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THREE ESSAYS CONSIDERING HUMAN CAPITAL COMPOSITION AND ECONOMIC GROWTH

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THREE ESSAYS ON LABOR, HEALTH, AND REAL ESTATE ECONOMICS

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Essays in human capital development

Human capital is the term used to describe the skills, experience, attitudes, aptitudes of an individual. It encompasses a wide array of skills that are contribute to the macroeconomic performance of an economy and the successful functioning of an individual. It is important for productivity, per capita incomes and sustaining growth. Insights from other disciplines such as psychology, child development and education can inform economic models. These disciplines have a long history o...

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Essays on Human Capital, Environment, and Development

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2017 Theses Doctoral

Essays on Human Capital, Labor and Development Economics

Sviatschi, Maria Micaela

This dissertation contains four essays on human capital, labor and development economics. The first two chapters study how exposure to particular labor markets during childhood determines the formation of industry-specific human capital generating longterm consequences in terms of adult criminal behavior, labor outcomes and state legitimacy. The third chapter explores how criminal capital developed during childhood can be exported to other locations generating spillover effects on human capital accumulation. Finally, the last chapter studies how improving access to justice for women affects children’s outcomes. Chapter 1, “Making a Narco: Childhood Exposure to Illegal Labor Markets and Criminal Life Paths”, shows that exposing children to illegal labor markets makes them more likely to be criminals as adults. I exploit the timing of a large anti-drug policy in Colombia that shifted cocaine production to locations in Peru that were well-suited to growing coca. In these areas, children harvest coca leaves and transport processed cocaine. Using variation across locations, years, and cohorts, combined with administrative data on the universe of individuals in prison in Peru, affected children are 30% more likely to be incarcerated for violent and drug-related crimes as adults. The biggest impacts on adult criminality are seen among children who experienced high coca prices in their early teens, the age when child labor responds the most. No effect is found for individuals that grow up working in places where the coca produced goes primarily to the legal sector, implying that it is the accumulation of human capital specific to the illegal industry that fosters criminal careers. As children involved in the illegal industry learn how to navigate outside the rule of law, they also lose trust in government institutions. However, consistent with a model of parental incentives for human capital investments in children, the rollout of a conditional cash transfer program that encourages schooling mitigates the ef- fects of exposure to illegal industries. Finally, I show how the program can be targeted by taking into account the geographic distribution of coca suitability and spatial spillovers. Overall, this paper takes a first step towards understanding how criminals are formed by unpacking the way in which crime-specific human capital is developed at the expense of formal human capital in “bad locations.” While my first chapter focuses on low-skilled labor and criminal capital, my second chapter studies the expansion of high-skilled labor markets. In Chapter 2, “Long-term Effects of Temporary Labor Demand: Free Trade Zones, Female Education and Marriage Market Outcomes in the Dominican Republic”, I exploit the sudden and massive growth of female factory jobs in free trade zones (FTZs) in the Dominican Republic in the 1990s, and subsequent decline in the 2000s, to provide the first evidence that even relatively brief episodes of preferential trade treatments for export industries may have permanent effects on human capital levels and female empowerment. Focusing on a sample of provinces that established FTZs and exploiting variation in the opening of zones and age of women at the time of opening, I show that the FTZs’ openings led to a large and very robust increase in girls’ education. The effect persists after a decline in FTZs’ jobs in the 2000s following the end of a trade agreement with the U.S. and an increase in competition from Asia. The reason appears to be that the increase in some girls’ education changed marriage markets: girls whose education increased due to the FTZs’ openings married later, had better matches with more stable marriages, gave birth later, and had children who were more likely to survive infancy. In sum, the evidence in this paper indicates that labor markets can improve female outcomes in developing countries through general equilibrium effects in the education and marriage markets. Another question I address in my dissertation is whether criminal capital developed during childhood can be exported to other locations. In the first chapter, I find that individuals take skills related to the illegal drug industry with them when they move to other districts, even when they move to districts without significant illegal industries. Chapter 3, “Exporting Criminal Capital: The Effect of U.S. Deportations on Gang Expansion and Human Capital in Central America”, provides new evidence on how an increase in criminal capital due to deportations from the US affects human capital investments in El Salvador. In 1996, the U.S. Illegal Immigration Responsibility Act drastically increased the number of criminal deportations. In particular, the leaders of large gangs in Los Angeles were sent back to their countries. In addition to having a direct effect, the arrival of individuals bringing criminal skills and connections may have generated important spillover effects. We exploit this policy to look at the impact that deportation policies and the subsequent arrival of criminal capital to El Salvador had on several educational and economic outcomes. Using the 1996 policy and geographical variation in the exact location and delimitation of different gang groups, we find that criminal deportations led to large increase in crime and decrease in human capital accumulation for children living in these areas. Overall, this project helps to understand one of the reasons why El Salvador is among the world’s most violent peacetime countries. Understanding these effects is crucial for public policy to successfully incorporate deported criminals back into society. While my work in the Dominican Republic and the previous literature has shown that increasing the returns to education for women incentivizes schooling, there is little evidence on how domestic violence affects human capital development and whether improving access to institutions for women can address these issues. During my field work in rural areas of Peru, I found that institutions do not usually address the problems facing women or ethnic and religious minorities. For example, the police do very little to stop domestic violence. Moreover, in many cases, women do not even trust these institutions enough to report these issues. Chapter 4, “Inter-Generational Impacts of Improving Access to Justice for Women: Evidence from Peru”, exploits the introduction of women’s justice centers (WJCs) in Peru to provide causal estimates on the effects of improving access to justice for women and children. Our empirical approach uses variation over time in the distance from schools and households to the nearest WJC together with province- by-year fixed effects. After the opening of WJC, we find that primary school enrollment increases at schools that are within a 1km radius of a WJC and the effect decreases with distance. In addition, we also find that primary school second graders have better test scores in reading and mathematics. Moreover, we find that children in primary school living in household’s located near a WJC are more likely to attend school, to pass a grade and they are also less likely to drop out of school. We also provide some evidence that these improvements might be driven by an increase in the bargaining power of women inside the household and decrease in domestic violence. In sum, the evidence in this paper shows that providing access to justice for women can be a powerful tool to reduce domestic violence and increase education of children, suggesting a positive inter-generational benefit.

