First, child workers are often employed in rural agriculture and therefore not exposed to trade. Second, sanctions may only serve to aggravate the child labor situation because they ignore one of the root causes, poverty. If interventions do not go hand in hand with education programs and family income support, they are likely to fail. Indeed, in.
Barriers to enforcement of interventions are another complicating factor. Basu , p. Thus, the promoted policy interventions have focused on providing education. Investments that affect adult literacy and education also affect child labor. Ray examines the role of parents in child labor decisions, comparing data from Pakistan and Peru. In Pakistan, household poverty results in reduced schooling for children, especially girls. In Peru, however, poverty does not reduce schooling.
The data also reveal differences in child labor hours in response to adult wages in each country. Child labor hours for girls are reduced significantly as adult male wages increase in Peru; rising adult female wages have a large and significantly positive effect on labor hours for girls in Pakistan.
In sum, the research and policy interventions discussed above that are designed to help eliminate child labor link human capital issues with the child labor standard. Experts, including those from the ILO, recognize that compliance with child labor legislation cannot be effectively enforced if measures do not take account of human capital investments.
Therefore, the long-term solution to the causes of child labor must include investment in. The social effects of such investment are described below. Education is also a tool of emancipation and the key to achieving wide political and social rights, including more representative government, the eradication of child labor, and basic trade union rights.
Education makes this possible by empowering people and by creating the skills needed to assess and monitor government actions. It also creates the demand to be heard. In the first stage, the effect of education measured by the secondary education enrollment rate is estimated on the degree of democratization represented by the Freedom House Index of Civil Liberties. The author then estimates the effect of education on the level of observance of human rights. Human rights, measured by the Freedom House index, include freedom of assembly and free trade unions.
The results show that the direct effects of education on the expansion of human rights are positive but not strong. However, the results also reveal that progress of human rights, including free trade unions, is also dependent on democratization and economic growth, which in turn are associated with prior secondary education.
This indicates existence of significant social-benefit externalities from education. McMahon also shows empirically the critical importance of education in improving other dimensions important to the quality of life, such as good health, reduction in poverty and inequality, improvements in political stability, a sustainable environment of forests, wildlife, air, and water, and less violent crime see also Behrman and Stacey, , on the social benefits of education.
Marshall further describes the importance of freedom of association and the right to collective bargaining to human capital formation. Unions and other associations are learning processes, through which individuals develop leadership and entrepreneurial skills and learn the value of cooperation and trust through democratic processes. They can counteract income inequalities that impede human capital formation. Collective bargaining and labor-management cooperation are learning processes facilitated by information sharing.
Marshall cites joint apprentice training programs as an example of how labor and management can cooperatively overcome problems that the parties could not solve independently. Meehan describes worker training programs sponsored by the U. USAID views trade unions as incubators for democracy and provides education and training to promote labor rights.
An economic literacy program in Brazil, for example, educates workers about basic economic theory through practical application. This program helps workers understand the economic consequences of negotiating for higher wages, striking, and lobbying the government regarding its position in international organizations. Thus, workers are better informed about their rights and the choices they make. Management training is a mechanism to overcome two causes of noncompliance with labor standards, ignorance and incompetence.
Schrage argues that managers are often ignorant of labor law and of labor standards that exist, or should exist, in their home market or supply chains and ill-equipped to implement steps toward compliance because of incompetent management systems and poor education National Research Council, The ILO provides training to managers about core labor standards through its collaborative work with the U.
Two elements of the training include making the business and moral case for stan-. In the business case, trainers discuss the link between good labor practices and improved productivity. This module includes showcasing practices from the ILO field offices to demonstrate successful initiatives. Urminsky notes that the module addresses the general lack of knowledge about workers rights in practice National Research Council, For example, the ILO training team finds that managers rarely think about discrimination in terms other than gender.
In their experience, managers are not aware of ethnic or political discrimination. The problem-based training helps managers work through real-life situations to resolve, for example, anti-union discrimination. In order to ensure sustainability, the ILO builds training capacity within employer groups and industry associations in a train-the-trainer approach.
This type of training addresses the ignorance and incompetence described by Schrage that lead to noncompliance. Another key stakeholder group is the government ministry in charge of labor inspection. Schrage explains that government officials have to have a much better sense of training and education to know how national laws interact with management practices National Research Council, This interaction can help managers develop appropriate systems for compliance with international core labor standards.
Von Richthofen characterizes labor inspectorates as organizations that are often poorly performing, stagnant, and staffed by officials who lack a clear purpose or motivation. He argues that training is the single most important tool in building a more efficient and effective organization through improved performance. He writes:. Training is the instrument of choice to bring about change in an organization.
