1. Human Capital: Education and Health in Economic Development
Chapter 8
Human Capital: Education and Health in Economic Development

2. Development & Human Capital
Health and education are investments in human capital to improve labor productivity
Investment in human capital is a major determinant of growth and development
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3. Development & Human Capital
Investment in health increases the return to investment in education
Investment in education increases the return to investment in health
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4. Development & Human Capital
Economic growth would not lead to substantial increases in investment in children’s education and health
Better educated mothers tend to have educated and healthy children
Market failure in education and health requires policy action
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5. Determinants of Education Demand
Wage or income differential paid to workers with various levels of education
Probability of success in finding a job in the formal sector
Direct private cost of education (e.g., tuition)
Indirect or opportunity cost of education (i.e., foregone income)
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6. Return of Investment in Education
Initial investments in education lead to a stream of higher future income
The present discounted value of this stream of future income is compared to the cost of education
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7. The Economics of Education
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8. Age-earnings Profiles by Level of Education: Venezuela, 1989
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9. Child Labor in LDCs Some 120 million children work full-time
Some 150 million children work part-time
Of these 250 million working children
61% or 153 million in Asia
32% or 80 million in Africa
7% or 17 million in Latin America
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10. Child Labor in LDCs
Child labor is a common practice in LDCs labor markets
The problem may be modeled using the “multiple equilibria” approach
Government intervention is needed to move to a ‘better’ equilibrium
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11. Adult & Child Labor Supply
Market for Child Labor
Adult Labor Supply
Adult & Child Labor Supply A T
At WE1 labor supply is AA’
As children enter the market, wage falls
At WL adult and child labor supply is TT’
At WE2, OA’ of adult and A’T’ children
are employed; a ban on child labor
moves E2 to E1
The S-shaped curve is supply of child
labor between these wages: E1BCE2
Wage
WE1 E1 WH B WL C
WE2 E2
Demand for Labor A’ T’
Employment
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12. The Education Gender Gap
Females receive less education than males in LDCs. To close the gap
The rate of return on education is higher for female than male
Female education increases productivity and lowers fertility
Educated mothers raise educated children
Female education helps break the vicious cycle of poverty and inadequate schooling for women
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13. Male and Female Education Rates, 2004
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14. The Education Gender Gap
Consequences of gender bias in health and education
Economic incentives
Cultural setting
Increase in family income does not always lead to better health and education
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15. Social vs. Private Returns of Education
Social and private returns of education are higher in LDCs than MDCs
Private returns are higher than social returns
Social and private returns are higher for primary than secondary and higher education
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16. Rate of Return to Investment in Education
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17. Optimal Level of Education
Optimality criterion for education: maximum difference between returns and costs
Social: the optimal level of education is “primary” where costs are subsidized and returns are high
Private: the optimal level of education is “higher” where costs are heavily subsidized and returns are very high
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18. Public decision: Invest in primary education
Social Costs & Returns
Social Returns
Costs/Returns
Social Costs
Tertiary
Secondary
Primary
Public decision: Invest in primary education
Years of schooling completed
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19. Private Costs & Returns
Private Returns
Costs/Returns
Tertiary
Private Costs
Secondary
Primary
Private decision: Invest in higher education
Years of schooling completed
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20. Education and Development
Distribution of education
Lorenz curves for the distribution of education
Education Inequality and Poverty
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21. Lorenz Curves for Education in India and South Korea, 1990
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22. Gini Coefficients for Education in 85 Countries, 1990
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23. Health-Care and Development
Measurement and distribution
Life expectancy at birth
Child mortality
Malnutrition and hunger
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24. Life Expectancy in World Regions
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25. Under-5 Mortality Rates in Various World Regions
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26. Proportion of Children under 5 Who Are Underweight, 1990 and 2005
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27. Deaths of Children under Age 5
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28. Children’s Likelihood to Die in LDCs
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29. Regional HIV and AIDS Statistics, 2006
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30. Health-care and Development
Disease burden
HIV/AIDS infection
Malaria
Parasitic Worms and Other “Neglected Tropical Diseases”
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31. The Major Neglected Tropical Diseases, Ranked by Prevalence
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32. Health Systems and Development
Health and Productivity
Is there a connection?
Health Systems Policy
Great variability in the performance of health systems at each income level
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33. GNI per Capita and Life Expectancy at Birth, 2002
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