LESSON 8: HUMAN CAPITAL (ECN103-Dd)

8.1. The Central Role of Education and Health

 Health and education are part of the development.
 Education plays a key role in the ability of a developing country to absorb modern
technology, health is a prerequisite for increases in productivity, and successful
education relies on adequate health
 Some of the childhood killers have been eradicated. Also, recent decades shows
the expansion of literacy and basic education in developing countries.
 However, with this achievement, developing countries continue to face challenges
as they seek help from institutions to improve the health and education sector.
 These challenges in health and education were convey in “voice of the poor”
8.1.1 Education and Health as an Investment
 Greater health capital may improve the return to investments in education.
 Greater education capital may improve the return to investments in health.
8.1.2. Why Increasing an Income is not Sufficient
 With higher income, people and governments can afford to spend more on
education and health, and with greater health and education, higher productivity
and incomes are possible.
 However, even though there are raise in income people will not improve the health
and education, therefore, we cannot count on that income increase. This was
evident in house-hold consumption. The income increase used this in two factors:
spent on other goods, increase the food variety without increasing calorie intake.
 With that situation, it may not lead to improved health, and education. To address:
credit for micro-enterprises.
 Moreover, calories and nutrition is not the same. Food for adults and children may
differ. Also, increase income in developing countries may change the food intake of
child into NON-NUTRITIOUS, which symbolized economic success. That is why, in
order to prevent this, education of the mother, or parents, is better for the health
of the children.

8.2. Investing in Human Capital

 Human capital is the term economists often use for education, health, and other
human capacities that can raise productivity when increased. This was same as
investing in business, there is a high return.
 For instance, investing in education can benefit the person in the future. Higher
salary when working, more opportunities after graduating from college, ability to
decide and more. However, in order to achieve that, there are many costs when
investing in education: tuition fee, books, uniforms, and income forgone
 Present discounted value or discounted value measures, weighs if investing in
education will be beneficial.
 Where
o E is income with extra education,
o N is income without extra education,
o t is year,
o i is the discount rate, and the
o summation is over expected years of working life:

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Abdulwahab, Norjanah
Palao, Haneyah
Ardanny, Nawal
LESSON 8: HUMAN CAPITAL (ECN103-Dd)
 Difference between E and N is the answer for “Benefits” the higher the benefit,
more good. The rate of return will be higher whenever the discount rate is lower,
the direct or indirect costs are lower, or the benefits are higher.
8.2.1. Social Versus Private Costs and Benefits
 Social Cost - cost to society of an economic transaction, including private and
external cost
 Private Cost - the cost to an individual or firm of an economic transactions.
 Social Benefit - benefit to society of an economic transaction inlcuding private and
external cost
 Private Benefit - benefit to an individual or firm in a transaction
 This widening gap between social and private costs provides an even greater
stimulus to the demand for higher education than it does for education at lower
levels. But educational opportunities can be accommodated to these distorted
demands only at full social cost.

8.3. Child Labour

 Child Labour
o It is a significant issue in developing countries.
o It refers to the employment of children under the age of 15, often in hazardous
and exploitative working conditions (ILO).
o This practice not only disrupts child’s schooling but also has detrimental effects
on their health and well-being.
 Kaushik Basu’s Model of Why Child Labour arises
1st Assumption: a household with a sufficiently high income would not send
its children to work.
2nd Assumption: child and adult labour are substitutes. In fact, children are
not as productive as adults, and adults can do any work that
children can do.
 Multiple Equilibria:
o Inexistent of Child Labour because of high income of parents
o Existence of Child Labour because of Low income of parents
 Kaushik’s model says that child labor happens because of poverty and low wages.
We need to prioritize increasing the wages of parents and providing opportunities
for children to go to school before addressing child labor.
 Criticism on Banning Child Labour
o Banning child labour when there is an alternative equilibrium in which all
children go to school might seem like an irresistible policy, but note that while
all the families of child laborers are better off, employers may now be worse off,
because they have to pay a higher wage. Thus, employers may use political
pressure to prevent enactment and enforcement of child labour laws.
 Four Main Approaches To Child Labour Policy Current In Development Policy:
1. Recognizes child labour as an expression of poverty and recommends an
emphasis on eliminating poverty rather than directly addressing child labour.
2. Emphasizes strategies to get more children into school, including expanded
school places, such as new village schools, and conditional cash transfer (CCT)
incentives to induce parents to send their children to school.

