econ 355w - a. karaivanov lecture notes on population …akaraiva/week9 slides2.pdf · econ 355w -...

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

HUMAN CAPITAL THEORY

• “human capital” = education, health and other human capacities orskills that can raise one’s productivity when increased (invested into)

• idea pioneered by G. Becker in the 1960s

• analogy to physical capital and investment, as means of production

• focus on the role of human capital to increase future income (not utilityper se)

• age-earnings profiles (fig. 8.1)

— people with higher education start work later but earn much more

16

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 8-6

Figure 8.1 Age-earnings Profiles by Level of Education: Venezuela, 1989


• income gains from education need to be compared with the costs ofacquiring education:

— direct costs (books, tuition, etc.)— opportunity cost (income foregone because of going to school)

• Formally, the income gains from education areP

tEt−Nt(1+i)t

— discounted

(by the interest rate 1 + i) present value of income with education, Et

minus income without education, Nt for each year of life t. This onlycaptures the opportunity cost, Nt.

• See also fig. 8.2 for the full picture with all costs included. If “benefits”> “costs” it is worth pursuing secondary education.

• be careful about discounting — the benefits occur further in the futurewhile costs are borne up front

17


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


• social vs. private rates of return to education (Table 8.1)

— in the social rate calculation benefits are reduced by the amount ofpublic subsidy in individual’s education

— positive externalities not included — the social benefits from educationmay be even higher

• fig. 8.5 — difference between social and private returns and costs toeducation shaped by education policies

— higher education often most heavily subsidized— creates incentives to acquire higher education — good if skilled jobsavailable but otherwise it only serves a signalling role

18


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


Figure 8.5 Private versus Social Benefits and Costs of Education: An Illustration


• Education as signal idea — no intrinsic value, just a costly way (for theindividual) to distinguish themselves from others

• especially important if there is high youth unemployment due torigid labor market policies (true in many HICs too) and/or heavilysubsidized/‘free’ university education with rigid government quotas onstudent intake

• in that view, more and more education is required at each stage to gainadvantage over the competition of other job seekers — could end up withstructural imbalances such as engineers driving cabs, etc.

19


Distribution of education

• Lorenz curves can be plotted for the level of education too (fig. 8.6)

— India’s education Gini = 0.69 in 1990 vs. 0.22 for Korea

• Figure 8.7 — education level vs. inequality in education — negativerelationship (why?)

— caution: no adjustment for quality in the figure — quality is likely tobe much higher in high-income countries but inequality is likely to belower there too

— quality vs. quantity of education — is it better to improve the qualityof current schools or expand school enrollment? equity vs. efficiency(see more on this in Easterly’s chapter on education).

20


Figure 8.6 Lorenz Curves for Education in India and South Korea, 1990


Figure 8.7 Gini Coefficients for Education in 85 Countries, 1990


Education, Inequality and Poverty

• because the level of education is positively related to the income oneearns on average, the way education systems are shaped matters for thedistribution of income too

• it may increase or decrease it

• 300 to 800% income differentials for secondary and university educationover primary

• income inequality may persist if the rich are those who disproportionatelyacquire higher education

21


• acquiring education may be costlier for poorer children

• opportunity cost (child labor) — can be addressed by programs likeProgressa (see case study at end of chapter)

• lower benefits (poorer quality education on average in poorer areas)

• tuition fees at secondary level and borrowing constraints

• university level often subsidized/‘free’ but by that time most studentsfrom poor families are out — university subsidies are a form or regressivetax

• incentives to acquire education for the poor (e.g. minorities) may alsobe dampened by discrimination in the job market, etc.

22

88 human development report 2010

FIG

UR

E

5.1 inequality has large impacts on human development

loss in hdI due to multidimensional inequality

Inequality-adjusted HDI

HDI

Very high HDIHigh HDI

Medium HDILow HDI

44%

31%

17%

8%

6%

25%

14%

45%South Korea

Czech Republic

Peru

Ukraine

Namibia

Moldova

Mozambique

Ghana

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Note: Numbers beside bars are percentage loss due to multidimensional inequality (see statistical table 5).

Source: HDRO calculations using data from the HDRO database.

