FEM 4204Modal Insan

Topic 5:HUMAN CAPITAL:

INVESTING IN ONESELF AND ONE’S FAMILY

REFERENCES

• Begg, D., Fischer, S., and Dornbusch, R. (1987) Economics, McGraw Hill

• Bryant, W. K (1990) The Economic Organization of the Household, Cambridge Univ Press

• Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka

OUTLIN

E• Introduction• Human capital and the labor market

– The rate of return for formal education• Human Capital Theory• Signaling Theory

• Human capital as a household activity– Study time, part time and academic

performance– Expectation and the sex typing of human

capital investment– Health as a human capital investment– Human capital, marriage and divorce

Introduction

• Recall: Types of investment in family members:– Formal schooling– OJT and experience – will be discussed in HKI

by firms• Take time out from one’s market job or in

household activity in order to learn how to do it better

– Health• i.e spending time and money in maintaining and

augmenting one’s health – e.g aerobic class, dental check ups, gd nutritions

– Migration -- in search of better job or different lifestyle• One forsake the opportunity in one location in

order to exploit those in another– Having children and raising them in certain

ways• Provide economic security in old age

Human Capital and the Labor Mkt• A major reason of HKI through

schooling – To augment their income in the future

and so to increase their total wealth• Recall the Human capital Theory

– After choosing what kind of investment • Physical capital (e.g. a new car) vs.

financial capital (e.g. stocks, bonds) vs. human capital

– If formal schooling initially has the higher rate of return, one will maximize his/her wealth by continuing to invest in schooling until the rate of return on schooling has been driven down to the market rate of interest

The Rate of Return on Education• It’s the interest rate that equates the

cost of the investment with the present value of the stream of future benefits from the investment

• An illustration to explain the rate of return to the investment (i.e. the internal rate of return)

• Why the rate of return to schooling will decline with each added yr of school

1. MC increases• The opportunity cost, E0 increases because the

wage rate employers are prepared to pay increases with education

2. MB decreases• Each additional yr of schooling reduces the

remaining yrs during which an indiv works , shortening the expected streams of benefits of added schooling and reducing the MB

3. Law of Diminishing Marginal Productivity• As the no of additional schooling rise, the rate of

return to additional education falls (i.e. increasing at a decreasing rate)

Signaling/Screening

Theory• An alternative theory of investment in

education• Says:

– It could be rational to invest in costly education even if education adds nothing directly to a worker’s marginal product

• Assumes:– People are born with different innate ability –

i.e. some are good at most things, others are less smart and on average less productive • BUT how can we tell which is which?

• Suppose higher education contributes nothing to productivity. Before making this costly investment how can school leavers be assured that their future earning will offset the initial cost?

• Signaling theory says:– In going on education, smart people are

sending a signal to employer that they are highly productive (prospective) employee

– Higher education is screening out the smart high productivity workers

• In short:– Signaling theory says that education is

used as a signal/screening that the person is productive• i.e. formal education don’t teach you

anything but signaling that you are productive

• Thus, to be effective, the screening process must indeed separate the high-ability workers from the others

• But, why don’t lower-ability workers go to university and fool firms into offering them high wages?

1. They do not expect to pass2. They may feel that in order to scrape through

they will have to work enormously and unpleasantly hard

• Since most people know their own ability, firms may take it on trust that people who have stuck it out till their final year at university believe themselves to be at the higher end of the ability range

Human Capital as a HH Activity• Recall the division of time:

– Mkt work vs. hh prod vs. leisure– The decision of time allocation is based on,

• The real wage rate that the employer wld be willing to pay

• Individual productivity in the hh production• Individual relative preference for leisure vs good (i.e.

purchased vs homemade)– In SR, individual have no control over real

wage rate and productivity in the hh production

– In LR, individual considerably control their productivity and hence income trough devoting time and resource to human capital formation

• Actually time allocation consisted of 4 activities– Market work; HH production;

Leisure AND– Human capital formation – why?

