Module 11 – Human Resource Development:
Human Resource Development
In recent years, economists have come to realize the importance of human resources in stimulating
economic growth. This emphasis became more evident with the rise of new technologies in
computers, telecommunications & the compilation, use & dissemination of information
The Economics of Education
Spending on formal education has increased in many developing countries over the past several
decades. This increase in education spending is due to:
In part, a response to an increase in the number of cohorts in the schooling age groups
A result of higher incomes in these countries.
Because teaching is labor intensive, it has suffered productivity losses compared with other
occupations. In addition, real wages have fallen relative to the average
Attempts have been made to increase productivity by:
 Raising class sizes
 Adopting split shifts
 Reduce spending on teaching materials
 Using more distance learning
In some developing countries, private schools have flourished
In particular, to teach specific skills like a foreign language or computer related techniques
The risk from more private education is that the equalizing effect of free & universal public education
will be compromised. Those who can pay gets a better education while the public educational system
is starved of resources.
Nevertheless, there has been a growth in public spending on education, partly as a result of growth in
real income. Estimates suggest that the elasticity is somewhat less than one. When income doubles,
expenditure on education rises by about 75%. As the average level of educational attainment
increases, the average cost of education per pupil also rise per capita costs of secondary & tertiary
education is higher than those of primary education
Rates of Return to Education
Evidence suggests that there are high rates of return to education at all levels
But there are diminishing returns, i.e. tertiary education has lower returns per dollar invested than
secondary education.
Returns to primary education are the highest education is considered a merit good, that is there are
external economies to education.
Positive externalities arising from the provision of education includes the value of:
 Being able to vote intelligently
 Following the rules set down by society
 Making possible contributions to society through culture, science, social science & the arts
that exceed private returns of the individual
Private vs Social Returns to Education (Micro Results)
How can we evaluate education’s “net benefits to society”?
Social returns to secondary & tertiary education, measured as the “value of being a better citizen”
because of literacy & numeracy acquired, fall off quickly after primary school
Therefore the economic argument for subsidies to secondary & tertiary education is much weaker
than is a subsidy for primary education
A further argument for less subsidy & more competition at the tertiary level is:
Private schools seem to be more responsive to changes in demand than are public schools.
In Asia, social returns to secondary & tertiary education are moderately higher than private returns.
This is because the public subsidy is a relatively small share of total costs.
Subsidies are generally higher in Latin America & Africa
In low income countries, private returns tend to be higher than social returns.
Evidence from a wide cross-section growth equation that adjusts labor for degree of educational
attainment don’t show a big payoff to more education
Contribution of labor (adjusted for education attainment) is either negligible or even possibly negative
3 possible reasons for the shown results:
1. Differences in individual country experience masks the true relationship
2. There is rent seeking & corruption among graduates & that brings down growth
3. There is a stagnant demand for educated labor, resulting in a misallocation of resources
While these results should not be ignored, the evidence from Asia, with the possible exception of
bureaucracies in South Asia, does not support these conclusions.
Education, particularly secondary & higher education, have played a key role in growth &
development.
Education can be expected to play an even stronger role in the future as highly skilled labor becomes
more important as an input into the production process.
Education, Labor Earnings & Productivity
Briefly, there is a large body of evidence that suggests that education & experience explain a very
large proportion of the variation in earnings in both industrial & developing economies
There is also evidence that discrimination is also a powerful factor in influencing earnings
When these two factors are put together, they argue very strongly for removing discrimination as a
way to raise income for the poor segments of society
Education is seen as a important tool to lift incomes, alleviate poverty & improve income distribution
Education enhances productivity by:
 Lifting the productivity of existing labor inputs
 Reducing the cost of adjusting to a change in the mix of inputs
 Increasing the ability of workers to adapt to new technology
Education also enhances the ability to find additional employment, such as during the slack season in
agriculture.
Women’s Education
Studies show that a more educated woman has greater bargaining power within the household.
this has resulted in more resources directed to herself & her children,
education and health outcomes for female children improve significantly
Even where labor force participation is suppressed, there is evidence that increased education among
women impacts positively on infant mortality & general family health.