FIG

UR

E

5.2 people in Sub‑Saharan africa, South asia and arab States lose most from inequality in human development

loss in the hdI and its components due to inequality, by region

Living standards

Education

Health

24%

57%

19%

24%

33%

43%

34%

27%

39%

18%

34%

45%

32%

22%

15%17%

67%

50%

15%

28%

54%

Arab States

0

5

10

15

20

25

30

35Loss due to inequality (%)

East Asia and the Pacific Europe and Central AsiaLatin America and the Caribbean

South Asia Sub-Saharan Africa Developed countries

Note: Numbers inside bars are the percentage share of total losses due to inequality attributable to each HDI component.



Women and education: the gender gap

• Table 8.2 — data on the female-male gap in literacy and school enrollment

— gap especially great for poorest countries; often reinforced byreligious/social norms

— trend for increase in tertiary female enrollment

• gender inequalities in school completion also exist, especially in ruralareas (e.g. in rural Pakistan 42% males complete primary education vs.17% of females)

23


Table 8.2 Male and Female Education Rates, 2004

92 human development report 2010

seeking part-time work, stagnated at around 51 percent in 2008.17 Women in the Arab States increased their participation by about 9 percent-age points since 1980, to 27 percent in 2008, which is still only about half the global average.18

While useful, labour force participation neglects occupational segregation in the labour market and the gender wage gap (see chapter 4). Direct measures of income disaggregated by sex are not available for a sufficiently large number of countries.19

Unmeasured dimensionsOther important issues are relevant to women’s well-being, such as time use, access to assets, domestic violence and local-level empower-ment, but reliable and timely data are lack-ing (box 5.2). These concerns must inform renewed efforts to improve the information base to support greater awareness, public dis-cussion and policy-making (chapter 6).

BO

X 5.2 important gender issues not included due to data constraints

Gender roles influence how men and women spend their time. In addition to working in the labour force, many women have the additional burden of care giving and house-keeping, which cut into leisure time and increase stress and exhaustion. While better un-derstanding is emerging of how time use affects well-being, this information is not gen-erally available or regularly collected and thus cannot be included in global measures.

Information about the ownership of economic assets by women, either alone or co-owned with a spouse, is crucial; immovable assets are especially important. However, data are not widely available. The Food and Agriculture Organization of the United Na-tions has a new database on gender and land rights that covers six topics—legal frame-work, land tenure, international treaties, customary laws, civil society organizations and land use statistics—but for fewer than 100 countries.

Violence against women is sadly very prevalent but not documented in an international-ly comparable way. The World Health Organization estimates that the share of women who have experienced physical or sexual violence is as high as 71 percent in some countries.

For participation in decision-making, community-level indicators would be valuable —for example, on representation and leadership, which have become more important in many countries, including India. However, comparable data are available for only a few countries. Data on the gender breakdown of electoral turnout are equally scarce.

Source: Agarwal 2003; UNDESA-DAW-CSW 2010; Desai 2010.

FIG

UR

E

5.4 large losses due to gender inequality across the hdi spectrum

loss in achievement due to gender inequality, selected countries

Saudi ArabiaLatvia

Qatar

Netherlands

Iraq

China

Yemen

Burundi

Very high HDI

67

17

76

32

75

41

85

63

High HDI Medium HDI Low HDI

0

10

20

30

40

50

60

70

80

90

Loss due to gender inequality (%)



Why is female education important? not only for equity!

1. the current rate of return on female education is higher that on men’s

2. increasing women’s education not only increases their productivity butresults in greater labor force participation, lower fertility and improved childhealth and education — future improvement in human capital; those benefitsare especially strong for daughters (relative to uneducated mothers)

3. can potentially break the ‘vicious cicle’ of poverty and inadequateschooling

• Overall, studies find huge social benefits of educating girls

• However, evidence from Pakistan, Bangladesh, etc. shows we can’tassume that education for girls automatically increases with increase inGDP — potential for public policy (but political economy problems, thinkwho’s in power)

24


• Cultural factors: dowries; moving with husband’s family (responsible forhis parents) — remember the intra-family inequality we talked about (the“missing women” and distorted sex-ratios)

25


EASTERLY’s view — EDUCATED FOR WHAT?

