Human Capital: Education and Health in Economic Development

Human Capital: Education and Health in Economic Development

Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 8-2

8.1 The Central Roles of Education and Health

• Health and education are important objectives of development, as reflected in Amartya Sen’s capability approach, and in the core values of economic development

• Health and education are also important components of growth and development – inputs in the aggregate production function


Education plays a key role in the ability of a developing country to absorb modern technology and to develop the capacity for self-sustaining growth and development. Moreover, health is a prerequisite for increases in productivity, and successful education relies on adequate health as well


In 1950 children died before their fifth birthday :developing world : 280 of every 1,000 children In 2008:

•118 per 1,000 in low-income countries•57 per 1,000 in middle-income countries •7 per 1,000 in high income countries •4 in many European countries

•Smallpox used to kill more than 5 million people every year.•Rubella •Polio





Human capital: Productive investments embodied in human persons, including skills, abilities, ideals, health, and locations, often resulting from expenditures on education, on-the-job training programs, and medical care.


Education and Health as Joint Investments for Development

• These are investments in the same individual• Greater health capital may improve the returns to

investments in education– Health is a factor in school attendance– Healthier students learn more effectively– A longer life raises the rate of return to education– Healthier people have lower depreciation of education

capital• Greater education capital may improve the returns to

investments in health– Public health programs need knowledge learned in school– Basic hygiene and sanitation may be taught in school– Education needed in training of health personnel


Improving Health and Education: Why Increasing Incomes Is Not Sufficient

Health and education levels are much higher in high-income countries. There are good reasons to believe that the causality runs in both directions: With higher income, people and governments can afford to spend more on education and healthwith greater health and education, higher productivity and incomes are possible


• In many cases, household consumption choices themselves may lead to a surprisingly small link between income and nutrition, especially for children.

• The income elasticity of the demand for calories among low-income people range from near zero to about 0.5.

• Income is spent on other goods besides food

• increase food variety without necessarily increasing the consumption of calories


• Increases in income often do not lead to substantial increases in investment in children’s education and health (the nutrition of earners is not the same as the nutrition of their children)

• The income elasticity of “convenience” foods is greater than unity (candy and soda, intake of vitamins A and C is not positively associated with income in the Philippines)

• But better educated mothers tend to have healthier children at any income level


8.2 Investing in Education and Health: The Human Capital Approach

• Initial investments in health or education lead to a stream of higher future income The present discounted value of this stream of future income is compared to the costs of the investment

• Private returns to education are high, and may be higher than social returns, especially at higher educational levels


Figure 8.1 Age-Earnings Profiles by Level of Education: Venezuela


Figure 8.2 Financial Trade-Offs in the Decision to Continue in School

The rate of return will behigher whenever the discount rate is lower, the direct or indirect costs are lower, or the benefits are higher.


Table 8.1 Sample Rates of Return to Investment in Education by Level of Education, Country, Type, and Region

The social rate of return: including the amount of public subsidy for the individual’s education as part of the direct costs, because this is part of the investment from the social point of view






8.3 Child Labor

Child labor is a widespread phenomenon

•2008: 215 million children as “child labor”•2004: 222 million •Over 9 million child laborers between the ages of 5 and 11, nearly a third of them doing hazardous work.•Among children doing “hazardous work,” over 48 million live in Asia and the Pacific, nearly 39 million live in sub-Saharan Africa, and over 9 million live in Latin America.•20,000 children die as a result of work-related accidents.


It is not obvious that an immediate ban on all forms of child labor is always in the best interests of the child.

Without work:severely malnourished school fees Basic nutrition health care


Assumptions of the Child Labor Multiple Equilibria Model

• Luxury Axiom: A household with sufficiently high income would not send its children to work

• Substitution Axiom: Adult and child labor are substitutes (perfect substitutes in this model), in which the quantity of output by a child is a given fraction of that of an adult: QC = γQA, 0 < γ < 1.

• if a child laborer is γ times as productive as an adult worker, we consider one child the productive equivalent of γ adult workers (γ<1)


All (unskilled) adults work, regardless of the wage. This gives us a perfectly inelastic, vertical adult labor supply curve (a very reasonable assumption among families so poor that their children Work)

If the wage falls below wH, then some families find they are poor enough that they have to send their children to work. At first wages are still high enough so that this affects only a few families and children, reflected in the fact that the S-shaped curve just below wH is still quite steep. As the wage continued to fall, more families would do the same, and labor supply expands along the S-shaped curve, which becomesflatter as smaller drops in the wage lead many more families to sendtheir children to work. If a wage of wL were reached, all of the children would work. At this point, we are on the vertical line labeled TT, which is the aggregate labor supply of all the adults and all the children together.


Figure 8.3 Child Labor as a Bad Equilibrium


Now consider the labor demand curve, DL; if demand is inelastic enough to cut the AA line above wH and also cut the TT line below wL, there will be two stable equilibria, labeled E1 and E2,

If the economy is at equilibrium point E2, there is scope for an interesting policy intervention: Suppose child labor is banned. Then effectively, the supply curve of labor becomes AA'.

If the demand curve intersects the supply curve only once and on the segment E2T'. , then a ban on child labor may well cause a decline in welfare of the workers, including the childlaborers


Other approaches to child labor policy

• The first recognizes child labor as an expression of poverty and recommends an emphasis on eliminating poverty rather than directly addressing child labor; this position is generally associated with the World Bank.