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Palao, Haneyah
Ardanny, Nawal
LESSON 8: HUMAN CAPITAL (ECN103-Dd)
3. Considers child labour inevitable, at least in the short run, and stresses palliative
measures such as regulating it to prevent abuse and to provide support services
for working children.
4. Most often associated with the ILO, favors banning child labour.

8.4. Gender Gap: Discrimination in Education and Health

8.4.1 Education And Gender
 Young females receive less education than young males in most low-income
developing countries
 Why is Closing the Educational Gender Gap Economically Desirable?
o Higher Returns on Women's Education: The rate of return on women’s
education is higher than that on men’s in most developing
countries.
o Broader Positive Impacts: Increasing women’s education not only increases
their productivity in the
workplace but also results in greater labour force
participation, later marriage, lower fertility, and greatly
improved child health and nutrition, thus benefiting the
next generation as well.
o Breaking the Cycle of Poverty: Because women carry a disproportionate burden
of poverty, any significant improvements in their role and
status via education can have an important impact on
breaking the vicious circles of poverty and inadequate
schooling.
8.4.2 Health And Gender
 Girls and women often face discrimination in health care access and treatment in
many developing countries.
 Female genital mutilation/cutting (FGM/C)
o Is a health and gender tragedy
o It's a practice that involves partially or totally removing the external female
genitalia for non-medical reasons.
 Challenges and Interventions
o Cultural norms and economic factors shape gender biases in health and lead to
practices like FGM/C. Addressing these requires community-based strategies
and interventions that involve both men and women.
o Local organizations and international efforts are crucial in reducing gender-
based health disparities, with examples of successful intervention from social
pledges against FGM/C.
8.4.3. Consequences Of Gender Bias In Health And Education
 Economic Impact of Gender Bias in Education
o Educating girls provides one of the highest returns on development
investment, often exceeding returns from major infrastructure projects.
o Gender bias in education results in an estimated annual global loss of $92
billion because girls are undereducated.
o Educated women are more likely to enter the workforce, contributing to
economic growth and family income stability.
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Palao, Haneyah
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LESSON 8: HUMAN CAPITAL (ECN103-Dd)
 Economic Loss and Poverty Perpetuation
o Under-educating and underserving girls in healthcare leads to billions in
lost productivity globally, as these girls grow up without the skills or
health to fully contribute to the economy.
o Poor health and limited education in women and girls hinder their earning
potential, reinforcing cycles of poverty that affect future generations.
 Social Instability and Gender Imbalance
o "Missing Women": Gender bias in healthcare has led to a significant
gender imbalance, especially in Asia, where millions of women are
“missing,” creating challenges for social stability and family formation.
 Limits On Community and National Development
o When girls lack access to health and education, communities miss out on
the broader benefits of having educated and healthy women, such as
better family health, lower birth rates, and increased household incomes.
o Gender bias limits women’s contributions to the economy and society,
slowing overall national development and reducing a country’s potential
to achieve broader economic and social goals.

8.5 Educational Systems and Development

Two key points are often discussed:
1. the demand for quality education from people and how the government responds
by providing resources and support.
2. the benefits of education for both individuals and society, as well as the balance
between its costs and benefits, which influence government decisions on funding
education.
8.5.1. The Political Economy of Educational Supply and Demand: The Relationship
Between Employment Opportunities and Educational Demands
 The amount of schooling received by an individual can be regarded as largely
determined by demand and supply.
 On the Demand side:
1. A more educated student’s prospects of earning considerably more income
through future modern-sector employment (the family’s private benefits of
education), and
2. The educational costs, both direct and indirect, that a student or family must
bear.
 On the Supply side:
1. The quantity of school places at the primary, secondary, and university levels is
determined largely by political processes.
Note: The amount of education demanded is thus in reality a derived
demand for high-wage employment opportunities in the modern sector. The
amount of education demanded largely determines the supply.
 Four factors shape the demand for education in order to qualify for or secure jobs
in the modern sector:
1. Wage or income differential – People are more likely to pursue education if it
leads to higher-paying jobs in the modern sector.

