FEM 4204
Modal Insan
Topic 5:
HUMAN CAPITAL:
INVESTING IN ONESELF AND ONE’S FAMILY
REFERENCES
• 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
OUTLINE
• 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
Introduction
• 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
Human Capital and
the Labor Mkt
• 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
The Rate of Return on Education
• 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)
•
Why the rate of return to schooling will decline with each
added yr of school
1. MC increases
•
The opportunity cost, E0 increases because the wage rate
employers are prepared to pay increases with education
2. 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
3. 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)
Signaling/Screening
Theory
• 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?
• 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
• 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
•
But, why don’t lower-ability workers go to university
and fool firms into offering them high wages?
1. They do not expect to pass
2. 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
Human Capital
as a HH Activity
• 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
•
Actually time allocation consisted of 4 activities
– Market work; HH production; Leisure AND
– Human capital formation – why?
1. Human capital is a separate HH activity when it
takes place via formal schooling
2. Human capital formation occurs in mkt work
when the investment takes the form of mkt work
experience
3. HKI also takes place in the in conjunction with
HH prod when the formation takes the form of
hh prod experience
Expectation & sex typing of HKI
• 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
• 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
Health as a HKI
•
•
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
Topic 6:
HUMAN CAPITAL: THE FIRM
REFERENCES
• 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
OUTLINE
• 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
Introduction
• The circular flow
PASARAN
OUTPUT
ISIRUMAH
FIRMA
LABOR
PASARAN
INPUT
LABOR
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
•
Human Resource Mgt Functions:
1.
2.
3.
4.
5.
6.
HR Planning, Recruitment and Selection
Human Resource Development
Compensation and Benefits
Safety and Health
Employee and labor Relations
Human Resource Research
Developing Human
Resources/Capital
•
•
•
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
• Why training and dev are needed/impt:
1. 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.
2. 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
3. A need to improve human relations within the firms
through HRD as jobs grows increasingly complex
and impersonal
Experience as a Form of HKI
•
•
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
Income
age
Topic 7:
HUMAN CAPITAL ISSUES: INCOME DISTRIBUTION
REFERENCES
• 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
OUTLINE
• Introduction
– Factors influencing income differentials
• Income Distribution
– What does it mean?
– Measuring Income Distribution
• Income distribution in Malaysia
Introduction
• Compensation (perolehan)~ cash (i.e. pay) or inkind 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
• 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
Income Distributions
• 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:
1. One of society’s economic resources
2. 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
• The Measurement
1.Mean/median income
2.Min vs Max
3.Theil Indeks – within & between groups
4.Lorenz Curve
5.Gini Coefficient
Topic 8:
HUMAN CAPITAL : ISSUES AND CHALLENGES
REFERENCES
• 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.p
hp?p=166&sid
• Aon Consulting Forum ( 2005). Feb. 2005
www.aon.com/about/publications
• Oshim, Harry T. ( 1986). Human resources in macrocomparative productivity trends in Asia.
OUTLINE
• Human Development from Islamic perspective
– IQ and ESQ
• Outsourcing the Human Capital
• Brain Drain
Human Development: An Islamic
Perspectives
• 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
• 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
•
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
• 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
• 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)
– 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
Outsourcing the Human Capital
•
•
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.
Brain Drain
What is brain drain?
 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.
 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.
There are both pull and push factors that cause
brain drain.
A. PULL FACTORS -- Attract skilled labour into
their country.
B. PUSH FACTORS -- Unfavorable conditions
that cause one to want to leave their
motherland.
Graphical representation
REFERENCES
 Carrington J. William and Detragiache Enrica
(1999). Finance and Development. A Quarterly
magazine of the IMF.June 1999, vol. 36 no.2.
www.imf.org/external/pubs
 Nunn Alex (2005). The ‘brain drain’ Academic
and skilled migration to the UK .
www.leedsnet.ac.uk/ibs/pri
 http://www.milkeninstitute.org/pdf/braindrain.pdf
 www.sciedev.net/dossier/index.cfm
Selamat Berjaya
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