Lecture

Notes Education and Health to Build Human Capital:

Education and health are considered the most important factors for development of human
capital. The key ingredients of building human capital are as follows, among others:

• The role of education and health in building human capital

• The reinforcing mechanism (cause and effect relationship) between education and health.
• Child labor and the gender gap.
• Educational systems and human development.
• Healthcare systems and economic equality
• Policy options for the government in improving education and health.

Out of the above key topics, the most important element for discussion is the complementary
relationship between education and health. The Gruber’s textbook on child labor and the gender
gap in health and education present data and several approaches to dealing with these two issues.

The section on educational systems and development includes the determinants of the demand
and supply of education places, and the distinction between the private and social benefits and
costs of investment in education.
• The demand for education is determined by the expected income benefits and direct and
indirect costs of schooling, while the supply of school places (at all levels) is determined by
the political process,
and is often unrelated to economic criteria. In most developing countries, expected income
gains from additional years of education are high because modern sector employers, including
the government, select by educational attainment irrespective of actual work requirements.
• The concepts of social and private costs and returns to education are explained. Two graphs
illustrate how the private and social costs and benefits change as years of schooling increase.
The expected private return increases at an increasing rate while the private cost increases
much more slowly, indicating that from an individual’s viewpoint it is optimal to secure as
much schooling as possible. In contrast, the social returns increase sharply at first and then
taper off while the social costs increase at an increasing rate, indicating that there is an optimal
quantity of schooling, at the point where the marginal social costs and benefits are equal. The
text suggests that Govt. resources are being misallocated by providing too much schooling. It is
also suggested that it might be better for the government to invest in higher quality, rather than
higher quantity, education (Todaro and Smith, 2015, Ch. 8).

Several conclusions are drawn with respect to the relationship between education, society, and
development (Todaro and Smith, 2015).
• Distribution of education: Not only the quantity of education is important. More important is
its quality and how it is distributed amongst the population.
• Education, inequality, and poverty: The education system can increase inequality if the poor
lack access to education and/or the rich are disproportionately represented in secondary and
university schooling. A poor person’s rate of return to investment in education may be lower
than a rich person’s.
• Education, internal migration, and the brain drain: The more educated tend to migrate out of
the rural areas, and sometimes out of the country.
• Education of women, fertility, and child health: There is an inverse relationship between the
education of women and family size.

The concepts of the social and private costs and returns to education can provide some interesting
areas to discuss. The idea that the optimal choice occurs where marginal cost is equal to marginal
benefit can be reinforced, as can the concept of opportunity cost as it relates to the allocation of
scarce public resources.
• As you know, it can be useful to spend some time discussing the difference between private
and social costs and benefits, as well as how they can be measured. Some of these concepts
are discussed in the section on the demand for schooling.
• It can be useful to discuss policy options for increasing the private costs of education and/or
reducing the expected private returns to education. Discuss how the graphs change in each
case and reasons why governments may want to change these.
• Several references provide interesting supplemental material on empirical studies of rates of
return to investment and the idea of the quality of education versus the quantity of education.

Many experts on human capital area belief that an emphasis on higher education will spur
development stems, in part, from an observed correlation between world education levels and per
capita income. However, income and higher education attainment are mutually reinforcing in the
developed countries where the demand for higher education follows from development, which is
itself caused more by expanded basic education. The same confused cause-and-effect story line
holds for agriculture versus industry development, urbanization, etc.

The subject matter of this session, education and health, is one of the most fundamental in
development and one most closely tied to current events. It lends itself very easily to illustration
with examples from nonacademic publications. Of course, the tremendous interest in the media
on HIV/AIDS goes without saying, and in the course of the semester, readers can find many
stories to illustrate policies to combat this pandemic. Combating malaria has also been widely
discussed recently, with the Gates Foundation taking an active role, to provide just one example.
The role of education, especially higher, is also a subject frequently covered by the press,
especially when, as a recent story from Chile shows, efforts to introduce fees at universities are
met with strong, sometimes violent, protests from students. Students in this course will find that
referring to such current interest stories is rewarding, not only by focusing on the lectures
materials, but also by raising your own awareness of different approaches to health and education
in both domestic economy and around the world.