HUMAN CAPITAL:

EDUCATION AND

HEALTH IN ECONOMIC

DEVELOPMENT Economic and Growth Policy

The Central Roles Of Education And Health

Education and health are basic objectives of development. Both are

fundamental to enhancing the quality of human life and ensuring

economic progress.

Education is essential for a satisfying and rewarding life while at the

same time enabling the developing country to absorb modern

technology and develop capacity for self sustaining growth.

Health is a prerequisite for increases in productivity and providing a

base for education to thrive.

Thus, both education and health are vital components of growth and

development- inputs to aggregate production function. Their dual role

as inputs and outputs gives them a central place in economic

development.

There has been some dramatic improvements in world health and

education over past half century. Death rates and child mortality rates

have been falling down while some major killers have been eradicated,

eliminated and controlled. Recent decades have witnessed an

unprecedented extension of literacy and other basic education to a

majority of people in the developing world.

However, there continues to be challenges for the developing world.

Distribution of health and education between countries is important.

Life expectancy, child mortality rate show contrasting figures across the

rich and poor countries. Chronic illness, diarrhea, malnutrition, paristic

infections and various other recurrent illness are causes of such

contrasting data. These conditions are easily treatable in developed

countries but lack of resources and development hinders progress in

underdeveloped and developing countries. Same are the finding for

education status also.

Health and education are two human capital issues which are closely

tied together. The connection includes:

i)similar analytical treatment, both are forms of human capital

ii)dual impact of effect of health spending on effective education and

vice versa.

iii)fundamental fact that investing in either of the issues would

ultimately benefit the same person.

Human capital must be given direct attention. A higher household

income is no guarantee of improved health and education. They may be

also unequally distributed. But, improved health and education helps

deteriorating health and education. Investment is human capital must

be undertaken with equity and efficiency.

Education and Health as Joint Investments for

development

Greater health capital may raise return on investment in education

because:

1. increased school attendence

2. children will learn more efficiently

3. longer life spans raise the return on investments in edu.

4. able to use education productively at any point in life

Greater education capital may raise return on investment in health

because:

1. health programmes rely on skills learned in school

2. school teaches basic personal hygiene and sanitation

3. formatting and training of health personnel

4.Finally, an improvement in productive efficiency from inv in

education raises the return on a lifesaving investment on health.

Improving Health And Education: Why Increasing

Income is not sufficient?

With higher income, people and govt can afford to spend more on

health and education ;and with greater health and education comes

greater productivity and incomes.

As normal goods, people will spend more on human capital when

income is higher, However, evidence does not show a proportianate

rise in income and health and education. Household choices of

consumption may lead to this small linkage between income and

nutrition:

1. Income is spent on other goods than food

2. Part of food expenditure includes increasing food variety, than

nutrition/calories.

Thus, policies aiming at increasing incomes for poor, like credit for

microenterprise, may not lead to desired increase in health level. and

successful development in general.

Even if income elasticities for calories are higher than traditional,

calories are not the same as nutrition; and nutrition of earners are not

the same as that of their children. Income elasticity of convenience

food is greater than unity. Increasing income allows family to switch

consumption from nutritious to junk/canned food which might be

perceived as modern and a symbol of economic success. Parents may

then fail to put a check on children's food consumption.

The better education of the mother, the better the health of her

children. Formal education teaches health knowledge to future

mothers, literacy and numeracy skills help them in diagnosing and

assessing their child's health problems, and exposure to modern society

makes them more receptive to modern medical facilities.

Health Status also affects a child school performance. Better health and

nutrition leads to earlier and longer school enrollments, better school

attendance, and more effective learning. Thus to improve effectiveness

of schooling, one must improve the health of children in developing

countries.

Finally, the spillover benefits to an individual's investment. An educated

person proves to be beneficial to society. Moreover a healthy person

may not be just less contagious but will benefit the society in more

ways than a sick person can ever.