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Education, Human Capital, and Economic Growth Essay

Human capital, external benefits of education, education contributions to economic growth.

Human capital is a set of knowledge, skills, and experience used to meet the diverse needs of individuals and society as a whole. In the broad sense, it is an intensive productive factor of economic development, including the educated part of the labor resources, knowledge, tools of intellectual and managerial work, and the environment of living and working. Capitalism with its urbanization, the first machines and equipment, and the corresponding increase in labor productivity have become an embodiment of the accelerated development of human capital, increasing its productivity through the new quality – intellectual power and new knowledge.

It was creative, cultured, and educated people, professionals in their fields and industries, who made the industrial revolution. Scientific, innovative, industrial, and technological innovations accumulated by previous generations and by themselves as well as knowledge and competition lead them on their way to success. Investing in human capital is rather beneficial for the field of education as it promotes leadership and the growth of the national and global economy. At this point, the decentralized and egalitarian education proved to be more effective than the traditional one.

One of the external benefits of education refers to financial advantages or public savings that include the summarized amount of funds from several industries affected by the level of education. For example, the situation with plenty of uneducated African-American males in the US promotes higher unemployment and crime rates, while the increase in their graduation level would address these challenges. As an example, one may mention the lower spending on health and crime prevention as well as taxes that are likely to improve public savings.

Therefore, the investment in African-American males’ education should be assigned a top economic priority. Along with economic benefits, one may emphasize social advantages that are to benefit the society in general and further generations. Among such benefits, it is possible to list the contribution to ensuring rights, eliminating poverty, making an environmental impact, or using the technology. The growing body of the research shows that there are both short- and long-term benefits, the former of which tend to be less stable and the latter seem to be more substantial that proves the great role of long-standing perspectives and investments in the field of education.

Speaking theoretically, education should contribute to the economic growth by producing the qualified workforce able to revolutionize the economic processes and outcomes. The existing evidence illustrates that the educational quality has a great potential to impact the economic growth due to the implementation of skills and knowledge by employees at their workplaces. In this regard, the policies concerning education need to be properly reconsidered and adjusted to the modern requirements and market trends. In addition to improving the situation with those who are uneducated, it is important to focus on educational institutions with low schooling levels and enhance them.