• 1990s — big push for education as “one of the principal means” for“human development”

• idea that investment in education automatically promotes economicgrowth

• HOWEVER, not much to show for the outcome of government-sponsorededucation growth in terms of economic growth in LDCs

• incentives matter — what will one do with the ‘forced’ education?

— “creating people with high skills in countries where the only profitableactivity is lobbying the government for favors is not a formula forsuccess”

— “creating skills where there exists no technology to use them in notgoing to foster growth”

26


• The facts:— remarkable expansion of schooling in LDC 1960-1990; primaryenrollment reached 100% in half of world’s countries (from 28%in 1960); median primary enrollment up from 80% to 99%.

— similar explosions in university enrollment (increased more than 7 timesbetween 1960 and 1990)

• Where has all this education gone?— virtually no response in terms of economic growth— no association between growth in school enrollment and GDP growthin LDCs (especially SSA) — fig. 4.1

— the case of Eastern Europe — a lot of education but low GDP— the lack of correlation holds even when Africa is excluded from thesample

— also, very diverse pattern in Africa itself (fig. 4.2)

• Studies do find that the level of initial schooling is positively associatedwith growth

27

Easterly, William. Elusive Quest for Growth : Economists' Adventures and Misadventures in the Tropics.Cambridge, MA, USA: MIT Press, 2002. p 75.http://site.ebrary.com/lib/sfu/Doc?id=10229607&ppg=90

Copyright © 2002. MIT Press. All rights reserved.May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S.or applicable copyright law.

Elusive Quest for Growth : Economists' Adventures and Misadventures in ... http://site.ebrary.com/lib/sfu/docPrint.action?encrypted=b13e42467b135...

1 of 1 11/4/2010 2:59 PM

Easterly, William. Elusive Quest for Growth : Economists' Adventures and Misadventures in the Tropics.Cambridge, MA, USA: MIT Press, 2002. p 76.http://site.ebrary.com/lib/sfu/Doc?id=10229607&ppg=91

Copyright © 2002. MIT Press. All rights reserved.May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S.or applicable copyright law.

Elusive Quest for Growth : Economists' Adventures and Misadventures in ... http://site.ebrary.com/lib/sfu/docPrint.action?encrypted=f10f5ce01618cf...

1 of 1 11/4/2010 3:00 PM


• But this is problematic, at most a temporary effect; not a long-termdeterminant

— Further studies find that variations in growth across countries havevery little to do with variations in human capital growth

— Also, if growth in human capital causes econ. growth, rapidly growingeconomies would have rapidly growing human capital — i.e. youngworkers should earn more — not true in data (controlling for experiencetoo)

— Causality: expectations for growth may drive increase in schooling(incentives matter again)

Measurement? Mankiw’s model

• Mankiw — adds ‘human capital’ defined as secondary enrollment into aSolow model (most other studies lump things together so results mostlydriven by primary enrollments)

— lessens the LDMR effect as physical and human capital can grow

28


together and increase GDP— can explain slow growth of some poor countries too (lack ofconvergence) (if not investing in human capital)

— can explain the lack of capital flow to poor countries (who wants toinvest if no skilled workers there)

• Problems:

— secondary education is a narrow measure of human capital, whydoesn’t primary work?

— if lack of skills (low human capital) is the problem in poor countries,the return (in the Solow model) on education should be huge — whyaren’t people acquiring those skills? Why don’t skilled people movefrom say USA to India? (instead the opposite occurs)

— the skill premia in LDCs should be huge (e.g. rates of returns toeducation 42 times higher than US). In fact it is the opposite.

— can’t claim to explain the capital flow direction but fail completely onthe ‘brain drain’ direction in a Solow model (but remember Kremer’smodel here)

29


• More fundamental problem: what explains the difference in investing ineducation?

• An alternative story: education decisions, like everything else are drivenby incentives

— What does education buy you? Job in government? Black market?— the quality of education in mass government schooling expansioncampaigns (underpaid or absent teachers, no textbooks or pencils,giving teacher’s jobs as political favors, etc.)

• Conclusion: artificially creating a supply of skills where there is nodemand will do no good.

• better create the demand for high skills (and incentives for growth) firstand people will start going to school themselves.

30

econ 355w - a. karaivanov lecture notes on population …akaraiva/week9 slides2.pdf · econ 355w -...

Documents