Investing in Education And Health: The Human

Capital approach Human capital is the term used for education, health and other human

capacities that can raise productivity when increased. After an initial

investment is made, a stream of higher future income can be generated

from both expansion of education and improvements in health. Health

and education also contribute directly to well being, but the human

capital approach focuses on their indirect ability to increase utility by

increasing incomes. The impact of human capital investments in

developing countries can be quite substantial. Those with higher levels

of education start full time work at a later stage, their incomes quickly

outspace those who started working earlier. Education costs include

any direct tution or expenditures specifically related to education, such

as books, and indirect costs, income foregone while he was in school.

∑(Et-Nt)/(1+i)t

E- Income with education

N-Income without extra education

t- Year

Summation is over expected years of working life

An analogous formula is given which is applied to health, with direct

and indirect cost of resources devoted to health compared with the

extra income gained in the future as a result of higher health.

The rate of return will be higher whenever the discount rate is lower,

the direct or indirect costs are lower, or the benefits are higher.

Social Rate Of Return: Found by reducing the benefits by the amount of

public subsidy for the individual's education, because this is part of the

investment from the social point of view , by considering pre tax and

after tax incomes.

Child Labor

When children work under age14 work, their labor time at minimum

disrupts their schooling and prevents them from attending school. The

health suffers, poverty alleviates, and exploitative working conditions

become common.

Nevertheless, its not obvious that an immediate ban on child labor will

make them better off. Work provides them with funds for betters

schooling, health care and nutrition. MULTIPLE EQUILIBRIA is a model

which shows how ban on child labor can help this issue whereby

banning child labor would prove beneficial.

ASSUMPTIONS: a) A household with high income would not send his

children to work

b)Child and adult labor are substitutes.

Let's assume all adults work regardless of wage, which gives us a

perfectly inelastic, vertical adult labor supply curve- AA'

High inelastic supply - poor children and families

If adult wages fall to Wh,families find they are poor enough to send

their children to work. Ass it continues to fall, more families realize this

and labor supply expands along the s-shaped curve untill wage of Wl is

reached, where all children are working. Here we are on TT'-aggr.

labor supply of all adults & children

As long as wage is above Wh, supply curve is along AA';

if wage is below Wh, supply cure along TT' and

in between it follows s-shaped curve

Considering labor demand curve D(L) , if demand in inelastic

enough to cut AA' above W(H) and also cut TT' below W(L), then there

will be two stable equilibria, labelled E1 and E2.

E2- bad equilibria, an effective ban on child labor will move it towards

E1. Moreover, once the economy had moved to new equilibrium, child

labor ban would be self enforcing. If poor families, and nobody send

their child to work, they'd be better off. Bt this is not feasible.

Also, employers may use political pressure to prevent enactment of

child labor, since they'd have to pay higher wages.

Approaches to child labor policy

Recognize child labor as an expression of poverty rather than

directly addressing labor.

Emphasize strategies to get more children to school.

Stressing palliative measures as preventing abuse and to provide

support services for working children.

Banning child labor in its most abusive forms

GENDER GAP: Women and education Young Females receive considerably less education than young males

in almost every Developing Country. Women enrollment in primary

education and secondary education is lower than that of men at least

by 10 percentage points. This Educational Gender Gap, greatest in the

poorest countries & regionally in Middle East and North Africa. For all

developing countries taken together:

Female Literacy Rate- 29% lower than male rate.

Mean years of Women school- 45% lower than males.

Female enrollment rates in Primary, secondary and post secondary

schools- 9%, 28%, 49% lower than male rate.

Although progress has been made, a substantial gender gap

persists.

Closing the Educational gender gap is economically desirable for

4 reasons:

1. The rate of return on women's education is higher than that

of men.

2. Increases their productivity and results in greater labour

force participation, lower fertility, later marriage, greatly

improved child health and nutrition.

3. Multiplier effects on quality of a nation's human resources

for many generations to come.

4. Significant improvement in their roles and status via

education can have an important impact on breaking the

vicious cycle of Poverty and inadequate schooling.

Consequences in Health or education Studies show that expansion of basic education of girls earns high

rates of return of any investment. This is one reason why

discrimination against girls is not just inequitable , but very costly

from standpoint of achieving development goals.