Education in Asia
Changes in the dependency rate (proportion under 15 & over 65 years old) have an important impact
on the ability of an economy to raise the average educational attainment
When the dependency rate is high, particularly the proportion under 15 years of age, the cost of
raising the level of educational attainment is also high.
The NIEs & ASEAN countries show the largest decline in dependency rates in the past three decades
(Table 10.1)
There is a weak correlation between an increase in per capita income and a nation’s share of the
budget for education (Table 10.2)
The ratio of cost of tertiary to primary education are much higher in South Asia, the poorest region
sampled (see Bangladesh, India and Nepal in Table 10.3)
China and Malaysia also have higher tertiary-to-primary cost ratios compared to Indonesia, Korea, the
Philippines, Sri Lanka and Thailand.
The private sector play a much bigger role as a tertiary education provider in Indonesia, Korea & the
Philippines (Table 10.4)
There does not seem to be any relationship between the share of the private sector in higher
education & the level of per capita income.
Having said this, it is also true that the poorest countries in the region all have small private sector
involvement in higher education.
Trends in Enrolment Ratios
Primary education has become widespread, if not universal throughout Asia (see Table 10.5)
However the quality of this education can vary substantially
Efficiency of education (lack of over-age & repeaters) is higher in richer countries (see Table 10.6 &
Figure 10.3)
Across Asia, the NIEs had a high mean number of years of schooling for the workforce.
Gains in tertiary education were most pronounced in the NIEs & the Philippines, although the
Philippines started at a high rate in the 1960s compared with other countries in Southeast Asia.
In South Asia, the increase in enrolment rates have been modest, particularly in tertiary education,
where they have increased very little as a percentage of the cohort group since the mid 1960s.
In Southeast Asia, the most impressive gains were in secondary education.
Improving Efficiency in the Delivery of Education
An argument can be made for greater privatization of the school system by allowing the co-existence
of private schools with public schools
Greater competition is believed to result in greater efficiency
Index of private financing & costs per capita of public higher education are further shown to be
inversely related in Asia (see Figure 10.4)
Rates of return to education decline with years of schooling as expected (Table 10.7)
Returns are normally highest for primary education & lower for higher levels of education
However, the intrinsic merit good nature of education is not that strong since social returns are lower
than private returns.
Based on the successful experience of the NIEs, this strategy to have larger classes & higher pay for
teachers has paid off in terms of a more efficient delivery of educational services (Table 10.9 & Table
10.10)
Rates of Return to Education
A broader cross-cultural study of rates of return suggests that rates of return to education in poor
countries has risen in the past few decades
This may reflect the increased openness that has made technology more accessible throughout the
world & raised the returns to skilled labor in poorer countries
Gender Disparities in Education
Literacy rates between genders are very similar for many Asian countries with the exception of South
Asia (Table 10.8)
Enrolment rates are similarly biased toward men in South Asia
In several countries (Indonesia, Philippines & Thailand), tertiary education is higher for women, a
somewhat surprising result given gender discrimination in so many other aspects of economic life
Major Policy Conclusions for Asia
Curbing population growth means lower dependency ratios; this increases the ability of the society to
provide education with the same resource base.
It pays to educate teachers more intensively, to develop better classroom materials & to pay teachers
more. It pays to put money into education of females.
Curbing population growth means lower dependency ratios; this increases the ability of the society to
provide education with the same resource base.
It pays to educate teachers more intensively, to develop better classroom materials & to pay teachers
more. It pays to put money into education of females.
It pays to introduce some private schools at the tertiary level and/or reduce the subsidy to tertiary
education. To improve efficiency of the delivery of educational services, experiments with higher
pupil/student ratios & decentralization of authority over curriculum, management & budgets are
encouraged.
Provision of a good school environment with better material resources & more qualified teachers is
critical for developing countries.
There is a strong case for cutting the subsidy to tertiary education in developing countries, including
the brain drain problem, higher costs per student & lower returns using the “merit goods” logic.
