AE12 – Economic Development

Module 5: Factors of Growth

Name
Canoy, Hannah Charis Aldiano, Kyla Charesse
Udtohan, Lucy Marie Ramano, Jovelyn
Laurito, Jhasmien
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Topic 3: Education, Health, and Human Capital

Learning objectives:
a. Determine the factors and define human capital
b. Determine the Economic Returns to Education
c. Determine the Non-economic Benefits of Education
d. Define Education and Equality
e. Explain the Secondary and Higher Education
f. Explain the Health and Physical Condition
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Outline
Lesson 3.1: Investment in Human Capital

Lesson 3.2: Economic Returns to Education

Lesson 3.3: Non-economic Benefits of Education

Lesson 3.4: Education and Equality

Lesson 3.5: Secondary and Higher Education

Lesson 3.6: Health and Physical Condition

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3.1 Investment in Human Capital

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Investment in Human Capital

Human capital consists of the knowledge, skills, and health that people invest in and
accumulate throughout their lives, enabling them to realize their potential as productive
members of society.

Capital goods are always treated as produced means of production. But in general
the concept of capital goods is restricted to material factors, thus excluding the skills
and other capabilities of man that are augmented by investment in human capital.
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How to invest in Human Capital

Training and education
Training and education are among the most important investments in human capital
construction companies can make.

Strategic Hiring
A construction company’s workforce can make or break its profitability. Therefore,
hiring the right people is ultimately a crucial investment in human capital.

Software
Software drives the modern construction industry, helping companies streamline
processes and visualize data with much greater accuracy.

Incentives
Incentives can be very powerful from the perspective of improving human capital’s
productivity and retaining top talent.
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Benefits of Investments in Human Capital

1. Improved Employee Retention Rates
2. Improved returns on all Employee-Related costs
3. More accurate workforce data tracking
4. Better Employee Prospecting
5. Identifying Future Leader
6. Improved Communication and Problem-Solving
7. More opportunities for advancement among Marginalized Community
Members
8. Better Client Management
9. A more positive work environment
10. Train for the exact skills you need
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3.2 Economic Returns to Education

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Economic Returns to Education

Education helps individuals fulfill and apply their abilities and talents. It increases
productivity, improves health and nutrition, and reduces family size. But our major
interest is its effect in reducing poverty and increasing income.

The World Bank economists George Psacharopoulos and Maureen Woodhall indicate
that the average return to education (and human capital) is higher than that to physical
capital in LDCs but lower in DCs.
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Among human investments, they argue that primary education is the most effective
for overcoming absolute poverty and reducing income inequality.

Yet, in the 1960s, planners in developing

countries favored secondary and higher
education that met the high-level labor
requirements of the modern sector rather than
establishing literacy and general education as
goals for the labor force as a whole.
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As education expands and as secondary completers displace primary completers in many

occupations, successive cohorts of workers with primary-school certificates “filter down”
into lesser jobs and lower rates of return.

However, secondary graduates, who have acquired more occupation-specific human

capital, resist the reduction of scarcity rents and the compression of the occupational
wage structure with educational expansion.
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Thus, Knight, Sabot, and

Hovey question
whether LDCs should
place a priority on
investment in primary
education.
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3.3 Non-economic Benefits of Education

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Non-economic Benefits of Education

Education has both consumer-good and investment-good components.

The ability to appreciate literature or to understand the place of one’s society in the
world and history – although they may not help a worker produce steel or grow millet
more effectively – are skills that enrich life, and they are important for their own sakes.

Some returns to education cannot be captured by increased individual earnings.

Literacy and primary education benefit society as a whole. In this situation, in which the
social returns to education exceed private returns, there is a strong argument for a public
subsidy.
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Education as Screening
In some developing countries, especially in the public sector, the salaries of university
and secondary graduates may be artificially inflated and bear little relation to relative
productivity.

Educational requirements serve primarily to ration access to these inflated salaries.

Earnings differences associated with different educational levels would thus overstate
the effect of education on productivity
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Education as Screening

By contrast, using educational qualifications to screen job applicants is not entirely

wasteful and certainly preferable to other methods of selection, such as class, caste, or
family connections. Moreover, the wages of skilled labor relative to unskilled labor have
steadily declined as the supply of educated labor has grown.

The World Bank, which surveys 17 studies in LDCs that measure increases in annual
output based on four years of primary education versus no primary education, tries to
eliminate the screening effect by measuring productivity directly rather than wages.
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Education as Screening

The returns to investment in primary education were as high as those to investment in

machines, equipment, and buildings.

These studies conjectured that primary education helps people to work for long-term
goals, to keep records, to estimate the returns of past activities and the risks of future
ones, and to obtain and evaluate information about changing technology.
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Education as Screening

M. Boissiere’s, J. B. Knight’s, and R. H. Sabot’s study in Kenya and Tanzania, which

separates skills learned in school from its screening effect, shows that earning ability
increases substantially with greater literacy and numeracy (as measured by tests given
by researchers), both in manual and non-manual jobs
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Education as Screening

Public Education Spending per Household (in dollars)

Malaysia, 1974 Colombia, 1974
Income Group Primary Presecondary Primary University
Poorest 20 percent 135 4 48 1
Richest 20 percent 45 53 9 46

α Households ranked by income per person.