It is the main management strategy used to transfer knowledge, develop skills, change attitudes, and impart a set of organizational and societal values Von Richthofen, , pp. He argues that the wrong kind of training is probably worse than no training at all. Low-performing inspection systems tend. High-performing systems, on the other hand, tend to make considerable investment in training that operates under a well-organized and regularly reviewed policy.
The critical importance of human capital investment for observance of labor standards requires an assessment of educational attainment to identify the main weaknesses in the education system and suggest steps to improve it. To help make such an assessment, the committee proposes a framework of human capital measures in four broad groups: children and youth, adults, allocation of public resources, and awareness of rights.
Unlike previous chapters, these data are not direct measures of compliance with core labor standards. Rather, they are presented as complementary factors to the indicators of compliance discussed in previous chapters, to provide socioeconomic contextual information, recognizing that the linkages between human capital and labor standards compliance can go in both directions.
The population of young people in a country represents its future labor force. The degree to which a country invests in the human capital of its youth affects national development and the economy, as described above. The child labor trap perpetuates the cycle of children with no skills becoming low-wage earning adults who go on to send their young children into full-time work. Human capital investment is a key component in breaking this cycle of poverty and illiteracy.
To assess the degree to which a country is investing in human capital of youth, the committee proposes five measures. In addition, measures of compliance regarding the abolition of child. Definitions and data sources in the database draw on work by the Organisation for Economic Co-operation and Development a , the World Bank , and the United Nations Educational, Scientific and Cultural Organization Net enrollment, at the primary and secondary levels, by gender and ethnicity: This measure of the percentage of the relevant age group attending primary and secondary schooling demonstrates the extent to which children are in school.
The distribution by gender and ethnicity provides information about the differences between boys and girls and different ethnic groups in educational opportunities and investment, which partly relates to the nondiscrimination standard.
Gross enrollment ratio at the primary level: This is the total number of students enrolled at the primary level of education, regardless of age, expressed as a percentage of the population corresponding to the official school age of primary education in a given country.
This ratio may be higher than percent because total enrollment includes students above and below the primary school age, as well as repeaters. Participation and completion rates of higher education: Participation rates in tertiary education are a measure of high-level skills and knowledge acquisition.
These measures relate to the development and maintenance of a highly skilled labor force. Adults represent the existing labor force population in a country. To measure the degree to which a country is investing in the human capital of adults, the committee proposes three measures.
Participation in continuing education and training: This measure shows the extent of skills maintenance and upgrading for the workforce. Educational attainment: This measure is the percentage of the adult population by highest level of education completed through secondary school in total and by gender and ethnicity. It provides a quantitative measure about the amount of schooling a population receives and is the most commonly used proxy to measure human capital.
Illiteracy rates: This measure is a proxy for the performance of the national education system. This measure also provides information about the human resource capacity within a country in relation to their potential for growth and contribution to development and quality of life.
The emphasis here is on the public budgetary resources because information about private resources in the education sector is not available in most countries. The committee proposes three measures. Public expenditure on education relative to GDP: This measure serves as a point of reference for the volume of educational spending in relation to size of national wealth.
Public expenditure on education relative to total budgetary expenditure: This measure serves as a proxy for the extent to which countries value education relative to other sectors. Public educational expenditure per student: This measures the resources devoted to prepare each student for life and work and serves as another proxy for quality of education. With respect to freedom of association, for example, workers who are aware of protections under national legislation to form unions and bargain collectively will be more likely to act on those rights.
To what extent does education and training, then, impact on compliance? Important indicators to consider, as described in previous chapters, include the extent to which governments promote education programs or campaigns related to freedom of association, forced labor, equality, and child labor. Although evidence exists to substantiate the linkages between human capital investment and labor standards compliance, the limited amount of empirical research linking the two warrants attention.
The committee has been asked to suggest a research agenda as part of its charge in exploring human capital. Based on its review of the literature and discussions with experts in development and labor economics, human capital, and labor standards compliance see also National Research Council, , the committee proposes three areas for future research: the mutually beneficial linkages between human capital and labor standards, human capital indicators, and evaluation of best practices. This chapter has provided a preliminary analysis of the links between human capital investment and labor standards compliance, focusing primarily on the investment in education and training to improve labor standards compliance.
Further analysis is needed from the policy and research perspectives at the micro and macro level. Additional analysis is also needed to explore the linkage in the opposite direction. An analysis of how compliance with core labor standards promotes human capital enhancement would be useful in furthering an understanding of the linkage. What economic incentives exist to invest in labor standards as a form of human capital investment?