The mentioned solution to the given problem is likely to help in producing more contribution to the growth of economy by providing a more skilled staff. The quality of schools should be regarded as the most important issue linking education and economy, thus integrating them in an attempt to promote growth and develop the society. The upcoming reforms should target students’ performance and attendance of classes to make sure that they have a proper preparation for the future responsibilities and tasks at their workplaces, thus promoting the development of economy.

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IvyPanda. (2024, January 28). Education, Human Capital, and Economic Growth. https://ivypanda.com/essays/education-human-capital-and-economic-growth/

"Education, Human Capital, and Economic Growth." IvyPanda , 28 Jan. 2024, ivypanda.com/essays/education-human-capital-and-economic-growth/.

IvyPanda . (2024) 'Education, Human Capital, and Economic Growth'. 28 January.

IvyPanda . 2024. "Education, Human Capital, and Economic Growth." January 28, 2024. https://ivypanda.com/essays/education-human-capital-and-economic-growth/.

1. IvyPanda . "Education, Human Capital, and Economic Growth." January 28, 2024. https://ivypanda.com/essays/education-human-capital-and-economic-growth/.

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IvyPanda . "Education, Human Capital, and Economic Growth." January 28, 2024. https://ivypanda.com/essays/education-human-capital-and-economic-growth/.

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Performance through people: Transforming human capital into competitive advantage

At a glance.

• When companies emphasize skill development, it pays off for workers. Skills learned on the job contribute 46 percent of the average person’s lifetime earnings, and companies that build human capital are more likely to propel their employees into higher earnings brackets over the course of a career.
• Building human capital also pays off for firms in the form of more consistent earnings and greater resilience during crisis. In addition to being more consistent than their sector peers, human capital builders are better at retaining talent, with attrition rates that are about 5 percentage points lower.
• Some firms (“People + Performance Winners”) prioritize developing their employees and manage to deliver top-tier profitability at the same time. These companies are more likely to become large-scale “superstars.” They exist in all sectors and average more than $1 billion in economic profit.
• People + Performance Winners have a distinctive organizational signature that challenges and empowers employees while fostering bottom-up innovation. This form of organizational capital contrasts with that of other top-performing firms, which tend to be more top-down and transactional. This management style seems to activate human capital and create a tangible competitive advantage.

MGI’s previous research has shown that human capital development pays off for workers , with skills learned on the job accounting for almost half of the average person’s lifetime earnings. But does investing in people actually benefit companies? Most business leaders agree that it’s the right thing to do. But they are less clear on how those efforts relate to the bottom line—and why some organizations are so much more effective than others at turning human capital into a real competitive advantage.

To explore these questions, we analyze 1,800 large companies across sectors in 15 countries, sorting them based on two factors: how much they focus on developing human capital and whether they financially outperform their sector peers.

One subset in particular stands out: People + Performance Winners (P+P Winners) excel at creating opportunities for their employees to build skills (which we measure by looking at internal mobility, training hours, and organizational health scores) while consistently clearing the highest bar for financial performance. Another group, Performance-Driven Companies, similarly achieve top-tier financial results but do not put the same kind of emphasis on skills development and the work environment. A third group, People-Focused Companies, put resources into developing employees but are unable to translate that into strong financials. Finally, the majority of firms are Typical Performers that stand out on neither dimension.

P+P Winners distinguish themselves from Performance-Driven Companies in two important ways. They achieve more consistent results and have greater earnings resilience, and they also have a superior ability to attract and retain talent (Exhibit 1). These are important advantages at a time when companies are facing economic headwinds and labor shortages.

While they closely tracked Performance-Driven Companies on profitability and shareholder returns over the prepandemic decade, P+P Winners were roughly 1.5 times more likely to remain in the top tier year after year, and they had about half the earnings volatility.