It is important to recognize that a balance must be struck between various policy objectives
If the educational system is to be used to address poverty & income inequality it may be useful to
consider scholarships for gifted poor students rather than an across the board cut in subsidies to
tertiary education
The provision of more private schools runs the risk of creating an “educational divide.”
There are missing credit markets for education that should be addressed either through government
program or greater access to bank loans.
Health & Nutrition
Health, for our purposes, means absence of illness & infirmity
As indices of health (or illness), we use morbidity & mortality rates
Mortality is more closely monitored than morbidity & is more easily defined
Infant mortality, life expectancy, crude birth rates & crude death rates are also terms that are widely
used.
Health Patterns
Health conditions of populations have improved gradually because of advances in the medical fields
Life expectancy has increased, infant mortality has decreased & morbidity may also have fallen
Availability of safe water, sanitation, immunization & access to medical facilities have also improved
in Asia & the world (refer to Table 10.12)
Health & Economic Growth
Health improvements & economic growth go together
Can their mutual causality be disentangled?
The curve relating per capita income & life expectancy has shifted up over time, but it is still virtually
flat after a certain level of per capita income (Figure 10.5)
Aspects of Health
(Environmental Health)
In many developing countries, the spread of infectious & parasitic diseases can be effectively
controlled by ensuring that people have access to clean water & by the provision of an adequate
waste disposal system
Experience has shown that such measures have effectively controlled the spread of waterborne
diseases such as typhoid, dysentery & cholera
Improving housing conditions – ventilation & space – can also minimize the spread of tuberculosis.
Health risks for these diseases are exacerbated by the presence of urban slums in developing
countries.
Aspects of Health (Malnutrition & Food Consumption)
What causes malnutrition & how could nutritional improvements contribute to economic
development?
The consumption of food, like any other good or services, are
determined by three elements:
 Income
 Prices
 Tastes
Engel’s law says that poorer households devote a greater proportion of their budget to food & that
they have a relatively high income elasticity of demand for food
Within households, female children are generally made to accept the greater nutritional burden of
adjustment to unfavourable price movement.
Aspects of Health (Medical Facilities & Services)
Medical facilities & services in developing countries are very inadequate in providing for health needs
of the population
Public expenditures on health is much lower than those for education & defense
Developing countries tend to spend far more on curative resources than on preventive health care
Public Health Policies in Asia
Public health spending could be increased as a proportion of total health spending to address needs
of poor
In Asia, infant mortality & income growth are highly negatively correlated
Causation is unclear but health outcomes are closely interrelated with speed of development
Medical services with higher positive externalities should be subsidized.
HIV/Aids in Asia
HIV/AIDS prevalence in Asia has increased in the last decade and pose significant constraints to
development in the region
4 high risk groups: sex workers & their clients, drug users & men who have sex with other men
HIV/AIDS impacts on the economy via …
Lost productivity among infected members of the workforce
Lost income and potential savings of infected working-age individuals
Reduction in the stock of human capital
To control the spread of AIDs, control of the spread from 4 high risk groups is required
Some measures include:
Promote the use of condoms among sex workers & bisexual men
Publicize the necessity for using measures to protect against Aids such as condoms & not sharing
needles
Make condoms & needles widely available & at reasonable prices or else supplied for free in clinics
General promotion of HIV/AIDs awareness through public media & NGOs as well as newspapers &
magazine articles
Important considerations in HIV/AIDS containment
Wealth Matters!
Education Matters!
- Having more wealth and higher levels of education lead to a better understanding of the
disease – how it is contracted and its devastating consequences – and this leads to less risky behavior
- once HIV penetrates society, the poor and the uneducated are at highest risk
- wealthier, more educated married women tend to speak to their husbands more about
avoiding AIDS
Policy Implications – preventative
There is a need for highly targeted information campaigns tailored for the poor and the uneducated
Increase incomes through greater employment opportunities for all
Keep education levels high – get more children and young adults to attend school for more years.
Policy Implications – curative
HIV/AIDS treatment and drugs need to be made available to sufferers at reasonable prices
Increase R&D efforts in treatment & drug development