A comprehensive analysis of human capital policy should account for the full range of institutions that produce it—families, schools, and firms Carneiro and Heckman, This research and policy agenda must then consider policies that affect human capital formation through various institutions as it relates to labor standards. Of particular relevance would be examining the complexities of providing universal primary education in developing countries with limited resources, improving the quality of education and training, and increasing access to education and training.
However, these. Educational attainment is a common measure of the quantity of education received but it does not take into account the skills developed through nonformal education and experiential learning Organisation for Economic Co-operation and Development, b. Quality of education clearly matters in skills development.
To better understand how cognitive skills and knowledge affect economic performance and labor standards, better measures of quality are needed. Indicators such as class size are limited because of the lack of analysis of cultural context. Unfortunately, participation by developing countries has been limited, and these are the countries of most concern in terms of labor standards compliance. The social capital research offers proxy measures related to freedom of association that are useful in theory but require survey data that is culturally relevant.
It is also imperative to build capacity within developing countries to collect reliable data on indicators of human capital investment. Such capacity is especially important with respect to the measurement of postschool investments in human capital, such as employer-provided training. The measurement of the amount, duration, and costs of adult training is an important omission in the availability of data on investment in human capital.
Although there are some data available on the amount of public expenditures on training, private expenditure for education and training is unevenly covered, and in some countries the coverage is extremely poor. It is therefore difficult to arrive at a picture of how much total expenditure is devoted to different levels of education or training, not to mention the relationship between investment and outcomes for different actors.
If current human capital measures and empirical studies capture only a limited range of human capital investments, the risk is that the policy debate will focus exclusively on those more easily and perhaps inaccurately measured human capital indicators. This may result, for example, in underinvestment in postschool training simply because the data to evaluate the returns to those types of investments are not readily available.
Expanding the information set available to policy makers on human capital indica-. Evidence presented in this chapter indicates that education and training programs raise the level of human capital, with positive effects on labor conditions. The question remains regarding the effectiveness of such programs. However, child labor and school enrollment are not completely incompatible in Latin America.
Children work and go to school, but the evidence shows negative effects of child labor on school progression and quality of education National Research Council, Measuring the effect is critical to ensuring effective policies and strengthening programs; additional work is needed to develop better performance indicators, particularly with respect to nonformal education programs. Most policy makers would agree that education is important: The issue in developing countries is funding initiatives that are most effective, given limited resources.
How would policy makers evaluate the expenditures and benefits of nonformal education as an alternative? How would businesses conduct cost-benefit analyses of worker training programs? And the question of who pays remains to be addressed. Basu, K. Child labor: Cause, consequence, and cure, with remarks on international labor standards. Journal of Economic Literature , 37 , Behrman, J. Caveat emptor: Cross-country data on education and the labor force.
Journal of Development Economics , 44 , American Economic Review , 92 1 , The social benefits of education. Ann Arbor: University of Michigan Press. Benhabib, J. The role of human capital in economic development: Evidence from aggregate cross-country data. Journal of Monetary Economics , 34 2 , Betcherman, G. Placing core labor standards in the development context. Washington, DC. Carneiro, P. Human capital policy. Revised August Human capital inequality and economic growth: Some new evidence.
The Economic Journal , , CC Elliott, K. Can labor standards improve under globalization? Fields, G. Development Discussion Paper No. Grootaert, C. The policy analysis of child labor: A comparative study. Washington, DC: World Bank. Hanushek, E. The long run importance of school quality. Schooling, labor force quality, and the growth of nations. American Economic Review , 90 5 , Krueger, A. Education for growth: Why and for whom? Kucera, D. Core labour standards and foreign direct investment.
International Labour Review , , Marshall, R. Conceptualization of the link between labor standards and human capital. McMahon, W. Education and development: Measuring the social benefits. Mingat, A. Human Capital Development Working Paper Moran, T. Beyond sweatshops: Foreign direct investment and globalization in developing countries. National Research Council. Methodological advances in cross-national surveys of educational achievement. Board on International Comparative Studies in Education.
Porter and A. Gamoran Eds. Monitoring international labor standards: Human capital investment, Summary of a workshop. Monica Ulewicz Ed. Nelson, R. Investment in humans, technological diffusion, and economic growth. American Economic Review , 56 , Okogwu, G. Labour standards across countries with different levels of development.
Sengenberger and D. Campbell Eds. Geneva: International Labour Office. The surplus labour in these countries is the human resource available in more abundance than the tangible capital resource. This human resource can be transformed into human capital with effective inputs of education, health and moral values.
