Chapter 8 Lecture - Human Capital: Education and Health in Economic Development

1. EC348 Development Economics Chapter 8 Lecture - Human Capital: Education and Health in Economic Development

2. If you don’t have money today, your disease will take you to your grave. — An old woman from Ghana The children keep playing in the sewage. — Sacadura Cabral, Brazil In the hospitals, they don’t provide good care to the indigenous people like they ought to; because of their illiteracy they treat them badly. . . . They give us other medicines that are not for the health problem you have. — A young man from La Calera, Ecuador The school was OK, but now it is in shambles; there are no teachers for weeks. . . . There is no safety and no hygiene. — Vila Junqueira, Brazil

3. Education and Health as Joint Investments for Development Health and education are important objectives of development Health and education are also important components of growth and development Why? These are investments in the same individual 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 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

4. Improving Health and Education: Why Increasing Incomes Is Not Sufficient Increases in income often do not lead to substantial increases in investment in children’s education and health But better educated mothers tend to have healthier children at any income level Significant market failures in education and health require policy action

5. Education as an Investment • Economics looks at education as an investment that generates higher future earnings • More educated people are more productive and earn higher wages • Why? Education means more general and technical knowledge, more specialization  division of labor • Adam Smith opens the Wealth of Nations (1776) by stating that: “The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgment with which it is anywhere directly applied, seem to have been the effects of the division of labor.”

6. Table 8.1 Sample Rates of Return to Investment in Education by Level of Education, Country, Type, and Region The social internal rate of return refers to the costs and benefits to society of investment in education, which includes the opportunity cost of having people not participating in the production of output and the full cost of the provision of education rather than only the cost borne by the individual. Private rate of return is the benefit to an individual from participation in higher education. Usually derived from the additional earnings which a graduate will accrue over a lifetime, with an allowance made for the costs they incur, including earnings foregone during their time in higher education

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

8. 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

9. Education as an Investment • In this perspective, we say that education is a type of “human capital” • When individuals spend resources on themselves (or their children), and these expenditures improve their future economic opportunities, we say that they are investing in human capital • Examples of different types of human capital: health, formal schooling, technical training, professional training, informal learning Can you think of any other?

10. Back to Education as an Investment • What determines the incentives of individuals to invest in education? • A large part of the investments in human capital take the form of time investments, and this will have important consequences • What are the costs and benefits? • Benefits: higher future earnings, which depend of the amount of investments undertaken and the amount of time over which the return to these investments will be enjoyed

11. Education as an Investment • Costs: • Direct costs (out of pocket): expenditures on tuition, books, transportation, other material, etc. • Opportunity costs: foregone earnings, alternative investment of resources, etc • Foregone earnings: wages and income that could be earned during the time that was “spent” in education • Alternative investment of resources: how much income could be earned if resources invested in education was used elsewhere (give examples) So individuals are going to choose the optimal level of investment in education in order to maximize the net return to these investments (benefits – costs) • But note that both costs and benefits take place through time, so that we have to compare the present value of these two • How does this play out in developing countries?

12. Child Labor Child labor is a widespread phenomenon Need to look at why children are used as labor. Wage rate of adult may not suffice. Consequences Obviously deprives kids of education May also expose them to coercion But unfortunately not so simple May be the only way for the family to survive May allow the family to “subsidize” one family member to get an education, and help the whole family the longer-run May keep girls from being married off May provide health care

13. The Economic Pyramid (Sweatshops) Western consumers – pay up to $200 or more for brand new Nike shoes Sweatshop workers – gets perhaps 30 cent for this pair of shoes Western companies and retailers ‘Middlemen’ – subcontractors

14. Children’s Education • Child labor: is related to the direct costs and the opportunity costs of children’s education; depending on the level of income of the family and available credit, it may actually be their best option • The question of credit access in this case becomes even more complicated: the optimal investment may not only require borrowing, but it may also ideally require parents to borrow in order to invest in the children, and pass the debt on to them (but that’s usually not allowed) • Also fundamental is the fact that investments during these earlier stages determine the productivity of all later educational investments: “if you have a bad background, it’s much more difficult to advance”

15. Children’s Investment • There’s still another point in relation to investments in children’s human capital that must be considered: • If parents treat all their kids equally, the cost of providing a certain level of education to all of them will ultimately depend on the number of children: it’s much easier to pay for a good school for one child, than for five children • called the quantity-quality trade-off • And the effects of an insufficient level of investment at this stage will be carried on throughout life, to lower educational attainment as an adult, lower productivity and wages in the job market, and, ultimately, poverty

