This note summarizes some of the key contributions in the macro- and micro- economic literature on the pathways linking human capital and income growth.
... See More + Rather than completeness, the objective of this work is to distill some of the most relevant threads in the evolution of these literatures using a human capital lens, with a view to provide a useful yet parsimonious conceptual framework and an update on empirical results. The note first describes the human capital model (section 1). It then outlines the main theoretical elements of growth theory and presents empirical results from the cross-country regressions and development accounting literature to gauge to what extent human capital affects growth at the aggregate level (sections 2, 3 and 4). The note then reviews the micro empirical literature estimating labor income returns of human capital investments (sections 5 and 6). The conclusion draws comparisons between the two empirical approaches and provides a brief critical assessment on how to interpret the empirical results. Investing in human capital is a promising strategy to attain stable and positive growth. The magnitude of the effects is country-specific and varies depending on the population of interest, the policy under consideration, and the human capital component considered.
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Policy Research Working Paper WPS8309 JAN 19, 2018
Many Roma are among the poorest and most vulnerable Europeans, facing poverty, exclusion, and discrimination. In European Union member countries in Central and Eastern Europe (CEE) with substantial Roma populations, inequalities between Roma and non-Roma start early and are striking.
... See More + Some of these inequalities reflect hard-wired family circumstances. For example, a Roma child is much more likely to grow up in a household at the very bottom of the income distribution, or have parents with little or no education. Other inequalities reflect limited opportunities such as access to basic goods and services (e.g., quality education and adequate living conditions), which are necessary not only for realizing one's potential in life, but also for living with dignity. This book focuses on identifying pathways to promote fair chances for disadvantaged Roma in CEE countries. Investing early, by promoting good nutrition, cognitive child development, and access to quality education is a policy with recognized high returns, especially for disadvantaged children.
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Publication 102804 FEB 06, 2016
Gatti,Roberta V.; Karacsony,Sandor I.; Anan,Kosuke; Ferre,Celine; De Paz Nieves,CarmenDisclosed
This paper analyzes the legal and actual gaps in working conditions and returns between permanent and temporary contracts, with a focus on civil law contracts, which are at the center of the debate on widening labor market duality in Poland.
... See More + We find that net employment creation in recent years occurred largely through involuntary temporary contracts, especially among the low-skilled and young people. Even accounting for workers heterogeneity, we find a persistent wage gap between permanent and temporary contracts, and limited mobility across contract typologies. Insights from qualitative evidence suggest that narrowing duality without hurting the most vulnerable workers will require a reduction in administrative burdens and implicit costs associated with permanent labor contracts, while eliminating firms’ incentives to strictly prefer temporary contracts.
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Economic growth has been sustained for many years pre-crisis in the region, but this has not resulted in the creation of an adequate number of jobs and has succeeded, at best, in generating low-quality, informal jobs.
... See More + The report addresses one margin of exclusion: informal employment and the vulnerabilities and lack of opportunities associated with it. The report analyzes the constraints that prevent informal workers from becoming formal and discusses policy options to effectively address these constraints. This report looks at informality through a human development angle and focuses particularly on informal employment. Informality is a complex phenomenon, comprising unpaid workers and workers without social security or health insurance coverage, small or micro-firms that operate outside the regulatory framework and large registered firms that may partially evade corporate taxes and social security contributions. The first section provides a detailed profile of informal workers in the region. The second section describes the characteristics of informality in micro-firms that operate outside the regulatory framework and in larger firms that do not fully comply with social security contribution requirements and tax obligations. The third section presents informality and the firm. The fourth section focuses on informality: choice or exclusion? The fifth section discusses policy options for effectively expanding coverage of health insurance and pension systems and promoting the creation of better quality jobs.
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Publication 90271 AUG 26, 2014
Gatti, Roberta; Angel-Urdinola, Diego F.; Silva, Joana; Bodor, AndrasDisclosed
Jobs are crucial for individual well-being. They provide a livelihood and, equally important, a sense of dignity. They are also crucial for collective well-being and economic growth.