The transformation of raw human resource into highly productive human resource with these inputs is the process of human capital formation. The problem of scarcity of tangible capital in the labour surplus countries can be resolved by accelerating the rate of human capital formation with both private and public investment in education and health sectors of their national economies. The tangible financial capital is an effective instrument of promoting economic growth of the nation.
The intangible human capital, on the other hand, is an instrument of promoting comprehensive development of the nation because human capital is directly related to human development, and when there is human development, the qualitative and quantitative progress of the nation is inevitable. The United Nations publishes the Human Development Report  on human development in different nations with the objective of evaluating the rate of human capital formation in these nations.
The life expectancy index reveals the standard of health of the population in the country; the education index reveals the educational standard and the literacy ratio of the population; and the income index reveals the standard of living of the population. If all these indices have a rising trend over a long period of time, it is reflected in a rising trend in HDI.
Human capital is measured by health, education and quality of standard of living. HDI is indicator of positive correlation between human capital formation and economic development. If HDI increases, there is a higher rate of human capital formation in response to a higher standard of education and health. Similarly, if HDI increases, per capita income of the nation also increases.
Implicitly, HDI reveals that the higher is human capital formation due to good levels of health and education, the higher is the per capita income of the nation. This process of human development is the strong foundation of a continuous process of economic development of the nation for a long period of time. This significance of the concept of human capital in generating long-term economic development of the nation cannot be neglected.
It is expected that the macroeconomic policies of all the nations are focused towards promotion of human development and subsequently economic development. Human capital is the backbone of human development and economic development in every nation. Mahroum suggested that at the macro-level, human capital management is about three key capacities: the capacity to develop talent, the capacity to deploy talent, and the capacity to draw talent from elsewhere.
Collectively, these three capacities form the backbone of any country's human capital competitiveness. Recent U. Human capital is an intangible asset , and it is not owned by the firm that employs it and is generally not fungible. Specifically, individuals arrive at 9am and leave at 5pm in the conventional office model taking most of their knowledge and relationships with them. Despite the lack of formal ownership, firms can and do gain from high levels of training, in part because it creates a corporate culture or vocabulary teams use to create cohesion.
In recent economic writings the concept of firm-specific human capital , which includes those social relationships, individual instincts, and instructional details that are of value within one firm but not in general , appears by way of explaining some labour mobility issues and such phenomena as golden handcuffs. Workers can be more valuable where they are simply for having acquired this knowledge, these skills and these instincts.
Accordingly, the firm gains for their unwillingness to leave and market talents elsewhere. In some way, the idea of "human capital" is similar to Karl Marx 's concept of labor power : he thought in capitalism workers sold their labor power in order to receive income wages and salaries. But long before Mincer or Becker wrote, Marx pointed to "two disagreeably frustrating facts" with theories that equate wages or salaries with the interest on human capital.
An employer must be receiving a profit from his operations, so that workers must be producing what Marx under the labor theory of value perceived as surplus-value , i. The term appears in Marx's article in the New-York Daily Tribune "The Emancipation Question," January 17 and 22, , although there the term is used to describe humans who act like a capital to the producers, rather than in the modern sense of "knowledge capital" endowed to or acquired by humans.
Neo-Marxist economists such as Bowles have argued that education leads to higher wages not by increasing human capital, but rather by making workers more compliant and reliable in a corporate environment. When human capital is assessed by activity based costing via time allocations it becomes possible to assess human capital risk. Human capital risks can be identified if HR processes in organizations are studied in detail. Human capital risk occurs when the organization operates below attainable operational excellence levels.
For example, if a firm could reasonably reduce errors and rework the Process component of human capital from 10, hours per annum to 2, hours with attainable technology, the difference of 8, hours is human capital risk.
When wage costs are applied to this difference the 8, hours it becomes possible to financially value human capital risk within an organizational perspective. In corporate finance , human capital is one of the three primary components of intellectual capital which, in addition to tangible assets, comprise the entire value of a company.
Human capital is the value that the employees of a business provide through the application of skills, know-how and expertise. Human capital is inherent in people and cannot be owned by an organization. Therefore, human capital leaves an organization when people leave. Human capital also encompasses how effectively an organization uses its people resources as measured by creativity and innovation.
A company's reputation as an employer affects the human capital it draws. Some labor economists have criticized the Chicago-school theory, claiming that it tries to explain all differences in wages and salaries in terms of human capital. One of the leading alternatives, advanced by Michael Spence and Joseph Stiglitz , is "signaling theory". According to signaling theory, education does not lead to increased human capital, but rather acts as a mechanism by which workers with superior innate abilities can signal those abilities to prospective employers and so gain above average wages.
