oranjestad, January 22, 2016Every year a significant number of students leave the country in pursuit of their professional aspirations. This is because the choice for higher education in Aruba is very limited, the number of colleges and universities and their degree offerings are not extensive, and as such students are likely to move abroad to countries such as: the Netherlands or the United States to pursue a degree.

According to latest available data from the Central Bureau of Statistics, 5.1 percent of students who received a student loan obtained a Masters degree, 41.9 percent a Bachelors degree and 53.0% an Associate degree (2008). This serves to show that Aruba has a low level of high educated population; the latter doesn’t even reflect how many actually return.

The outflow of students equals an outflow of human capital, which has its effect on the production factors that drives growth in an economy, particularly if such human capital never returns. Human capital is defined as a set of skills and competences possessed by the labor force and which have a direct positive effect on the level of economic development.  Therefore, understanding this migration phenomenon should be given the proper attention, especially in small-island economies where economic diversification has been challenging. The Government of Aruba (GOA) offers students financial support (loans) to enable them to pursue their degree (either local or abroad). This naturally has its implications on public finances.

There is no clear understanding of the direct and indirect impact of “brain drain” for the economy of Aruba, as quantitative studies in this area has not been conducted over time.

We can try to understand and shed some light on the potential economic impact that the outflow of human capital can have on Aruba by considering the current key tendencies that makes the local economy vulnerable to this occurrence. One study found that a one-year increase in the average education of a nation's workforce increases the output per worker by between 5 and 15 percent (Barro and Sala-I-Martin 1995). Low levels of education, slow economic growth, the studies argue, damage the earnings of low-skilled workers, and increase poverty. There are also, however, positive indirect impacts (Lowell and Findlay 2002). "Optimal brain drain" theory finds some support for the notion that the possibility of emigration for higher wages induces more students in the sending country to pursue higher education.

We will focus on highlighting some of the current local economic trends and conditions that are important in light of this subject.

1. Ageing population

Aruba is challenged with a growing ageing population; latest statistics show that the ageing index has doubled in 10 years from 2000 to 2010 (Central Bureau of Statistics Aruba).  The old age dependency ratio has been increasing as well with a growth from 24.1 in the year 2000 to 29.1 in 2010 (old age dependency ratio is the number of 60+ per 100 employees). As the population is getting older, the health care system and its pension system are under pressure. It is therefore crucial to upturn the number of contributors to the system. As the population gets older and the demand for health care increases, health care costs will be under pressure, which is crucial for the sustainability of government finances and its revenue. This ageing trend has further a ripple effect on different economic factors, such as tax revenue. 

Read more at: http://www.c-economics.com/#!The-impact-of-human-capital-migration-on-Aruba?s-economy/beacw/56940bce0cf20ee37c6e50eb

 

 

By orbitalnets.com