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FEM 4204

FEM 4204. Modal Insan. Topic 5: HUMAN CAPITAL: INVESTING IN ONESELF AND ONE’S FAMILY. Begg, D., Fischer, S., and Dornbusch, R. (1987) Economics , McGraw Hill Bryant, W. K (1990) The Economic Organization of the Household , Cambridge Univ Press

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FEM 4204

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  1. FEM 4204 Modal Insan

  2. Topic 5:HUMAN CAPITAL: INVESTING IN ONESELF AND ONE’S FAMILY

  3. Begg, D., Fischer, S., and Dornbusch, R. (1987) Economics, McGraw Hill Bryant, W. K (1990) The Economic Organization of the Household, Cambridge Univ Press Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka REFERENCES

  4. Introduction Human capital and the labor market The rate of return for formal education Human Capital Theory Signaling Theory Human capital as a household activity Study time, part time and academic performance Expectation and the sex typing of human capital investment Health as a human capital investment Human capital, marriage and divorce OUTLINE

  5. Recall: Types of investment in family members: Formal schooling OJT and experience – will be discussed in HKI by firms Take time out from one’s market job or in household activity in order to learn how to do it better Health i.e spending time and money in maintaining and augmenting one’s health – e.g aerobic class, dental check ups, gd nutritions Migration -- in search of better job or different lifestyle One forsake the opportunity in one location in order to exploit those in another Having children and raising them in certain ways Provide economic security in old age Introduction

  6. A major reason of HKI through schooling To augment their income in the future and so to increase their total wealth Recall the Human capital Theory After choosing what kind of investment Physical capital (e.g. a new car) vs. financial capital (e.g. stocks, bonds) vs. human capital If formal schooling initially has the higher rate of return, one will maximize his/her wealth by continuing to invest in schooling until the rate of return on schooling has been driven down to the market rate of interest Human Capital and the Labor Mkt

  7. It’s the interest rate that equates the cost of the investment with the present value of the stream of future benefits from the investment An illustration to explain the rate of return to the investment (i.e. the internal rate of return) The Rate of Return on Education

  8. Why the rate of return to schooling will decline with each added yr of school MC increases The opportunity cost, E0 increases because the wage rate employers are prepared to pay increases with education MB decreases Each additional yr of schooling reduces the remaining yrs during which an indiv works , shortening the expected streams of benefits of added schooling and reducing the MB Law of Diminishing Marginal Productivity As the no of additional schooling rise, the rate of return to additional education falls (i.e. increasing at a decreasing rate)

  9. An alternative theory of investment in education Says: It could be rational to invest in costly education even if education adds nothing directly to a worker’s marginal product Assumes: People are born with different innate ability – i.e. some are good at most things, others are less smart and on average less productive BUT how can we tell which is which? Signaling/Screening Theory

  10. Suppose higher education contributes nothing to productivity. Before making this costly investment how can school leavers be assured that their future earning will offset the initial cost? Signaling theory says: In going on education, smart people are sending a signal to employer that they are highly productive (prospective) employee Higher education is screening out the smart high productivity workers

  11. In short: Signaling theory says that education is used as a signal/screening that the person is productive i.e. formal education don’t teach you anything but signaling that you are productive Thus, to be effective, the screening process must indeed separate the high-ability workers from the others

  12. But, why don’t lower-ability workers go to university and fool firms into offering them high wages? They do not expect to pass They may feel that in order to scrape through they will have to work enormously and unpleasantly hard Since most people know their own ability, firms may take it on trust that people who have stuck it out till their final year at university believe themselves to be at the higher end of the ability range

  13. Recall the division of time: Mkt work vs. hh prod vs. leisure The decision of time allocation is based on, The real wage rate that the employer wld be willing to pay Individual productivity in the hh production Individual relative preference for leisure vs good (i.e. purchased vs homemade) In SR, individual have no control over real wage rate and productivity in the hh production In LR, individual considerably control their productivity and hence income trough devoting time and resource to human capital formation Human Capital as a HH Activity

  14. Actually time allocation consisted of 4 activities Market work; HH production; Leisure AND Human capital formation – why? Human capital is a separate HH activity when it takes place via formal schooling Human capital formation occurs in mkt work when the investment takes the form of mkt work experience HKI also takes place in the in conjunction with HH prod when the formation takes the form of hh prod experience