P+P Winners are not only consistent through the normal ups and downs of business cycles; they are also more resilient in times of crisis. When the pandemic struck, they were more likely to weather the crisis and avoid taking major hits. Only 54 percent of P+P Winners saw a reduction of more than 0.5 percentage point in return on invested capital from 2019 to 2020, compared to 65 percent of Performance-Driven Companies. In fact, 36 percent of P+P Winners saw an increase of more than 0.5 percentage point (versus 29 percent of Performance-Driven Companies). More P+P Winners found growth opportunities in the crisis years as well. From 2019 to 2021, they grew revenue twice as fast as Performance-Driven Companies (8 percent versus 4 percent). Organizations that had spent years building reserves of loyalty, goodwill, and innovative capacity by investing in people may have had more internal resources to draw on when the chips were down.

Investing in human capital is associated with consistency and resilience for other companies, too. In the two segments that are not top performers financially, People-Focused Companies demonstrated greater stability than Typical Performers. Typical Performers were 1.5 times more likely than an average firm in our sample to remain in the bottom quintile of profitability in nine out of ten years, while People-Focused Companies were only 1.1 to 1.3 times as likely. The latter also demonstrated greater resilience during the pandemic, growing their revenue twice as fast as Typical Performers (6 percent versus 3 percent) from 2019 to 2021.

A McKinsey event on "Performance through people: Transforming human capital into competitive advantage"

P+P Winners are also talent magnets, with attrition rates almost five percentage points lower than those of Performance-Driven Companies. Their employees report higher job satisfaction and are 1.3 times more likely to move into higher lifetime earnings brackets than employees of Performance-Driven Companies. People-Focused Companies have similarly high levels of employee satisfaction and even lower attrition than P+P Winners, although not with the same stellar financial performance.

How do P+P Winners manage to succeed on both fronts? While investing in people is important, our research shows that another ingredient is needed to bring out their best and channel their efforts into results: organizational capital—that is, the management practices, systems, and culture within each company. This concept encompasses everything from training programs to workflows, department and team structures, employee communications, norms, culture, and leadership. When these elements are effective, they can turn a collection of talented individuals into a cohesive team.

Organizational capital is the fabric that surrounds employees, and its pattern matters. We compare the practices of each group of companies using McKinsey’s Organizational Health Index diagnostic and other firm-level metrics. P+P Winners have a distinctive signature characterized by consultative and challenging leadership styles; bottom-up innovation and collaboration; positive and inclusive work environments; and rewards and advancement opportunities for employees (Exhibit 2). Performance-Driven Companies have similar leadership styles but are more externally oriented to customers and competitors, with less emphasis on engaging their people through company-wide innovation, motivation, work environment, and on-the-job coaching. People-Focused Companies have many practices in common with P+P Winners (such as motivating employees and creating positive work environments), but they are less results-oriented, and they do not emphasize bottom-up innovation.

On average, companies spend about one-third of their revenue on human and organizational capital (which we measure by using the proxy of compensation for the former and adjusted selling, general, and administrative spending for the latter). This is a significant investment, and companies need to make it as productive as possible. P+P Winners achieve roughly 30 percent higher revenue growth than both Performance-Driven and People-Focused Companies for every dollar they invest in human and organizational capital. By contrast, Performance-Driven Companies generate higher return on R&D and sales and marketing investment—but they have the potential to boost their overall results even further by making their investments in people and workplace systems more effective.

Corporate leaders need a deeper focus on the nuances of organizational capital. Human capital is not merely a labor input; people are any company’s core asset. The workplace should work for employees, with coaching to help them develop, structures for support, and workflows that remove frustrations. Employees know what works on the front lines, and their voices and viewpoints should inform any redesign. Beyond improving the day-to-day experience for workers at every level, these principles can enhance competitiveness and adaptability in a fast-moving world.

In some cases, altering company-wide policies and systems could spur positive change. In others, it will take behavior change from leaders. While C-suite executives can articulate the vision and set the example, frontline and middle managers are key actors since they set the tone for individual teams, have greater visibility into what’s working, and can be the biggest influence on the employee experience.

Not every company will choose to follow the P+P Winner template. Some are singularly driven by financial results; focusing on people may not be in their DNA. Remaking organizational culture is a difficult, ongoing commitment that requires energy, self-reflection, and a willingness to change familiar patterns.