1. Human capital is a separate HH activity when it takes place via formal schooling

2. Human capital formation occurs in mkt work when the investment takes the form of mkt work experience

3. HKI also takes place in the in conjunction with HH prod when the formation takes the form of hh prod experience

Expectation & sex typing of HKI• Generalization of MB ≥ MC

– MB -- Is actually the contemplated MB of HKI

• Sex typing of HKI– HKI occur when individuals expectation

or those of their parents, about their future activities depend upon gender

• HKI sex typing – HH Prod– What is the expectation?– Consequently:

• training related to household chores– Check:

• Participation of boys and girls in household chores

• Time allocation and division of labor in the HH between men and women

Health as a HKI• Decision to invest in one’s health –

MB ≥ MC• What make health different fr other

type of HKI?– Increase yr of schooling will not

increase one’s expected life span, but investing in health will

– Learning-by-doing will not prevent sickness from reducing the number of days of activities per year, proper nutrition and other preventive health measure will

Topic 6:HUMAN CAPITAL: THE FIRM

REFERENCES

• Begg, D., Fischer, S., and Dornbusch, R. (1987) Economics, McGraw Hill

• Bryant, W. K (1990) The Economic Organization of the Household, Cambridge Univ Press

• Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka

OUTLINE• Introduction

– Firm and Household: The circular flow– Human Resource Management vs. Human

Resource Manager– Human Resource Management Function

• Developing Human Resources– The reasons– The methods

• Experience as a Form of Human Capital– General vs. specific training

• Application of Human Capital and OJT Theories– Labor mobility

Introduction

• The circular flow

FIRMAISIRUMAH

PASARAN OUTPUT

PASARAN INPUTLABOR LABOR

Human Resource Mgt (HRM)

• Def: The utilization of HR to achieve organizational obj

• Thus, mgr at all level concern themselves with HRM

• Basically thru the effort of others mgrs get things done which require effective HRM

• E.g. mktg mgr works thru sales rep to sell the firm’s product

Human Resource Mgr• Def: Indiv who

normally acts in an advisory or staff capacity, working with other mgrs to help them deal with HR matters

• i.e. primarily responsible for coordinating the mgt of HR to help the org. achieve its goal

• E.g. someone resign in mkt dept, mktg mgr call HR mgr to look for potential candidate

• Human Resource Mgt Functions:

1. HR Planning, Recruitment and Selection

2. Human Resource Development3. Compensation and Benefits4. Safety and Health5. Employee and labor Relations6. Human Resource Research

Developing Human

Resources/Capital• Def: HRD is a planned, continuous effort

by mgt to improve employee competency level and organizational performance through training and development program

• Training: To permit learners to acquire knowledge and skills needed for their present jobs

• Development: Involves learning that looks beyond today and today’s job ~ it has more long term focus

• Why training and dev are needed/impt:

1. People, jobs and organization are always changing

– Changes in orgn ~ mergers, acquisitions, rapid growth, downsizing

– Changes in technology and the way people work resulting largely from IT and ICT

– Changes in human resources – a diverse workforce consisting of many groups

Thus, developing HR is crucial to prepare employees to keep pace with the organization as it changes and grow and help them adapt to rapid environmental changes.

2. Continuous improvement in processes is mandatory for the firm to remain competitive

– Training ~ to improve the quality of product and services and productivity

– To prevent obsolesces of skills at all level

3. A need to improve human relations within the firms through HRD as jobs grows increasingly complex and impersonal

Experience as a Form of HKI

• Thus, besides education, experience can augment one’s HK

• That’s why earning rise with age to late middle age or beyond and then flatten out or decline to retirement

Income

age

Topic 7:HUMAN CAPITAL ISSUES: INCOME

DISTRIBUTION

REFERENCES

• Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka

• Jenkins, S (1991). The measurement of income inequality. In L. Osberg (Ed.), Economic Inequality and Poverty: International Perspectives (pp. 3-38). New York, NY.: M. E. Sharpe Inc

OUTLINE• Introduction

– Factors influencing income differentials

• Income Distribution– What does it mean?– Measuring Income Distribution

• Income distribution in Malaysia

Introduction

• Compensation (perolehan)~ cash (i.e. pay) or in-kind benefit obtained through one’s involvement in the market– (Money) Pay: E.g. salary/wages, bonus and

other cash allowances– In-kind Benefits: E.g. company’s car and

medical insurance• Income ~ (depending on is definition) is a

broader concept which may include:– Compensation or earned income– Unearned income such as rental, dividend

and interest – Transfer such as government welfare,

zakat and money received from children

• The distribution of compensation is very important in analyzing the distribution of income in certain country. WHY?–More than 60% of incomes are in

the form of compensation (Kusnet and DaVanzo, 1980)

–Thus, income distribution is very much influenced by the distribution of compensation