  15. Generalization of MB ≥ MC MB -- Is actually the contemplated MB of HKI Sex typing of HKI HKI occur when individuals expectation or those of their parents, about their future activities depend upon gender Expectation & sex typing of HKI

  16. HKI sex typing – HH Prod What is the expectation? Consequently: training related to household chores Check: Participation of boys and girls in household chores Time allocation and division of labor in the HH between men and women

  17. Decision to invest in one’s health – MB ≥ MC What make health different fr other type of HKI? Increase yr of schooling will not increase one’s expected life span, but investing in health will Learning-by-doing will not prevent sickness from reducing the number of days of activities per year, proper nutrition and other preventive health measure will Health as a HKI

  18. Topic 6:HUMAN CAPITAL: THE FIRM

  19. Begg, D., Fischer, S., and Dornbusch, R. (1987) Economics, McGraw Hill Bryant, W. K (1990) The Economic Organization of the Household, Cambridge Univ Press Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka REFERENCES

  20. Introduction Firm and Household: The circular flow Human Resource Management vs. Human Resource Manager Human Resource Management Function Developing Human Resources The reasons The methods Experience as a Form of Human Capital General vs. specific training Application of Human Capital and OJT Theories Labor mobility OUTLINE

  21. The circular flow Introduction PASARAN OUTPUT ISIRUMAH FIRMA PASARAN INPUT LABOR LABOR

  22. Human Resource Mgt (HRM) Def: The utilization of HR to achieve organizational obj Thus, mgr at all level concern themselves with HRM Basically thru the effort of others mgrs get things done which require effective HRM E.g. mktg mgr works thru sales rep to sell the firm’s product Human Resource Mgr Def: Indiv who normally acts in an advisory or staff capacity, working with other mgrs to help them deal with HR matters i.e. primarily responsible for coordinating the mgt of HR to help the org. achieve its goal E.g. someone resign in mkt dept, mktg mgr call HR mgr to look for potential candidate

  23. Human Resource Mgt Functions: HR Planning, Recruitment and Selection Human Resource Development Compensation and Benefits Safety and Health Employee and labor Relations Human Resource Research

  24. Def: HRD is a planned, continuous effort by mgt to improve employee competency level and organizational performance through training and development program Training: To permit learners to acquire knowledge and skills needed for their present jobs Development: Involves learning that looks beyond today and today’s job ~ it has more long term focus Developing Human Resources/Capital

  25. Why training and dev are needed/impt: People, jobs and organization are always changing Changes in orgn ~ mergers, acquisitions, rapid growth, downsizing Changes in technology and the way people work resulting largely from IT and ICT Changes in human resources – a diverse workforce consisting of many groups Thus, developing HR is crucial to prepare employees to keep pace with the organization as it changes and grow and help them adapt to rapid environmental changes.

  26. Continuous improvement in processes is mandatory for the firm to remain competitive Training ~ to improve the quality of product and services and productivity To prevent obsolesces of skills at all level A need to improve human relations within the firms through HRD as jobs grows increasingly complex and impersonal

  27. Thus, besides education, experience can augment one’s HK That’s why earning rise with age to late middle age or beyond and then flatten out or decline to retirement Experience as a Form of HKI Income age

  28. Topic 7:HUMAN CAPITAL ISSUES: INCOME DISTRIBUTION

  29. Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka Jenkins, S (1991). The measurement of income inequality. In L. Osberg (Ed.), Economic Inequality and Poverty: International Perspectives(pp. 3-38). New York, NY.: M. E. Sharpe Inc REFERENCES

  30. Introduction Factors influencing income differentials Income Distribution What does it mean? Measuring Income Distribution Income distribution in Malaysia OUTLINE

  31. Compensation (perolehan)~ cash (i.e. pay) or in-kind benefit obtained through one’s involvement in the market (Money) Pay: E.g. salary/wages, bonus and other cash allowances In-kind Benefits: E.g. company’s car and medical insurance Income ~ (depending on is definition) is a broader concept which may include: Compensation or earned income Unearned income such as rental, dividend and interest Transfer such as government welfare, zakat and money received from children Introduction