But companies that adopt a more people-oriented focus along with a more challenging and empowering organizational culture have a lot to gain. In addition to boosting financial returns, they can improve their consistency, resilience, talent retention, employee loyalty, and reputation—and these are the hallmarks of companies that thrive over the long term.

Want to know more about Performance through People?

Download the full report

Anu Madgavkar is a McKinsey Global Institute partner in New Jersey; Bill Schaninger is a McKinsey senior partner in the Philadelphia office; Dana Maor is a senior partner in the Tel Aviv office; Olivia White is an MGI director in San Francisco; Sven Smit , MGI’s chair, is based in Amsterdam; Hamid Samandari is a McKinsey senior partner in the New York office; Lola Woetzel is an MGI director in Shanghai; Davis Carlin is a McKinsey partner in New York; and Kanmani Chockalingam is an MGI fellow in Bengaluru.

This article was edited by Lisa Renaud, an MGI executive editor in Los Angeles.

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Essay on Human Capital | Economic Growth | Economics

Here is an essay on ‘Human Capital’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Human Capital’ especially written for school and college students.

Introduction to Human Capital :

Simon Kuznets (1955) argued that the main stock of an economically advanced country is not its physical capital but “the body of knowledge as tested from findings and discoveries of empirical science, and the capacity and training of its population to use this knowledge effectively.”

The contrast in economic growth between Japan and Germany on one hand and the Third World countries, on the other hand, in the post Second World War (1939-45) period illustrates the importance of labour quality. Although much of the physical capital in Germany and Japan was in ruins or depleted, their economies grew rapidly after the war, as the skill, experience, education, training, health, discipline and motivation of the existing labour force remained intact.

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Why is labour productivity higher in developed countries (DCs) such as Japan and Germany than in the LDCs? The key variable is formal education and training. The term ‘human’ refers to the stock of useful and valuable skills and knowledge accumu­lated by people in the process of their education and training. Doctors, lawyers and engineers invest in their formal education and on-the-job training. They spend large sum of money on wages foregone and often work long hours.

A major portion of the high salaries of these profes­sionals should be viewed as a return on their investment in human capital—a return on the education that makes these highly trained workers a very special type of labour.

In other words, human capital refers to the productive capacities of human beings as income producing agents in the economy. Capital is a stock which has value as a source of current and future flow of output and income.

Human capital is the stock of skills and productive knowledge embodied in people. The yield or return on human capital investment lies in enhancing a person’s skills and earning power, and in increasing the efficiency of economic decision-making—both within and without the market economy.

Three Points:

1. Education improves labour productivity by increasing workers’ ability to perform a task quickly and efficiently.

2. Education and human capital formation lead to technological progress.

3. Human capital can act as a substitute of natural capital. So growth of human capital implies a consumption of non-renewable natural resources.

No doubt investment in human capital is productive on average. Individuals who have quan­titative abilities or computer skills have an economic advantage in today’s labour market. Peo­ple with higher education start out with higher incomes and enjoy more rapid growth in income than do less educated groups. The World Development Report (2004) showed that higher PCI is strongly associated with lower mortality and higher school completion.

Often people refer to the role of luck in determining economic circumstances. But chances favour the prepared mind. In a world of rapidly changing technology, education enables a person to understand and profit from new circumstances. [In his permanent income hypothesis, Milton Friedman focussed on the development of a person’s skill and earning capacity over the life cycle and suggested that luck gives temporary income but human capital is a source of permanent income.]

Conservation :

According to environmentalists, output can be produced with either natural capital (K N ) or human capital (K H ). The isoquant in Fig. 1 shows the combination of inputs that will yield a given amount of output in the future (Q*), holding other inputs con­stant. This output can be produced at point C with a very little natural resource (energy) leaving much oil and gas and relatively little human capital for the fu­ture. Alternatively, it might be produced with huge natural resource.

This strategy is feasible if natural capital is abundant. At point B, society consumes stocks of natural capital today and builds up stocks of human capital and improves technology through R and D (i.e., research and development).

Point A indicates that we can produce future output level Q* with no oil and gas. With greater scientific and technical knowl­edge represented by point A, society can develop and introduce substitute technologies like coal or solar energy to replace the exhausted oil and gas.