♭ Federal costs per household.
с Subsidies per household.
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Education as Screening

Earning differences between primary and secondary graduates could reflect screening
or alternatively unmeasured noncognitive skills acquired in secondary education.

Research in countries at other levels of economic development is essential before we

can generalize about the effects of screening and cognitive achievement.
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3.4 Education and Equality

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Education and Equality

Equality is the provision of equal treatment, access, and opportunity to resources and
opportunities. Essentially, everyone gets the same thing regardless of where they
come from or what needs they might have.

A simple alternative is for government to reduce the direct costs of education by

making public schooling, especially basic primary education available and free.

Expanding primary education reduces income inequality and favorably affects

equality of opportunity.
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Education and Equality

The links among parental education, income, and ability to provide education of
quality mean educational inequalities are likely to be transmitted from one
generation to another.

In Kenya and Tanzania, those from a high socioeconomic background are more
likely to attend high-cost primary schools, with more public subsidy; better
teachers, equipment, and laboratories; and higher school-leaving examination
scores; which admit them to the best secondary schools at the university.
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Education and Equality

Tony Addison and Aminur Rahman find that the underlying cause of unequal
educational and other public spending “is that economic power and associated
wealth provide the affluent with a disproportionate influence over the political
process, and therefore over expenditure allocation.”

The rural poor are less well organized and lack the resources to lobby. Climbing the
educational ladder in LDCs depends on income as well as achievement.
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Education and Equality

● Low-income Countries- primary enrollment of girls as a percentage of girls age

6–11 years was 69 percent compared to the comparable ratio for boys of 79
percent.
● Middle-income Countries-the corresponding figures were 93 to 93 percent.
Sub-Saharan Africa’s primary ratio was 56 percent compared to 64 percent for
boys, and South Asia’s 72 percent compared to 86 percent for boys.

For secondary and university levels, the gender ratios are about the same or
less.
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Education and Equality

Studies indicate clearly that educating girls substantially improves household

nutrition and reduces fertility and child mortality.

In most parts of the developing world, especially South Asia, the Middle East, and
Africa, the educational bias in favor of male enrollment is pronounced.
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Education and Political Discontent

The World Bank shows that, on average, low-income countries, especially

sub-Saharan Africa, spend substantially more on education for households in
the richest quintiles than those in the poorest ones.

Providing free, universal primary education is the most effective policy for
reducing the educational inequality that contributes to income inequality and
political discontent.
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Education and Political Discontent

In Sri Lanka, with continuing high enrollment rates in primary and secondary
school, the majority Sinhalese perception of Tamil economic success as a threat
to their own economic opportunities increased during the period of slow growth
and high unemployment after independence in 1948.

Generally, however, expanding educational opportunities for low-income

minority regions and communities can reduce social tension and political
instability.
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3.5 Secondary and Higher Education

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Secondary and Higher Education

Secondary education is also known as high school, and it consists of two levels:
a. Lower Secondary Education (Junior High School)
b. Upper Secondary Education (Senior High School)

Higher education is offered through various degree programs (commonly known as

courses here in the Philippines) by a wide selection of colleges and universities also
known as higher education institutions (HEIs). These are administered and regulated by
the Commission on Higher Education (CHED).
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Secondary and Higher Education

Although primary education in LDCs is important, secondary and higher education
should not be abandoned. Despite the high numbers of educated unemployed in
some developing countries, especially among humanities and social sciences (but
not economics!) graduates, there are some severe shortages of skilled people.

Although this shortages vary from country to country, quite often the shortages are in
vocational, technical, and scientific areas. One possible approach to reduce the unit
cost of training skilled people is to use more career in-service or on-the-job
training.
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Education via Electronic Media

Distance learning through teleconferencing and computers can dramatically reduce the
cost of continuing education and secondary and higher education, including teacher
training.

Jamil Salmi, the author of a World Bank report on education, states that university or
“tertiary education drives a country’s future.” His co-authored report urges policy
makers to take advantage of the opportunities of university education, combined with
new knowledge networks and technologies, in increasing productivity.
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Education via Electronic Media

Distance learning, as well as correspondence courses for people in remote areas, can
dramatically reduce the cost of some post-primary schooling.

Where computerized and Internet-based courses are feasible, they can usually be
provided at a fraction of the cost of traditional schools, saving expensive infrastructure
and buildings, and allowing would-be students to earn income while continuing their
education.
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Planning for Specialized Education and Training

The following three skill categories require little or no specific training. The people having
these skills move readily from one type of occupation to another.

1. The most obvious category comprises skills simple enough to be learned by short
observation of someone performing the task. Swinging an ax, pulling weeds by hand, or
carrying messages are such easily acquired skills that educational planners can ignore
them.
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Planning for Specialized Education and Training

The following three skill categories require little or no specific training. The people having
these skills move readily from one type of occupation to another.