... See More + However, the rules and incentives that govern labor markets in Middle East and North Africa (MENA) countries have led to in efficient and inequitable outcomes, both individually and collectively. Several underlying distortions prevent a more productive use of human capital and have led to a widespread sense of unfairness and exclusion, of which the Arab Spring was a powerful expression. The Middle East and North Africa has a large reservoir of untapped human resources, with the world's highest unemployment rate among youth and the lowest participation of females in the labor force. Desirable jobs, defined as high paying or formal jobs, are few, and private employment is overwhelmingly of low added value. Overall, the region's labor markets can be characterized as being in efficient, inequitable, and locked in low productivity equilibrium.
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This overview first describes the magnitude of the informality phenomenon in the Middle East and North Africa (MENA) region vis-a-vis other regions of the world and, to the extent possible, its evolution over time and macroeconomic determinants.
... See More + Section two provides a detailed profile of informal workers in the region. Section three describes the characteristics of informality in micro-firms that operate outside the regulatory framework and in larger firms that do not fully comply with social security contribution requirements and tax obligations. Section four discusses earnings, job mobility patterns, attitudes, and workers' self-rated job satisfaction to provide a better understanding of the quality of jobs in the informal sector. The evidence corroborates that important segmentations exist between formal and informal jobs, and that much of the observed informality is likely due to barriers to mobility into better jobs; in some countries, these barriers are linked to the prominent role of the public sector as the main employer. Finally, section five discusses policy options for effectively expanding coverage of health insurance or pension systems and promoting the creation of better quality jobs.
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Working Paper 67590 SEP 01, 2011
Gatti, Roberta; Angel-Urdinola, Diego F.; Silva, Joana; Bodor, AndrasDisclosed
Increased labor mobility bears large potential benefits for human development and poverty reduction through various channels including more competitive global labor markets and increased efficiency in the matching of skills supply and demand.
... See More + Bank support for enhanced and better managed migration can complement broader efforts to reduce poverty and promote human development, similarly to how Bank projects on trade liberalization have helped in reducing market distortions and raise welfare. With Middle East and North Africa (MENA) countries becoming increasingly eager to adopt a proactive approach to improve migration outcomes, cross-sectoral Bank teams are well positioned to respond to increasing demand for migration management systems. Labor mobility has proven to be a forceful driver of convergence in living standards. Estimates suggest that gains from the liberalization of migration could surpass welfare gains from trade liberalization. Currently, migration represents the main form of global and regional integration for MENA countries. In the future, increased labor mobility could foster regional economic integration, a recognized priority within the Arab World Initiative (AWI).
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In the last century most countries have experienced both an increase in pension spending and a decline in fertility. The authors argue that the interplay of pension generosity and development of capital markets is crucial to understand fertility decisions.
... See More + Since children have traditionally represented for parents a form of retirement saving, particularly in economies with limited or non-existent capital markets, an exogenous increase of pension spending provides a saving technology alternative to children, thus relaxing financial (saving) constraints and reducing fertility. The authors build a simple two-period overlapping generations (OLG) model to show that an increase in pensions is associated with a larger decrease in fertility in countries in which individuals have less access to financial markets. Cross-country regression analysis supports result: an interaction between various measures of pension generosity and a proxy for the development of financial markets consistently enters the regressions positively and significantly, suggesting that in economies with limited financial markets, children represent a way for parents to save for old age, and that increases in pensions amount effectively to relaxing these constraints.
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Working Paper (Numbered Series) 47101 DEC 01, 2008
This paper exploits a unique longitudinal data set from Tanzania to examine the consequences of child labor on education, employment choices, and marital status over a 10-year horizon.
... See More + Shocks to crop production and rainfall are used as instrumental variables for child labor. For boys, the findings show that a one-standard-deviation (5.7 hour) increase in child labor leads 10 years later to a loss of approximately one year of schooling and to a substantial increase in the likelihood of farming and of marrying at a younger age. Strikingly, there are no significant effects on education for girls, but there is a significant increase in the likelihood of marrying young. The findings also show that crop shocks lead to an increase in agricultural work for boys and instead lead to an increase in chore hours for girls. The results are consistent with education being a lower priority for girls and/or with chores causing less disruption for education than agricultural work. The increased chore hours could also account for the results on marriage for girls.