The second approach emphasizes strategies to get more children into school, including expanded school places, such as new village schools, and conditional cash transfer incentives to induce parents to send their children to school, such as the Progresa/Opportunidades program in Mexico:

Oportunidades provides monetary educational grants to participating families for each child under 22 years of age who is enrolled in school between the third grade of primary and the third grade of high school. The program began operating in 1997 in poor rural areas and recentlyexpanded to cover urban areas. The number of families benefiting from Oportunidades has surpassed 4 million, with over 2.5 million families in rural areas and over 1.5 million in urban areas.The amounts of the monthly grants range from about $10.50 (105 pesos) in the third grade of primary to about $58 (580 pesos) for boys and $66 (660 pesos) for girls in the third year of high school. Beginning with secondary school, the grants are higher for girls to remain in school because they tend to have a higher drop-out rate


The third approach considers child labor inevitable, at least in the shortrun, and stresses palliative measures such as regulating it to prevent abuse and to provide support services for working children. This approach is most commonly associated with UNICEF, which has prepared a checklist of regulatory and social approaches that could meet the “best interest of the child.” The regulations included on UNICEF’s checklist include expanding educational opportunities through “time off” for standard or workplace schooling, encouraging stricter law enforcement against illegal child labor trafficking, providing support services for parents and for children working on the streets, and working to develop social norms against the economic exploitation of children.


The fourth approach, most often associated with the ILO, favors banning child labor. If this is not possible, however, and recognizing that child labor may not always result from multiple equilibrium problems, this approach favors banning child labor in its most abusive forms. The latter approach has received much attention in recent years; the ILO’s “Worst Forms of Child Labor Convention” was adopted in 1999. The worst forms covered under the convention include “all forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage and serfdom and forced or compulsory labor”; child prostitution and pornography; other illicit activities, such as drug trafficking; and work that “by its nature or the circumstances . . . is likely to harm the health, safety or morals of children.”


8.4 The Gender Gap: Discrimination in Education and Health

• Young females receive less education than young males in nearly every low and lower-middle income developing country

• Closing the educational gender gap is important because:– The social rate of return on women’s education is higher

than that of men in developing countries– Education for women increases productivity, lowers

fertility– Educated mothers have a multiplier impact on future

generations– Education can break the vicious cycle of poverty and

inadequate schooling for women– Good news: Millennium Development Goals on parity

being approached, progress in every developing region


Figure 8.4 Youth Literacy Rate, 2008


8.4 The Gender Gap: Discrimination in Education and Health (cont’d)

• Consequences of gender bias in health and education– Economic incentives and their cultural setting– “Missing Women” mystery in Asia

• Increase in family income does not always lead to better health and education


Figure 8.5 Female-Male Ratios in Total Population in Selected Communities


8.5 Educational Systems and Development

• The Political Economy of Educational Supply and Demand: The Relationship between Employment Opportunities and Educational Demands

• Social versus Private Benefits and Costs


Figure 8.6 Private versus Social Benefits and Costs of Education: An Illustration


8.5 Educational Systems and Development

• Distribution of Education– Lorenz curves for the distribution of education

• Education, Inequality, and Poverty


Figure 8.7 Lorenz Curves for Education in India and South Korea


Figure 8.8 Gini Coefficients for Education in 85 Countries


8.5 Educational Systems and Development (cont’d)

• Educational supply and demand: the relationship between employment opportunities and educational demands

• Social versus private benefits and costs• Distribution of education• Education, inequality, and poverty• Education, Internal Migration, and the Brain Drain


8.6 Health Measurement and Distribution

• World Health Organization (WHO): The key United Nations agency concerned with global health matters.


Figure 8.9 Life Expectancy in Various World Regions


Figure 8.10 Under-5 Mortality Rates in Various World Regions


Figure 8.11 Deaths of Children under Age 5


Figure 8.12A Children’s Likelihood to Die in Selected Countries


Figure 8.12B Proportion of Under-Five Children Who Are Underweight, by Household Wealth, around 2008


8.7 Disease Burden

• HIV/AIDS• Malaria• Parasitic Worms and Other “Neglected

Tropical Diseases”


Figure 8.13 Proportion of Children under 5 Who Are Underweight, 1990 and 2005


Table 8.2 Regional HIV and AIDS Statistics, 2009


Table 8.3 The Major Neglected Tropical Diseases, Ranked by Prevalence


8.8 Health, Productivity, and Policy

• Productivity– Is there a connection?

• Health Systems Policy– Great variability in the performance of health

systems at each income level


Figure 8.14 Wages, Education, and Height of Males in Brazil and the United States


Figure 8.15 GNI Per Capita and Life Expectancy at Birth, 2002


Concepts for Review

• Acquired immunodeficiency syndrome (AIDS)

• Basic education• Brain drain• Conditional cash transfer

(CCT) programs• Derived demand• Discount rate • Educational certification• Educational gender gap

• Health system • Human capital• Human immunodeficiency

virus (HIV)• Literacy• Neglected tropical diseases • Private benefits of

education


Concepts for Review (cont’d)

• Private costs of education• Social benefits of education• Social costs of education• World Health Organization

(WHO)

Human Capital: Education and Health in Economic Development

Documents