Earlier, this report noted that human capital is an aggregate of the knowledge, skills, talents and abilities possessed and used by individuals for economic, social, and personal benefit. The value of human capital for people, economies and societies depends on how well it is developed, and on the extent to which it is then available and used.

Some of the key indicators on human capital, as well as the performance of North Macedonia against EU benchmarks in education and training, suggest that there are challenges at all stages of this value chain. The availability of human capital, for instance, is affected by demographic trends which gradually deplete the pool of prospective young workers and entrepreneurs (Table 1 and Table 2, indicator 1), while the development of skills among adults (especially those with low or no qualifications) is hampered due to limited access to lifelong learning (LLL) (Table 3).

There are also challenges with the effectiveness and quality of human capital development in formal education and training. The expected duration of schooling is just over 13 years and its average duration close to 10 years. These are relatively long periods compared to other countries, but the learning-adjusted duration of schooling is, on average, less than seven years (Table 2, indicators 2 to 4).

More than one in five is likely to have their human capital potential underused or neglected (Table 2, indicator 9), while half of recent graduates are unlikely to find any job at all (Table 3).

Table 2. Selected indicators of human capital, North Macedonia

	Year	Value
(1) Population structure (% of total)
0–24	2015	30.6%
25–64	2015	56.9%
65+	2015	12.5%
0–24	2025 (1)	27.5%
25–64	2025 (1)	56.1%
65+	2025 (1)	16.4%
(2) Average years of schooling	2017	9.6
(3) Expected years of schooling	2017	13.3
(4) Learning-adjusted years of schooling	2017	6.8
(5) Adult literacy	2015	97.8%
(6) Global Innovation Index Rank (x/126)	2018	84
(7) Global Competitiveness Index Rank (x/137)	2017–18	84
(8) Digital Readiness Index Rank (x/118)	2018	m
(9) Occupational mismatch
% of upper secondary graduates working in low-skilled jobs (ISCO(2) 9)	2016	14.3%
Male	2016	12.7%
Female	2016	17.3%
% of tertiary graduates working in semi-skilled jobs (ISCO 4–9)	2016	22.2%
Male	2016	24.7%
Female	2016	19.9%

Notes: m=missing; ^(1). Projection. ⁽²⁾ISCO: International Standard Classification of Occupations.

Sources: (1) UN Population Division, World Population Prospects – 2017 revision; (2) UNESCO UIS database (3) and (4) World Bank (2018), Human Capital Index; (5) UNESCO, UIS database; (6) WEF, The Global Innovation Index, 2018; (7) WEF, Global Competitiveness Index 4.0, 2018; (8) Cisco, Country Digital Readiness, 2018; (9) ETF, skills mismatch measurement in the ETF partner countries.

Table 3. EU benchmarks in education and training

	North Macedonia		European Union		EU target
	2010	2017	2010	2017	2020
Early leavers (% aged 18–24)	15.5%	8.5%	13.9%	10.6%	< 10%
Tertiary attainment (% aged 30–34)	17.1%	30.6%	33.8%	39.9%	≥ 40%
Employment rate (% aged 20–64)	48.1%	54.8%	68.6%	72.1%	≥ 75%
Lifelong learning (% aged 25–64)	3.5%	2.3%	9.1%	10.9%	≥ 15%
Low achievers: Reading (% aged 15)	m	70.7%	19.7%	19.7%	< 15%
Low achievers: Maths (% aged 15)	m	70.2%	22.3%	22.2%	< 15%
Low achievers: Science (% aged 15)	m	62.9%	17.8%	20.6%	< 15%
Employment rate of graduates (% aged 20–34)	47.9%	50.0%	77.4%	80.2%	≥ 82%

Notes: m=missing

Sources: ETF database; Eurostat.

The following sections provide a breakdown of possible reasons behind these and other challenges reflected in this data, which were identified on the basis of information provided in the national Torino Process report of North Macedonia and in supporting sources.

Most strategic documents[10] According to the NRF, the overarching strategic framework for education and VET development is ensured by the Employment and Social Reform Programme (Ministry of Labour and Social Policy, 2016) and the Economic Reform Programme (Ministry of Finance, 2018). For the formulation of its vision for economic and social development, North Macedonia relies on sectoral strategies, which in the area of human capital development include the Education Strategy for 2018–2025 (MESRM, 2018), the Employment Strategy 2016–2020 (Ministry of Labour and Social Policy, 2015), and the Youth Employment Action Document 2016–2020 (Ministry of Labour and Social Policy, 2015b). Additional strategic documents have been developed to address adult education, i.e. Adult Education Strategy 2017–2020 and Lifelong Learning Strategy 2017–2020.
which map out the development trajectory of North Macedonia describe an expectation that education and training will be a future-oriented driver of human capital formation, but also that it will remedy the shortcomings of past policies which have led to the exclusion of large segments of the population from the benefits of decent work. They note how the sector should contribute to economic growth, to an increase in labour productivity, and to better chances for young people to gain good-quality employment. Education is also expected to support all citizens in their professional and personal endeavours through the development of key competences for lifelong learning in line with the European reference framework (Council of the European Union, 2018).

However, the national Torino Process report is rich in information about long-standing structural and policy-related weaknesses in education and VET in particular, which may complicate the pursuit of these commendable goals and diminish their prospects of success. Examples include major challenges, such as sub-standard quality of the teaching and learning environment, limited professional development opportunities and incentives for teachers and school leaders, outdated study programmes, limited outreach of adult education due to problems with content and provision arrangements, and massive problems with the quality of learning outcomes, as suggested by the unsatisfactory performance of North Macedonia in international assessments (see Table 3).