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Palao, Haneyah
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LESSON 8: HUMAN CAPITAL (ECN103-Dd)
2. Probability of success in finding modern-sector employment – The more likely it
is for someone to get a modern-sector job with a certain level of education, the
greater the demand for that education.
3. Direct private costs of education – If the costs of education are high (tuition,
fees, etc.), fewer people may demand it.
4. Indirect or opportunity costs of education
 Supply and Demand
 In developing countries, the quantity of higher education demanded for the
formal sector to be substantial.
 As job opportunities for the uneducated are limited, individuals must safeguard
their position by acquiring increasingly more education.
 The benefits of education to society as a whole (social benefits) are often lower
than the benefits individuals get from their education (private benefits).
 Governments and formal-sector private employers in many developing
countries tend to reinforce this trend by educational certification— continuously
upgraded formal educational entry requirements for jobs previously filled by
less-educated workers.
8.5.2. Distribution of Education
 Measuring Educational Inequality
 Lorenz Curves: a curve closer to the 45-degree line represents more equal
education distribution, and a curve farther from the line indicates greater
inequality.
 Gini Coefficient: Measures inequality in education similar to how the Gini
coefficient measures income inequality.
 Educational Quality and Inequality
 Education quality varies significantly between schools and countries.
 Wealthier countries generally offer better education than poorer ones, with
developing countries facing extreme gaps in quality.
 Poor quality education, marked by inadequate facilities, supplies, and teachers,
hampers productivity and earnings.
 Families with lower incomes often lack access to well-resourced schools.
 Education systems can either reduce or worsen income inequality, with
wealthier families dominating higher education enrollment.
 High-quality education often comes at a cost, leading to child labor in some
cases.
 Subsidized university education in some developing countries may seem “free”
but often benefits wealthier students, exacerbating inequality.

8.6 Health Measurement and Disease Burden

 Disability-Adjusted Life Years (DALYs)
 is an alternative measure of health promoted by the WHO to help quantify the
burden of disease from morbidity as well as from mortality.
 One DALY can be thought of as one lost year of “healthy” life.
 The DALYs measure the disease burden, combining years of life lost (YLL) due to
premature death and years lost due to disability (YLD).
 It reflects the gap between current health status and an ideal situation where
the population is disease- and disability-free.
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Palao, Haneyah
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LESSON 8: HUMAN CAPITAL (ECN103-Dd)
 Formula: DALYS = YLL + YLD
- Where:
 YLL = years of life lost due to premature death in the population
(Mortality)
 YLD = years lost due to disability for people living with the health
condition or its consequences (Morbidity)
A. YLL = N x L
 N = number of deaths
 L = standard life expectancy at age of death in years.
B. YLD = P x DW
 P = number of prevalent cases
 DW = disability weight.
 Health Inequality
 Healthcare resources are unequally distributed across countries:
• High-quality medical services are mainly in urban and wealthier areas.
• Poor rural areas often have under-equipped and understaffed clinics.
• A major issue in these areas is healthcare worker absenteeism.
• Developing countries face a much higher burden from infectious diseases like
AIDS, malaria, and parasites are major health problems. These diseases are less
common in developed countries.
• The children of the poor are far more likely to die than those of the rich.
• Some diseases become much more deadly when combined with others.
 Malnutrition: weakens the immune system, making it easier for children to
get sick and harder for them to recover from illnesses.
 Poor Sanitation: More than three in five people globally used sanitation
facilities (if any) that were not safely managed and that contribute to the
spread of disease.

8.6.1 HIV/AIDS
 Human Immunodeficiency Virus (HIV) is one of the most serious health problems in
developing countries. It attacks the body’s immune cells, making individuals more
vulnerable to infections. HIV progresses to Acquired Immunodeficiency Syndrome
(AIDS), the final and often fatal stage of the disease.
o In 2018, the WHO reported early 70 million people have been infected, and
37 million have died.
o In sub-Saharan Africa, nearly 1 in 20 adults live with HIV.
 HIV/AIDS remains a global health and economic challenge:
o In low-income countries, the disease spreads through heterosexual contact,
infected needles, and mother-to-child transmission.
o Without treatment, survival after AIDS symptoms appear is usually less than
a year.
o It affects adults in their most productive years, impacting economies and
families.
8.6.2. Malaria