16. 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

17. 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

18. The Gender Gap • As mentioned before, young females receive less education than young males in nearly every LDC • Closing this educational gender gap is economically desirable • Thus, there is a need to look at gender bias in health and education

19. What is Gender? Gender is the social construction of the biological differences between men and women Gender is not “Sex” Gender is not “Women” Gender is learned, socially determined behaviour Gender is a focus on the unequal relations between men and women

20. Poverty Statistics & Measurement – Looking at Gender • Gender Measures • Gender Poverty Ratio = no. of women per 100 men living below poverty line • e.g. 130 women per 100 men lived below the poverty line in Bangladesh during the 1990’s (UNFPA, 2002) • Gender Development Index (GDI) adjusts HDI to account for inequality in achievement between men and women

21. http://hdr.undp.org/en/media/HDR_2009_EN_Table_J.pdf http://hdr.undp.org/en/media/HDR_2009_EN_Table_K.pdf

22. “Everywhere I have been it is so clear that if you do not deal with the questions of women’s education, of women’s opportunity and women’s rights, you simply cannot have effective development”World Bank President, James Wolfensohn

23. Aspects of Gender Poverty: Education • Skill Development among females is often hindered due to a lack of: • Opportunity – access to training programs in farming skills, crop production and general services • Technology – access and exposure to new methods is limited due to educational disparity

24. Literacy, particularly the literacy of women, is the most important factor for sustainable and equitable development www.unescap.org/jecf/p07women.htm Hans d’Orville,   Director Bureau of Strategic Planning UNESCO

25. Is Illiteracy a Female Phenomena ? • Cultural and social factors have a major impact on female access to schooling • This is compounded by poverty, which is the critical barrier to education, in particular for girls A Look at Some Data http://portal.unesco.org/education/en/ev.php-URL_ID=43352&URL_DO=DO_TOPIC&URL_SECTION=201.html

26. Is Illiteracy a Female Phenomena ? Women’s illiteracy is due to many related factors • Girls in many countries are expected to begin helping out at an early age with household responsibilities which prevents them from attending formal schooling • Investing in girls and women education is not considered profitable by many poor communities • In many patriarchal societies women and girls are denied their fundamental human rights, among them, the right to education • In some countries, empowering women through education is not considered essential and sometimes contrary to the role that they are expected to perform

27. Figure 8.4 Youth Literacy Rate, 2008

28. Aspects of Gender Poverty: Health • Poor people are often more sick than the better off with less resistance to disease and less access to food & clean water • Poor women have less access to medical and reproductive health services • Often this leads to higher birth rates among the poor Increased burden for survival

29. Aspects of Gender Poverty: Discrimination • In the Workplace: • Women in many countries work longer hours than men – e.g. in the Indian Himalayas, a bull works 1064 hrs, a man 1212 hrs and a woman 3485 hrs! • Women occupy lower positions and get lower wages • At least half of women’s total work time is spent on unpaid jobs Invisibility of unpaid work leads to lower social entitlements as compared to men • Women have extensive workloads with dual responsibilities – farm & household

30. Aspects of Gender Poverty: Discrimination • Representation: • There is great gender inequality in social, economic & political representation • Women’s voices are seldom heard in debates on financing and policy development perpetuates gender gap in accessing needed resources such as education, health, physical capital

31. Aspects of Gender Poverty: Discrimination Source: http://www.worldbank.org/gender/prr/engendersummary.pdf

32. Aspects of Gender Poverty: Discrimination • Power Relationships: • In the home… • Men typically hold greater “power” given the “breadwinner” title – control of finances • Physical power often deprives women the ability to refuse sexual practices • In society… • Women may not only be discriminated on the basis of gender, but are also further subject to inequality from ethnicity, religion or class. • Asset Allocation: • Physical – access to land & infrastructure • Financial – access to credit & savings • Social – access to networks

33. Gender, interacting with other variables defines: ACCESS TO AND CONTROL OVER FAMILY RESOURCES ECONOMIC AND SOCIAL RESOURCES POLITICAL RESOURCES INFORMATION AND EDUCATION TIME POWER AND DECISION-MAKING

34. Future Steps… • Specific measures to narrow gender gaps: • Equal rights to land & property • Equal contribution to designing infrastructure & services such as water, transportation, education, health • Eliminating gender bias in the workplace • Increasing women’s participation in politics