Income Distributions

• The objective: to analyze how the economic wealth of the nation is shared among its population– i.e to assess the economic inequality in

certain country/place– “A measure of how much access to and control

over economic resources one has over others across the population” (Jenkins, 1991)

– The proxy used is income because:1.One of society’s economic resources2.Measure one’s potential economic power

• But, the main concern of such analysis is NOT to determine how income differs BUT, the inequality of welfare among populations

• The Measurement1.Mean/median income2.Min vs Max 3.Theil Indeks – within & between groups4.Lorenz Curve5.Gini Coefficient

Topic 8:HUMAN CAPITAL : ISSUES AND

CHALLENGES

REFERENCES

• Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka

• Rahmat Hidayat Sabari (2005) Pembangunan Insan dari Sudut Fizikal dan Mental [WWW Document] http://www.irunding.com/modules/forum/viewtopic.php?p=166&sid

• Aon Consulting Forum ( 2005). Feb. 2005 www.aon.com/about/publications

• Oshim, Harry T. ( 1986). Human resources in macro- comparative productivity trends in Asia.

OUTLIN

E• Human Development from Islamic

perspective– IQ and ESQ

• Outsourcing the Human Capital• Brain Drain

Human Development: An Islamic Perspectives

• Development in Islam – A process which involve improvement, changes and advancement in human life in line with the Islamic teachings

• Should balanced between physical, mental and spiritual development– To avoid having good physical infra

but rampant social problems– Thus, human development molded by

Islamic teachings is vital

• Human development ~ defined as efforts in developing physical and mental strength until one’s develop noble personalities such having faith in Allah, patience, honest etc

• Characteristics of Human development in Islam– Comprehensive

• Encompasses of the overall daily activities of man as Islam is a way of life

• Balanced– Balanced development of IQ, ESQ to

avoid negative implication• Multi dimensional

– Covers both human and spiritual aspects • E.g. self development program such as

motivational camps should not neglect prayers when it is time to pray

• Brought about changes– Improvement in both quality of

life (self) and faith• Fully utilizes the Quran and

sunnah – Human development should be based

n the two main sources of Islamic teachings: Quran and Sunnah

– Quran and Sunnah provides the guiding principles in human development e.g. courage, tolerances, creativity, and pursuing the permissible (halal) earning

• Objective of Human Dev in Islam– Increase the level of faith

• Faith is the core to Muslim personality because without strong faith, live as a Muslim is meaningless – Mukhsin vs sinner (e.g. thief,

murderers)

– Developing the human resources• To develop a pool of ‘players’ in the

development through educational system• Balanced IQ and ESQ to avoid problems

such as corruptions etc• Everybody should play their role: teachers,

parents, govt – Improve the quality of life.

• Quality of life in all aspects ~ i.e. morally, economically, socially, politically etc

Outsourcing the Human Capital

• DEF: Human resource (HR) outsourcing involves subcontracting some of the human resource functions and duties to another company.

• Outsourcing allows the business to focus on its core competencies without the other aspects of business suffering from lack of time or attention. With this arrangement, the company can achieve its business goals as their partner is helping build their team.

Brain Drain

What is brain drain?

Brain drain was noticed as early as the 1960’s; its not a recent phenomena.

As globalization speeds on, people, goods and services are moving across borders in large numbers.

Exodus of human capital, international mobility or flow of brain power (Nunn,2005)

Brain drain is the potential loss of national talent, an issue that has been associated with increased mobility of students and scholars.

The term ‘brain drain’ has caused a lot of debate in recent years with some people preferring to call it ‘brain exchange’ or ‘brain circulation’.

Brain drain has financial, institutional and societal costs.

Developing countries continue to loose most of their highly skilled labor to the developed nations. This has been due to various push and pull factors.

There are both pull and push factors that cause brain drain.

A. PULL FACTORS -- Attract skilled labour into their country.

B. PUSH FACTORS -- Unfavorable conditions that cause one to want to leave their motherland.

Graphical representation

REFERENCES

Carrington J. William and Detragiache Enrica (1999). Finance and Development. A Quarterly magazine of the IMF.June 1999, vol. 36 no.2. www.imf.org/external/pubs

Nunn Alex (2005). The ‘brain drain’ Academic and skilled migration to the UK .

www.leedsnet.ac.uk/ibs/pri http://www.milkeninstitute.org/pdf/braindrain.pdf www.sciedev.net/dossier/index.cfm

Selamat Berjaya