  32. The distribution of compensation is very important in analyzing the distribution of income in certain country. WHY? More than 60% of incomes are in the form of compensation (Kusnet and DaVanzo, 1980) Thus, income distribution is very much influenced by the distribution of compensation

  33. The objective: to analyze how the economic wealth of the nation is shared among its population i.e to assess the economic inequality in certain country/place “A measure of how much access to and control over economic resources one has over others across the population”(Jenkins, 1991) The proxy used is income because: One of society’s economic resources Measure one’s potential economic power But, the main concern of such analysis is NOT to determine how income differs BUT, the inequality of welfare among populations Income Distributions

  34. The Measurement Mean/median income Min vs Max Theil Indeks – within & between groups Lorenz Curve Gini Coefficient

  35. Topic 8:HUMAN CAPITAL : ISSUES AND CHALLENGES

  36. Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka Rahmat Hidayat Sabari (2005) Pembangunan Insan dari Sudut Fizikal dan Mental [WWW Document] http://www.irunding.com/modules/forum/viewtopic.php?p=166&sid Aon Consulting Forum ( 2005). Feb. 2005 www.aon.com/about/publications Oshim, Harry T. ( 1986). Human resources in macro- comparative productivity trends in Asia. REFERENCES

  37. Human Development from Islamic perspective IQ and ESQ Outsourcing the Human Capital Brain Drain OUTLINE

  38. Human Development: An Islamic Perspectives

  39. Development in Islam – A process which involve improvement, changes and advancement in human life in line with the Islamic teachings Should balanced between physical, mental and spiritual development To avoid having good physical infra but rampant social problems Thus, human development molded by Islamic teachings is vital

  40. Human development ~ defined as efforts in developing physical and mental strength until one’s develop noble personalities such having faith in Allah, patience, honest etc Characteristics of Human development in Islam Comprehensive Encompasses of the overall daily activities of man as Islam is a way of life

  41. Balanced Balanced development of IQ, ESQ to avoid negative implication Multi dimensional Covers both human and spiritual aspects E.g. self development program such as motivational camps should not neglect prayers when it is time to pray

  42. Brought about changes Improvement in both quality of life (self) and faith Fully utilizes the Quran and sunnah Human development should be based n the two main sources of Islamic teachings: Quran and Sunnah Quran and Sunnah provides the guiding principles in human development e.g. courage, tolerances, creativity, and pursuing the permissible (halal) earning

  43. Objective of Human Dev in Islam Increase the level of faith Faith is the core to Muslim personality because without strong faith, live as a Muslim is meaningless Mukhsin vs sinner (e.g. thief, murderers)

  44. Developing the human resources To develop a pool of ‘players’ in the development through educational system Balanced IQ and ESQ to avoid problems such as corruptions etc Everybody should play their role: teachers, parents, govt Improve the quality of life. Quality of life in all aspects ~ i.e. morally, economically, socially, politically etc

  45. Outsourcing the Human Capital

  46. DEF: Human resource (HR) outsourcing involves subcontracting some of the human resource functions and duties to another company. Outsourcing allows the business to focus on its core competencies without the other aspects of business suffering from lack of time or attention. With this arrangement, the company can achieve its business goals as their partner is helping build their team.

  47. Brain Drain

  48. Brain drain was noticed as early as the 1960’s; its not a recent phenomena. As globalization speeds on, people, goods and services are moving across borders in large numbers. Exodus of human capital, international mobility or flow of brain power (Nunn,2005) Brain drain is the potential loss of national talent, an issue that has been associated with increased mobility of students and scholars. What is brain drain?

  49. The term ‘brain drain’ has caused a lot of debate in recent years with some people preferring to call it ‘brain exchange’ or ‘brain circulation’. Brain drain has financial, institutional and societal costs. Developing countries continue to loose most of their highly skilled labor to the developed nations. This has been due to various push and pull factors.

  50. There are both pull and push factors that cause brain drain. PULL FACTORS -- Attract skilled labour into their country. PUSH FACTORS -- Unfavorable conditions that cause one to want to leave their motherland.

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