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LESSON 8: HUMAN CAPITAL (ECN103-Dd)
 According to World Health Organization (WHO), it is a life-threatening disease
spread to humans by some type of mosquitoes. This infection is caused by a
parasite and does not spread from person to person.
 Malaria directly causes over 1 million deaths each year, most of them among
impoverished African children. Pregnant women are also at high risk. Severe cases
of malaria leave about 15% of the children who survive the disease with
substantial neurological problems and learning disabilities. A child dies from
malaria every 30 seconds. Over 500 million people become severely ill with
malaria each year. There is evidence that malaria can lower productivity and
possibly even reduce growth rates.
8.6.3. Parasitic Worms and Other “Neglected Tropical Diseases”
 Many health challenges of developing countries have received high-profile
attention in recent years, epitomised by the relatively well-funded and central role
of the Global Fund to Fight AIDS, Tuberculosis, and Malaria.
 Among the many parasitic diseases plaguing people in the developing world,
schistosomiasis (also called bilharziasis, or snail fever) is one of the worst in terms
of its human and development impact (following malaria, which is also classified as
a parasitic disease). According to WHO estimates, the disease infects about 200
million people in 74 developing countries, of whom about 120 million are
symptomatic and some 20 million suffer severe consequences, including about
200,000 deaths each year. Half of those severely affected are school-age children.
The disease retards their growth and harms their school performance if they are in
school.
 According to the WHO, the work capacity of rural laborers in Egypt, Sudan, and
northeastern Brazil, for example, is severely reduced due to weakness and
lethargy caused by the disease. Liver and kidney damage can result. If this were
not enough, the WHO’s International Agency for Research on Cancer has
determined that urinary schistosomiasis causes bladder cancer; in some areas of
sub-Saharan Africa, the incidence of schistosomiasis-linked bladder cancer is about
32 times higher than the incidence of bladder cancer in the United States.
 Another long-standing scourge, African trypanosomiasis, or sleeping sickness, still
affects several hundred thousand people in sub-Saharan Africa, mostly in remote
areas. Tragically, because the disease is endemic where health systems are
weakest, most people who contract sleeping sickness die before they are even
diagnosed. Tragically, because the disease is endemic where health systems are
weakest, most people who contract sleeping sickness die before they are even
diagnosed. The impact of trypanosomiasis on economic development can be
severe: in addition to the loss of human life and vitality, the disease kills cattle and
leads to the abandonment of fertile but infected land. In this case, the parasites
(Trypanosoma) are protozoa transmitted to humans by tsetse flies.

8.7. Behavioural Economics Insights for Designing Health Policies and

Programmes
 Recent research from this relatively new field has demonstrated how the design of
programme structures, outreach, and follow up can benefit from taking into
account the approach of behavioural economics.

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LESSON 8: HUMAN CAPITAL (ECN103-Dd)
 Some of the findings, including two that are relevant to addressing HIV/AIDS, are
presented below:
o Combining financial with psycho-social support
o Deterring Violence and Criminality with Psycho-Social Interventions
o The Importance of Being Reminded
o Providing self-commitment opportunities

8.8 Health, Productivity, and Policy

8.8.1. Productivity
 The devastating effects of poor health on child mortality are clear enough. But do
poor health conditions in developing countries also harm the productivity of adults?
The answer appears to be yes. Studies show that healthier people earn higher
wages.
 The Nobel laureate Robert Fogel has found that citizens of developed countries are
substantially taller today than they were two centuries ago and has argued that
stature is a useful index of the health and general well-being of a population.
Increases in height have also been found in developing countries in recent decades
as health conditions have improved.
 If height is an indicator of general health status, to the extent that increases in
health lead to higher productivity, then taller people should earn more than
smaller ones. Moreover, shorter individuals are more likely to be unemployed
altogether. Height reflects various benefits achieved early in life; thus one is not
seeing just the impact of current income on current height. In particular, taller
people receive significantly more education than shorter people.
8.8.2 Health Systems Policy
 In the WHO’s definition, a health system is “all the activities whose primary
purpose is to promote, restore, or maintain health.” Health systems include the
components of public health departments, hospitals and clinics, and offices of
doctors and paramedics. Outside this formal system is an informal network used
by many poorer citizens, which includes traditional healers, who may use
somewhat effective herbal remedies or other methods that provide some medical
benefits, such as acupuncture, but who also may employ techniques for which
there is no evidence of effectiveness beyond the placebo effect (and in some cases
could cause harm).
 The WHO compared health systems around the world, revealing great variability in
the performance of health systems at each income level.
 The study used five performance indicators to measure health systems in the 191
WHO member states:
1. the overall level of health of the population;
2. health inequalities within the population;
3. health system responsiveness;
4. the distribution of responsiveness within the population; and
5. the distribution, or fairness, of the health system’s financial burden within
the population.
 An effective government role in health systems is crucial for at least four important
reasons:

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LESSON 8: HUMAN CAPITAL (ECN103-Dd)
1. First, health is central to poverty alleviation, because people are often
uninformed about health—a situation compounded by poverty.
2. Second, households spend too little on health because they may neglect
externalities (such as, literally, contagion problems).
3. Third, the market would invest too little in health infrastructure and research
and development and technology transfer to developing countries due to
market failures.
4. Fourth, public health programmes in developing countries have many proven
successes.

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