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Policy Research Working Paper WPS4677 JUL 01, 2008
The authors use firm-level, cross-county data from Investment Climate surveys in 49 developing countries to investigate an important channel through which informality can affect productivity: access to credit and external finance.
... See More + Informality is measured as self-reported lack of tax compliance in a sample of registered firms that also answered questions on a large set of other characteristics. The authors find that more tax compliance is significantly associated with more access to credit both in OLS and in country fixed effects estimates. In particular, the link between credit and formality is stronger in high-formality countries. This suggests that firms' balance sheets are relatively more informative for financial institutions in environments where signal extraction is a less noisy process. The authors' results are robust to the inclusion of a wide array of correlates and to two-stage estimation.
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Policy Research Working Paper WPS4476 JAN 01, 2008
Although it is widely accepted that financial development is associated with higher growth, the evidence on the channels through which credit affects growth on the micro-level is scant.
... See More + Using data from a cross section of Bulgarian firms, the authors estimate the impact of access to credit (as proxied by indicators of whether firms have access to a credit or overdraft facility) on productivity. To overcome potential omitted variable bias of OLS estimates, they use information on firms' past growth to instrument for access to credit. The authors find credit to be positively and strongly associated with total factor productivity. These results are robust to a wide range of robustness checks.
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Policy Research Working Paper WPS3921 MAY 01, 2006
Although there is extensive literature on the determinants of child labor and many initiatives aimed at combating it, there is limited evidence on the consequences of child labor on socioeconomic outcomes such as education, wages, and health.
... See More + The authors evaluate the causal effect of child labor participation on these outcomes using panel data from Vietnam and an instrumental variables strategy. Five years subsequent to the child labor experience, they find significant negative effects on school participation and educational attainment, but also find substantially higher earnings for those (young) adults who worked as children. The authors find no significant effects on health. Over a longer horizon, they estimate that from age 30 onward the forgone earnings attributable to lost schooling exceed any earnings gain associated with child labor and that the net present discounted value of child labor is positive for discount rates of 11.5 percent or higher. The authors show that child labor is prevalent among households likely to have higher borrowing costs, that are farther from schools, and whose adult members experienced negative returns to their own education. This evidence suggests that reducing child labor will require facilitating access to credit and will also require households to be forward looking.
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Policy Research Working Paper WPS3479 JAN 01, 2005
Using individual-level data for 35 countries, the authors investigate the microeconomic determinants of attitudes toward corruption. They find women, employed, less wealthy, and older individuals to be more averse to corruption.
... See More + The authors also provide evidence that social effects play an important role in determining individual attitudes toward corruption, as these are robustly and significantly associated with the average level of tolerance of corruption in the region. This finding lends empirical support to theoretical models where corruption emerges in multiple equilibria and suggests that "big-push" policies might be particularly effective in combating corruption.
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Policy Research Working Paper WPS3122 AUG 01, 2003
Roberta Gatti; Stefano Paternostro; Jamele Rigolini
Although a growing theoretical literature points to credit constraints as an important source of inefficiently high child labor, little work has been done to assess its empirical relevance.
... See More + Using panel data from Tanzania, the authors find that households respond to transitory income shocks by increasing child labor, but that the extent to which child labor is used as a buffer is lower when households have access to credit. These findings contribute to the empirical literature on the permanent income hypothesis by showing that credit-constrained households actively use child labor to smooth their income. Moreover, they highlight a potentially important determinant of child labor and, as a result, a mechanism that can be used to tackle it.
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Policy Research Working Paper WPS3075 MAY 30, 2003
Dehejia, Rajeev H.; Beegle, Kathleen; Gatti, Roberta
Even though access to credit is central to child labor theoretically, little work has been done to assess its importance empirically. Dehejia and Gatti examine the link between access to credit and child labor at a cross-country level.
... See More + The authors measure child labor as a country aggregate, and proxy credit constraints by the level of financial market development. These two variables display a strong negative (unconditional) relationship. The authors show that even after they control for a wide range of variables-including GDP per capita, urbanization, initial child labor, schooling, fertility, legal institutions, inequality, and openness-this relationship remains strong and statistically significant. Moreover, they find that, in the absence of developed financial markets, households resort to child labor to cope with income variability. This evidence suggests that policies aimed at increasing households' access to credit could be effective in reducing child labor.