35. Future Steps… • Benefits • Improving gender inequality can reduce poverty and reap significant rewards: • Falling infant & child mortality • Improved nutrition & health standards • Increased visibility & lower corruption • Faster economic growth

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

37. Educational Systems and Development (Major Issues) • 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

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

39. Figure 8.8 Gini Coefficients for Education in 85 Countries

40. Health and Development • Health, even more than education, can be considered a consumption good on itself • Better health allows each year of life to be enjoyed more  individual welfare is higher when health is better • In addition, better health increases the length of life itself, and people like to live longer lives • So better health, on itself, increases welfare

41. Health as an Investment • But apart from the direct welfare impacts of changes in health and life expectancy, there are also the indirect effects (causal relation between health and development) • As in the case of education, we can also think about health as a form of human capital, in which individuals can invest • In reality, health consists of component that individuals cannot control (due to genetics, available technology, etc), and a component that individuals can, at least to some extent, control (via habits, medicines, visits to the doctor, etc)

42. Health as an Investment • Investments in children’s health • As in the case of education, children’s health may be of fundamental importance because it may determine the performance later on in life • Severe malnutrition during childhood cannot be compensated later on  reduces health throughout life and limits the learning ability  reduces the incentives and the ability of the child to acquire education  tends to reproduce poverty • Also, access to credit may be an important issue: parents may want to borrow in order to invest in children’s health, what would increase children’s future earnings, and make it possible for the debt to be paid (with the higher wages)

43. Health and Education as Investments – Some Key Points • Education, health, and income tend to reinforce each other, multiplying the effects of any initial change • Quantity (number) of children increases the cost of quality (education/health) of children, and vice-versa  there’s a quantity-quality trade-off in terms of investments in children • Investments in children are key: they determine the “base” over which later investments can be “built;” insufficient investments in the earlier stages greatly limit the possibility of later improvements • Absence of access to credit may keep individuals “stuck” in a poverty situation, even when they’d be able to overcome it by investing in education and health (and, therefore, becoming more productive)

44. Mother’s Health Treatment of Disease Child Nutrition Disease Prevention Post-partum care Addressing the Gaps: Health Policy Policy Levers Intermediate Determinants Immediate Causes Health Public-Private Mix Invest in Provider Capacity Targeting to Low-income... Maternal Nutrition HIV Prevalence EducationGirl’s Education Maternal Education Stipends... Birth spacing Health Services Reduced Infant Mortality Household income Governance Expenditure Tracking Anti-corruption Performance Incentives Accountability... Social insurance Seeks treatment Breastfeeding Infrastructure Rural development Schools Health clinics Roads Immunizations Use of services Sanitation Household Behavior & Community Norms Water Habitat World Development Report (2004) Birth Attendant

45. Mother’s Health Treatment of Disease Child Nutrition Disease Prevention Post-partum care Addressing the Gaps: Education Policy Policy Levers Intermediate Determinants Immediate Causes Health Public-Private Mix Invest in Provider Capacity Targeting to Low-income... Maternal Nutrition HIV Prevalence EducationGirl’s Education Maternal Education Stipends... Birth spacing Health Services Reduced Infant Mortality Household income Governance Expenditure Tracking Anti-corruption Performance Incentives Accountability... Social insurance Seeks treatment Breastfeeding Infrastructure Rural development Schools Health clinics Roads Immunizations Use of services Sanitation Household Behavior & Community Norms Water Habitat (World Development Report (2004) Birth Attendant

46. Health Systems and Development(Major Issues) • Measurement and distribution • Disease burden • Malaria and parasitic worms • HIV and AIDS • Health and Productivity • Health systems policy

47. Issues in Health • Each factor can be a cause, risk, and/or outcome • Poverty, for example, increases the exposure and impact of HIV/AIDS • Diseases such as tuberculosis can reemerges easily due to poverty circumstances • HIV/AIDS and tuberculosis increase poverty in the short to medium run by stripping assets • Asset rundown leaves individuals, families, and communities more exposed to future health and nutrition shocks www.uni-tuebingen.de/uni/wwl/lecture3.ppt

48. Health and Nutrition Causation, Risks and Effects School Achievement Cognitive ability Productivity Work Capacity Poverty Nutrition Health Food Insecurity

49. Figure 8.10 Under-5 Mortality Rates in Various World Regions

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