Education of the girls is the most cost effective means of

improving local health standards. Inferior education and Health

care access for girls shows interlinked nature of Economic

incentives and cultural setting.

The bias towards boys helps explaining the "missing women

mystery". In Asia,there are fewer females as a share of population

than would be predicted by demographic norms.

These ratios show that even though women have a higher life

expectancy than men, there are more men than women.

Greater mother's education, however, generally improves

prospects for both her sons and daughters health and education.

Evidence show that increase in family income do not automatically

result in improved health status or educational attainment. If higher

income cannot be expected to necessarily lead to higher health and

education , as we will see in subsequent sections, no guarantees that

higher health or education will lead to higher productivities and

incomes.

Educational System And Development

Much of education development issues revolves around two

fundamental economic issues:

1. interaction between economically motivated demands and politically

responsive supplies

2. important distinction between private benefits and social benefits

and costs of different levels of education and implications of these

differentials for educational inv strategy.

Educational Supply and Demand: Relationship between

employment opportunities 1. Demand Side : Principle influences on the amount of schooling

desired are a)a more educated student's prospect of earning more

income through modern sector employement (Private benefit)

b)educational cost , both direct and indirect

This is Derived Demand for high wage employement in modern

sector.

2. Supply Side: Quantity of school places is determined by political

processes. The public supply is fixed by the level of government

educational expenditures. These are in turn influenced by the level of

aggregate pvt demand for education.

Amount of schooling demanded to qualify an individual for modern

sector jobs is determined by following factors:

wage/income differential

probability of success in finding modern employment

direct private costs

indirect/opportunity cost of education

Social benefits of education: Benefits of the schooling of

individuals, including those that accrue to others or even

to the entire society, such as the benefits of a more literate

workforce and citizenry

Educational certification: The phenomenon by which jobs

require specified levels of education.

Basic education: The attainment of literacy, arithmetic

competence, and elementary vocational skills.

Social versus Private benefits and costs: It has been found out that in case of developing countries the

social costs of education (the opportunity costs to society as a

whole) increase rapidly as the students move to higher

education. The private costs _ the costs which the students

themselves have to bear, increase more slowly or even they

may decrease as the students climb over the ladder of higher

education. Thus because of such widening gap between societal

and private costs the demand for higher education is having a

greater stimulus than demand for lower education. Thus the

educational demand at higher level is more exaggerated. In

such situation when demands are increasing progressively the

social costs of education also go on increasing. More and more

resources will have to be misallocated to educational expenses

in terms of social costs, and the potential for creating new

jobs will come down as the govts. have to face the budget

constraints.

The earnings of educated individuals do not reflect the external

benefits that affect society as a whole. Such benefits are known

as externalities or spillover benefits, since they spill over to

other members of the community. They are often hard to

identify and even harder to measure. In the case of education,

some studies have succeeded in identifying positive

externalities, but few have been able to quantify them. If one

could include externalities, then social rates of return might well

be higher than private rates of return on education.

Policies for Health, Education, and Income

Generation In the coming years, the clear evidence that health and education

are joint investments may offer scope for a more integrated policy

approach. One of the most effective investments we can make in

education quality is to improve child health. Similarly, one of the

most effective investments we could make in health programs in

developing countries now explicitly integrate incentives for the

development of human capital among low income families.

PROGRESA is a mexican program on education, health and

nutrition. It has one of the central features the promotion of an

integrated package to promote human capital.It provides cash

transfers, growth monitoring. nutritional supplements, and

participation in meetings where health knowledge is

dissesimnated.

The international NGO project Hope was constarined in

providing sustained improvemnts in health and education due

to poverty.

Village health banks are created to provide credit and business

skills to low income women, access to health care,knowledge,

The Expanded Program on immunization controls diarrheal

disaeases, acute respiration infections, breastfeeding etc.

The health and education components are intended to improve

the benefits of increased income and to reinforce behaviours.

Health banks have been implemented in Ecuador, Honduras,

Dominican Republic, Malawai, Guatemala.