Ecomomics evelopment 10th y p todaro and smith chapter 08
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Chapter 8
Human Capital:
Education and
Health in
Economic
Development
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Development & Human Capital
•
Health and education are investments in human capital to improve labor productivity
•
Investment in human capital is a major determinant of growth and development
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8-2
Development & Human Capital
•
Investment in health increases the return to investment in education
•
Investment in education increases the return to investment in health
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8-3
Development & Human Capital
• Economic growth would not lead to substantial
increases in investment in children’s education and
health
• Better educated mothers tend to have educated
and healthy children
• Market failure in education and health requires
policy action
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8-4
Determinants of Education Demand
•
Wage or income differential paid to workers with various levels of education
•
Probability of success in finding a job in the formal sector
•
Direct private cost of education (e.g., tuition)
•
Indirect or opportunity cost of education (i.e., foregone income)
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8-5
Return of Investment in Education
•
Initial investments in education lead to a stream of higher future income
•
The present discounted value of this stream of future income is compared to the cost of
education
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8-6
The Economics of Education
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8-7
Age-earnings Profiles by Level of
Education: Venezuela, 1989
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8-8
Child Labor in LDCs
•
Some 120 million children work full-time
•
Some 150 million children work part-time
•
Of these 250 million working children
– 61% or 153 million in Asia
– 32% or 80 million in Africa
– 7% or 17 million in Latin America
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8-9
Child Labor in LDCs
•
Child labor is a common practice in LDCs labor markets
•
The problem may be modeled using the “multiple equilibria” approach
•
Government intervention is needed to move to a ‘better’ equilibrium
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8-10
Market for Child Labor
Adult Labor Supply
Wage
WE1
WH
WL
A
Adult & Child Labor Supply
E1
B
WE2
A’
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T
• At WE1 labor supply is AA’
• As children enter the market, wage falls
• At WL adult and child labor supply is TT’
• At WE2, OA’ of adult and A’T’ children
are employed; a ban on child labor
C • moves E2 to E1
The S-shaped curve is supply of child
E2 labor between these wages: E1BCE2
T’
Demand for Labor
Employment
8-11
The Education Gender Gap
Females receive less education than males in LDCs. To close the gap
• The rate of return on education is higher for female than male
• Female education increases productivity and lowers fertility
• Educated mothers raise educated children
• Female education helps break the vicious cycle of poverty and
inadequate schooling for women
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8-12
Male and Female Education
Rates, 2004
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8-13
The Education Gender Gap
Consequences of gender bias in health and education
•
Economic incentives
•
Cultural setting
•
Increase in family income does not always lead to better health and education
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8-14
Social vs. Private Returns of Education
•
Social and private returns of education are higher in LDCs than MDCs
•
Private returns are higher than social returns
•
Social and private returns are higher for primary than secondary and higher education
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8-15
Rate of Return to Investment in
Education
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8-16
Optimal Level of Education
• Optimality criterion for education: maximum
difference between returns and costs
• Social: the optimal level of education is “primary”
where costs are subsidized and returns are high
• Private: the optimal level of education is “higher”
where costs are heavily subsidized and returns are
very high
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8-17
Social Costs & Returns
Social Returns
Costs/Returns
Tertiary
Social Costs
Secondary
Primary
Public decision: Invest in primary education
Years of schooling completed
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8-18
Private Costs & Returns
Private Returns
Costs/Returns
Tertiary
Secondary
Private Costs
Primary
Private decision: Invest in higher education
Years of schooling completed
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8-19
Education and Development
•
Distribution of education
– Lorenz curves for the distribution of education
•
Education Inequality and Poverty
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8-20
Lorenz Curves for Education
in India and South Korea, 1990
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8-21
Gini Coefficients for Education in
85 Countries, 1990
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8-22
Health-Care and Development
Measurement and distribution
•
Life expectancy at birth
•
Child mortality
•
Malnutrition and hunger
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8-23
Life Expectancy in World Regions
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8-24
Under-5 Mortality Rates in Various
World Regions
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8-25