The combined effect of these challenges is an education and training system which does not deliver on expectations, diminishes the employability of graduates[11] NRF C.1.1.
, and prevents the competitiveness and innovation potential of the nation from unfolding. Indeed, in global competitiveness and innovation indices, North Macedonia ranks in the lowest range of participating countries (Table 2, indicators 6 and 7).

A major problem is also that none of the reform plans is intrinsic, i.e. they do not serve the ordinary, day-to-day needs and expectations of people and institutions in VET. The reforms as presented in the strategic documents which the assessment refers to appear to serve a broader socioeconomic need while neglecting the routine structural and quality-related challenges that VET institutions and professionals have to cope with on a daily basis. Elsewhere, the ETF notes that such externally formulated reforms tend to neglect the 'ordinary' problems in the VET system, which in turn puts the improvement plans at risk of failure because of limited buy-in from those who are supposed to implement them (ETF, 2018b). This seems to be a veritable risk in North Macedonia and is a possible explanation of why progress in some reform areas has been rather limited over the years.

Over the past few years, the economic policies of the government[12] For more details, see RoMMoF (2018), pp. 24ff, 33ff, and 38ff.
have aimed at job creation and demand for human capital (European Commission, 2018a), but they have also opened questions and possibly created new risks to growth and demand for human capital.

The employment programmes and fiscal/investment stimuli have shifted the profile of job opportunities away from low-skilled jobs towards employment requiring higher and medium-level skills[13] NRF B.1.2.
, which employers have been struggling to fill for some years now (Figure 1). According to official data, in 2017 they were still looking for over 214 000 workers with medium-level skills and for 73 524 high-skilled employees, the latter representing an increase of 8.3% compared to the year before.

Figure 1. Vacancies by level of skills required and by total number, North Macedonia (2013–2017)

Bild

Note: According to national sources, the methodology used in gathering and calculating the data on vacancies may not be fully compliant with the Eurostat guidelines on vacancy monitoring and may need to be revisited. Thus, the data should be used with caution.

Source: Calculations based on data by the Employment Service Agency of North Macedonia in the ETF database.

From a human capital development and use perspective, this is a promising but also fragile stage of development, which raises questions of sustainability. Economic growth and the associated employment gains are fuelled by government interventions in the form of subsidies and public spending, which some observers[14] For instance, see the Staff Concluding statement of the 2018 Article IV Mission of the International Monetary Fund, available at https://www.imf.org/en/News/Articles/2018/11/19/The-Former-Yugoslav-Republic-of-Macedonia-Staff-Concluding-Statement-2018-Article-IV-Mission (accessed on 23 January 2019).
believe may strain the public budgets and lead to fiscal difficulties and a reassessment of policy commitments.

In turn, this may reshape or even stall demand for human capital in key sectors on short notice, rendering obsolete the longer-term policy planning of authorities and the educational and training choices of prospective workers. Already at the time of preparation of this assessment, a decline in public spending on infrastructure has led to a contraction of construction activity by 37% in real terms, a sector which, until 2017, was one of the main drivers of job creation[15] NRF A.3.1.
. The volatility puts pressure on the education and training system to adapt and be responsive to external demand on short notice, a task which VET providers were not able to do at the time of this assessment.

Another issue of relevance in this context is that there are large disparities in the distribution of demand for human capital across regions of the country and sectors of the economy, most of which are stagnating or even declining in terms of opportunities for work (Figure 2).

The NRF responses suggest that this may affect the well-being and employment outlook of certain segments of the population, and that it has a considerable impact on the chances for well-being and prosperity of people from vulnerable socioeconomic backgrounds, of those from smaller urban and rural areas and, as noted before, of young people (see also Section 2.2)[16] See for instance NRF A.2.3 or C.1.2.
. Figure 2 also indicates that many of the sectors that create jobs at a rapid pace are such where vacancies would normally require medium-level skills and technical qualifications provided through VET, such as administration or mining[17] NRF B.1.2.
.

Figure 2. Vacancies by economic activity in 2017 (North Macedonia), percentage change since 2015

Bild

Source: Calculations based on data by the Employment Service Agency of Macedonia in the ETF database.

The national report of North Macedonia describes such situations of social and economic disadvantage, which seem to be the reality for many people of working age and/or who are potential beneficiaries of VET. There are accounts of considerable disparities in social development between regions, and social stratification within society that may lead to tensions, poor quality of life, and poor social cohesion. The NRF also reports of internal migration as a consequence of these developments, which leads to human resource shortages in some places and oversupply of workers in others and has lasting consequences for the well-being and social outlook of a disproportionate number of people[18] NRF A.3.2.
.

Some of the data referred to in the national report suggests that this situation is particularly disadvantageous for young people, for those with lower levels of educational attainment, and the Roma population. Also, women are more likely to take on low-skilled jobs than men[19] NRF B.1.1.
.

One more challenge that emerges in the context of economic and labour market developments and may influence the demand and use of human capital is the limited capacity of labour market services and bodies in charge of education and training to capitalise on the available evidence regarding skills and labour market needs.

With the help of donors, North Macedonia has invested in a range of instruments for the collection of labour market and skills data which, in theory, should allow for the analysis of current and forecasting future demand[20] See NRF D.3.2 for an overview.
. However, the bodies in charge, in particular the education sector, have limited capacity and incentives to interpret, disseminate and use the wealth of evidence. They struggle to connect the realms of work and education/training through data that is already in their possession[21] NRF B.1.7.
.

Such shortcomings lead, among others, to substantial incidences of (vertical) skills mismatches, which in North Macedonia are the most pronounced of all countries in the region and affect 14% of workers with medium-level qualifications and – as already noted – 22% of those with higher levels of qualifications (Table 2) (ETF, 2019b).