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Creating Jobs by Improving Human Capital

Mary Hallward-Driemeier's picture

Figuring out how to expand job creation is a priority for policy makers around the globe, not just in the short run but also in the longer run. A big reason why is that providing opportunities for people to earn more income is only part of the agenda. Expanding productivity also ensures the more efficient use of resources and enables growth. The question of how best to achieve these goals was discussed at the recent LACEA (Latin American and Caribbean Economic Association)–LAMES (Latin American Meeting of the Econometric Society) conference in Peru (Nov. 1–3). The JKP interviewed four prominent researchers, all of which made a strong, if somewhat different, case for the need to strengthen human capital, especially in Latin America.

Students in a technical education program supported by the World Bank in Antioquia, Colombia. Photo: © Charlotte Kesl / World Bank

Boosting learning incentives

William Maloney (World Bank) argues for the importance of tackling labor markets. But this needs to be understood in broad terms. At issue is much more than labor market regulations or other constraints to the ability to move resources to more productive activities. He says that what matters are the incentives individuals face to invest in themselves and their own skills or even take a risk in the labor market, along with the elements of the economic environment that are needed to stimulate accumulating more human capital. For Latin America, finding ways to speed up productivity growth is critical given the size of the labor productivity gap that has developed since 1990 vis-à-vis other regions (Figure 1).

Figure 1 Latin America's productivity gap is largest in services and industry

Source: Pagés, Carmen, ed., 2010, The Age of Productivity: Transforming Economies from the Bottom Up (New York: Palgrave MacMillan).

Improving social policies

For Santiago Levy (Inter-American Development Bank), the key to unlocking Latin America's economic potential lies in better social policies. One would be improving access to higher quality education — although enrollment in higher education has shot up in Latin America, it is still way behind that of not only advanced economies but also Europe and Central Asia (Figure 2). Other social policies would be providing early childhood interventions (such as nutrition programs) and social insurance programs (such as employment protections). The objective is to provide the incentive and ability for workers to improve their human capital as well as provide the incentives for firms to hire them.

Figure 2 Enrollment in higher education has risen dramatically, but unevenly across the regions

Source: World Development Indicators

Facilitating social interactions

Robert Lucas (University of Chicago) also emphasizes human capital—but not just what you learn in a textbook. He stresses that new ideas are rarely developed in isolation. There is a social dimension to learning. You learn through your interactions with colleagues around you, underscoring the need for places that bring people together to facilitate such social learning. Promoting urbanization should be a part of this. Cities bring people together to build on each other’s ideas.

Importing knowledge

Finally, Nancy Stokey (University of Chicago) places the emphasis on "importing growth." Her point is that technological improvements are often embedded in new physical capital (such as machinery and equipment), and although the potential for specific capital goods to contribute to productivity may vary by country, this potential is very real. Given that the relative prices of these goods have been falling, developing countries now have a greater opportunity to import more of them. But to really take advantage of this improved access, she says, human capital must increase too. That means investing in skills that complement the technological improvements in capital goods—such as having engineers that can use the more sophisticated machine tools in production processes or IT specialists that can program new software on ever more powerful computers. And, of course, it also means adopting open trade policies to facilitate those imports.​

This post was first published on the Jobs Knowledge Platform.

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