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Policy Research Working Paper WPS2767 JAN 31, 2002
The author builds on the altruistic model of the family, to explore the strategic interaction between altruistic parents, and selfish children, when children's efforts are endogenous.
... See More + If there is uncertainty about the amount of income the children will realize, and if parents have imperfect information, the children have an incentive to exert little effort, and to rely on their parent's altruistically motivated transfers. Because of this, parents face a tradeoff between the insurance that bequests implicitly provide their children, and the disincentive to work prompted by their altruism. The author shows that if parents can credibly commit to a pattern of transfers, they will choose not to compensate children in bad outcomes, as much as predicted by the standard (no uncertainty, no asymmetric information) dynastic model of the family. Alternatively, parents may choose to forgo any insurance, and offer a fixed level of bequest, to elicit greater effort from their children. The optimal transfers structure that the author derives, reconciles the predictions of the altruistic family model, with much of the existing evidence on inter-generational transfers, which suggests that parents compensate only partially, or not at all, for earnings differentials among their children. Moreover, the author shows that Ricardian equivalence holds in this setup, except when non-negativity constraints are binding.
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Policy Research Working Paper WPS2505 DEC 31, 2000
The relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design.
... See More + The theoretical literature makes ambiguous predictions about this relationship, and it has remained virtually unexamined by empiricists. The authors make a first attempt at examining the issue empirically, by looking at the cross-country relationship between fiscal decentralization and corruption as measured by a number of different indices. Their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption. Moreover, they find that the origin of a country's legal system - for example, civil versus common legal code - performs extremely well as an instrument for decentralization. The estimated relationship between decentralization, when so instrumented, and corruption is even stronger. The evidence suggests a number of interesting areas for future work, including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction, and understanding the channels through which decentralization succeeds in keeping corruption in check.
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Policy Research Working Paper WPS2290 FEB 29, 2000
By explicitly accounting for the interaction between importers and corrupt customs officials, the author argues that setting trade tariff rates at a uniform level, limits public official's ability to extract bribes from importers.
... See More + If the government's main objective is to raise revenues at the minimum cost to welfare, optimally-set tariff rates will be inversely proportional to the elasticity of demand for imports. So they will generally differ across goods. Such a menu of tariff rates endows customs officials with the opportunity to extract rent from importers. If officials have enough discretionary power, they might threaten to misclassify goods into more heavily taxed categories unless importers pay them a bribe. Because of the bribe, the effective tariff rate for the importing firm increases, so demand for the good decreases. The resulting drop in import demand implies an efficiency loss as well as lower government revenues, compared with the optimal taxation benchmark without corruption. A similar argument applies when customs officials offer to classify goods into low-tariff categories in exchange for a bribe. Setting trade tariffs at a uniform level eliminates officials' opportunities to extract rents. Thus, when corruption is pervasive, a uniform tariff can deliver more government revenues and welfare than the optimally set (Ramsey) tariff benchmark. The empirical evidence confirms that these considerations are relevant to policymaking, since a robust association between the standard deviation of trade tariffs - a measure of the diversification of tariff menus - and corruption emerges across countries.
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Policy Research Working Paper WPS2216 NOV 30, 1999
Numerous behavioral studies have found women to be more trust-worthy and public-spirited than men. These results suggest that women should be particularly effective in promoting honest government.
... See More + Consistent with this hypothesis, we find that the greater the representation of women in parliament, the lower the level of corruption. We find this association in a large cross-section of countries; the result is robust to a wide range of specifications.
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Working Paper (Numbered Series) 20776 OCT 31, 1999
The relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design.
... See More + The theoretical literature makes ambiguous predictions about this relationship, and it has remained virtually unexamined by empiricists. In this paper, the authors make a first attempt at examining this issue empirically, by looking at the cross-country relationship between fiscal decentralization and corruption as measured by a number of different indices. The author's estimates suggest a strong negative relationship between fiscal decentralization in government expenditure and corruption. The paper finds that legal origin performs extremely well as an instrument for decentralization. When instrumenting in this way, the estimated relationship between decentralization and corruption is even stronger.
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