The concept of human capital can be infinitely elastic, including unmeasurable variables such as personal character or connections with insiders via family or fraternity. This theory has had a significant share of study in the field proving that wages can be higher for employees on aspects other than human capital. Some variables that have been identified in the literature of the past few decades include, gender and nativity wage differentials, discrimination in the work place, and socioeconomic status.
The prestige of a credential may be as important as the knowledge gained in determining the value of an education. This points to the existence of market imperfections such as non-competing groups and labor-market segmentation. In segmented labor markets, the "return on human capital" differs between comparably skilled labor-market groups or segments. An example of this is discrimination against minority or female employees. Following Becker, the human capital literature often distinguishes between "specific" and "general" human capital.
Specific human capital refers to skills or knowledge that is useful only to a single employer or industry, whereas general human capital such as literacy is useful to all employers. Economists view firm-specific human capital as risky, since firm closure or industry decline leads to skills that cannot be transferred the evidence on the quantitative importance of firm specific capital is unresolved.
Human capital is central to debates about welfare , education , health care , and retirement. In , "human capital" German : Humankapital was named the German Un-Word of the Year by a jury of linguistic scholars, who considered the term inappropriate and inhumane, as individuals would be degraded and their abilities classified according to economically relevant quantities.
The UN suggests "Human development denotes both the process of widening people's choices and improving their well-being". These theories are concerned with human beings as inputs to increasing production". From Wikipedia, the free encyclopedia. This article possibly contains original research. Please improve it by verifying the claims made and adding inline citations.
Statements consisting only of original research should be removed. November Learn how and when to remove this template message. For the films, see Human Capital film and Human Capital film. Economics concept involving knowledge, skills, and training. Index Outline Category. History Branches Classification.
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Other Knowledge 4. Productive Wages Increases IV. Investment in Human Capital: Rates of Return 1. Rates of Return from College Education 1. Variation in Rates of Return VI. Underinvestment in College Education? Private Money Gains 2. Social Productivity Gains 3.
Age, Earnings, Wealth, and Human Capital 1. Age-Earnings Profiles 2. Age-Wealth Profiles IX. Summary and Conclusions 1. Summary 2. Future Research 3. Becker and Nigel Tomes 1. Assets and Consumption 4. Fertility and Marriage 5. Empirical Studies 6.
Summary and Discussion References XI. Becker and Kevin M. Murphy 1. Division of Labor among Tasks 3. Coordination Costs 4. Knowledge and Specialization 5. Extent of the Market 6. The Growth in Specialization and Knowledge 7. Becker, Kevin M. Murphy, and Robert Tamura 1.
Basic Properties of the Model 3. Fertility and Growth 4. Comparative Advantage in the Production of Human Capital 5. Discussion 6. Concluding Remarks References Appendixes A. Sources and Methods 1. Incomes a. Looking at it in a macro view, training and development should be able to improve not just the performance of a group of people, but enable the business unit to become a well-oiled machine that would operate more efficiently.
Training and development aim to address skill gaps that hinder processes from running smoothly. Yet, skill gaps remain a difficulty in almost every organization. In fact, Hardie reported that skill gaps are on the rise.
Human capital is a term popularized by American economist Gary Becker, referring to the collective skills, knowledge, and other intangible assets of individuals that can be tapped to create economic values for themselves, their employers, or their community. Most if not all businesses thrive on the collective talents of each and every one of their employees. Gone are the days that companies just go about their business without being in touch with the true potential of what their employees can achieve if they were equipped with better skills.
The way business is conducted has changed rapidly in the last 50 years. The CIPD Technical Report reveals how companies are now moving towards investing in their own intangible abilities, instead of their physical assets that frankly can be bought and sold with little effort.
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The Elasticity of Substitution 6. Basic Facts About Labor Supply. Rates of Return from College. Becker and Kevin M. Policy Application: School Construction in. Equilibrium across Labor Markets 3. The Growth in Specialization and. Policy Application: The Immigration Surplus. Social Productivity Gains 3. Equilibrium in a Single Labor.Chapter 9 introduces students to the concept of human capital and treats in detail education and training investments. The chapter begins with a section on the. CHAPTER 9. Investments in Human Capital: Education and Training. Many labor supply choices require a substantial initial investment on the part of the worker. Chapter 9. Investments in Human Capital: Education and Training. ▫ Summary. The purpose of Chapter 8 was to provide a framework for thinking about the role.