Contribution of Human Capital to Economic Growth :

In a broad sense, labour inputs consist of workers and of the skills of the workforce. Many economists believe that the quality of labour inputs—the skills, knowledge and discipline of the labour force—is the single most important element in economic growth. A country might buy fast computers, modern telecommunication devices, sophisticated electricity generating equipment, and hypersonic fighter aircraft.

However, these capital goods can be efficiently used and maintained only by skilled and trained workers. Improvements in literacy, health and discipline, and, most recently, the ability to use computers, add greatly to the productivity of labour. India’s green revolution rate had achieved limited success since most farmers were illiterate and did not know how to use modern technology.

Policy Implications :

Perhaps the main policy area where human capital is important is in public provision of train­ing and manpower and development programmes for the poor. The logic of these policies rest on the proposition that a person’s income in a market economy reflects the quality of resources that the person controls and the value of these resources. People who are permanently poor have less skills than the non-poor. So, an attractive policy to help eliminate poverty is to give them more and better resources through education and training.

Signalling and Information :

Spence’s signalling hypothesis maintains that education has no direct effect on improving a per­son’s skills but rather serves as an informational device for identifying more and less talented people. Education serves as a signal of ability.

Since education and ability are highly correlated, higher education implies higher productivity and earnings. Since direct observation of a person’s ability and productivity is costly it is interesting to examine the direct effects of education on productivity (and not on income alone).

Much research has been made on educational production functions. Griliches reviews the issues at the aggregate level. However, the sharpest results have arisen in agriculture, a sector which has shown an enormous and sustained growth in productivity for at least five decades. The rate of return to education among farmers is substantial.

More educated farmers control larger resources in the form of larger farms. These farmers are also much more efficient in their techniques of production. Moreover, their education is used primarily to keep them informed of recent technological changes in agricultural produc­tion, which they adopt with greater frequency and with quicker response. No doubt, education makes farmers more efficient processors of new information.

New Growth Theory :

New growth economists such as Paul Romer stress external economies to capital accumulation that can permanently keep the marginal product of physical or human capital above the interest rate and prevent diminishing returns from causing stagnation.

Views of Schultz and Other Researchers :

In the 1950s, and 1960s economists developed considerable interest in understanding the na­ture and sources of economic growth and development. Detailed national income accounting showed that conventional aggregate output measures grew at a more rapid pace than aggregate measures of factor inputs.

Some researchers identified the-unexplained ‘residual’ with techni­cal change. Research associated with T. W. Schultz and Edward Denison attributed much of the measured residuals to improvements in factor inputs.

Schultz adopted an all-inclusive concept of human capital. At the heart of the concept lay secular improvements in worker’s skills based on education, training and literacy; but he also pointed to sources of progress in improved health and longevity, the reduction in child mortal­ity and greater resources devoted to children in the home, and the capacity of a more educated population to make more intelligent and efficient economic calculations.

No doubt human capital as well as physical capital can yield a stream of income over time: Schultz assumed that a society can invest in its citizens through expenditure, training, re­search and health—that enhances their productive capacity. Although there are direct returns to physical capital by itself, there are constant returns to all (human and physical) capital.

John Kendrick systematically pursued the empirical implications of these ideas and demon­strated that the rate of return on these inclusive human capital investments is of comparable magnitude to yields on non-human capital.

Conclusion :

For all these reasons, developing countries should not underestimate the importance of human resources. Most other factors can be bought in the international market place. Most labour is home-grown, although labour can sometimes be augmented through immigration.

The crucial role of skilled labour has been shown time and again when sophisticated mining, defence or manufacturing machineries fell into disrepair and disuse because the labour force of develop­ing countries had not acquired the necessary skills for its operation and maintenance.

Eco­nomic planners in the developing countries should improve education, reduce illiteracy and train workers. Educated people are more productive because they can use capital more effec­tively, adopt new technologies and learn from their mistakes.

For advanced learning in science, engineering, medicine and management, countries will benefit by sending their best minds abroad to bring back the newest advances. But countries must be aware of the ‘brain drain’ in which the most able people get drawn off to high-wage countries.

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