2. Some skills require rather limited training (perhaps a year or less) that can best be
provided on the job. These include learning to operate simple machines, drive trucks,
and perform some construction jobs.
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Planning for Specialized Education and Training

3. Another skill category requires little or no specialized training but considerable

general training – at least secondary and possible university education.

Many administrative and organizational jobs, especially in the civil service, require a
good general educational background, as well as sound judgment and initiative.
Developing these skills means more formal academic training than is required in the two
previous categories.
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Vocational and Technical Skills

It is often inefficient to rely heavily on schools to develop vocational skills.

Technical skills change rapidly, and vocational and technical schools often find it difficult
to keep up.

Frequently, these institutions should simply provide generalized training as a basis for
subsequent on-the-job training or short courses.
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3.6 Health and Physical Condition

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Health and Physical Condition

Health and economic development show a two-way relationship. Development
generally improves the health system, whereas better health increases productivity,
social cohesion, and economic welfare.

Life expectancy is probably the best single indicator of national health levels. It reflects
the average number of years a person can expect to live based on current mortality
rates. A one-year improvement in life expectancy contribute to a 4% increase in output.
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Life expectancy in LDCs increased steadily between the 1930s and 2003 (except for
Africa). These increases were due to general improvements in living conditions rather
than medical care. Nonetheless, medical progress has been significant, particularly in
the control of communicable diseases.

Poor nutrition and bad health contribute not only to physical suffering and mental
anguish but also to low labor productivity. Malnutrition and disease among adults saps
their energy, initiative, creativity, and learning ability and reduces their work capacity.
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Malnourishment is mostly a problem among the poor. Some one billion of the world’s people
are trapped in a vicious circle of poverty, malnutrition, and low productivity.

However, with improved transport and communication and greater awareness of the need for
emergency food aid, fewer people starve to death as a result of severe food crises and famines
today than in 1960.

Yet countries with any lengthy disruption in planting, harvesting, and food distribution remain
vulnerable to starvation such as in Sudan, Somalia, Angola, Rwanda, and Bosnia in the 1990s.
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Although health has improved, and nutrition has probably not deteriorated in LDCs since
the 1960s but progress has been slow – with the result that labor productivity has grown
slowly.

And overall the physical and mental well-being among the poorest segments of LDC
population has improved but modestly.
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Mortality and Disability

Mortality refers the frequency of death in a population.

A disability is any condition of the body or mind (impairment) that makes it more difficult
for the person with the condition to do certain activities and interact with the world
around them.
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Disease burden can be measured by

calculating disability-adjusted life years
(DALYs), which combine years lost due to
premature death and living with disability.
Table 10-4 shows that DALYs lost per 1,000
population between the ages of 15 and 60
years. A world as a whole, DALYs of 207 was
measured (a drop from 354 in 1955).
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AIDs
The HIV/AIDS ( (human immunodeficiency virus/acquired immunodeficiency syndrome)
epidemic has caused the deaths of 20 million people since 1981, and in 2002, 40 million
people were living with HIV, most of whom were expected to die prematurely.

During 2001, it was most prevalent in Sub-Saharan Africa, causing annual per-capita
income growth to decline by 0.5-1.2 percent for half of the Sub-Saharan countries.
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The growth slowdown from AIDS results from health care costs, reduced savings, the
loss of skilled adults in their prime working years, the reduced productivity of those who
work, the cost of caring for orphans, and other costs.

The epidemic damages the health system with increasing demands amid a falling
number of trained medical providers. Additionally, death from AIDs of an adult affects
the next generation, as children withdraw from school to help at home.
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However, the impact of the AIDS epidemic varies significantly worldwide. In developed
countries (DCs), people living with AIDS can often resume a normal life. Yet in the
poorest least developed countries (LDCs), HIV remains a death sentence.

UNAIDS, U.S. aid private initiatives and the waiving of patent rights to expensive drugs
by some Western companies may reduce the cost of AIDS treatment in poor countries.
However, the lack of an effective health delivery system in many countries may prevent
widespread effective therapy.
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Whereas prevention is the highest priority, goal, improving HIV treatment reduces stigma
and increases the incentive for people to seek counseling and testing. Preventive
approaches, such as promoting condom usage, preventing and treating sexually
transmitted illnesses, and reducing blood-borne transmission, are cost-effective.

LDCs need integrated AIDS prevention and care, including correct and culturally
appropriate information and existing prevention tools.
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References:

https://www.worldbank.org/en/publication/human-capital/brief/the-human-capital-proje

ct-frequently-asked-questions#:~:text=Human%20capital%20consists%20of%20the,a

s%20productive%20members%20of%20society.

https://gobridgit.com/blog/benefits-of-investing-in-human-capital/

https://www.britannica.com/science/mortality-demography

https://www.britannica.com/science/life-expectancy
 THANK YOU!

Group 3 Western Leyte College

Reporter College of Accountancy and Business
Western Leyte College A. Bonifacio St., Ormoc City, Leyte
E-mail: <> E-mail: [email protected]
Contact Number: <> Website: wlcormoc.edu.ph
Telephone: (053) 561 5310 / 255-8549