Education (human resources) sector in Nepal

As evidenced by the increasing enrollment rates among Nepali people, the supply of education among those entering the workforce has been increasing since 1991. A push for universal primary education has drastically increased enrollment in primary and secondary education.

Not only primary and secondary enrollment, net tertiary enrollment is also increase and is at its highest level. Since there is a free flow of labor between India and Nepal, any discrepancy in demand for and supply of labor in the market is compensated by importing labor from India. At present, 15% of the labor market demand in the skilled sectors is fulfilled by importing human resources from India, according to the ILO.

Despite being low, the quality of human resource is also improving in recent years. The labor productivity is consistently increasing in the domestic market and any shortfall in human resource is substituted by importing human resource from the Indian labor market.

Nepal’s youth and adult literacy ratio has satisfactorily improved since 1991. Though Nepal’s literacy rate is still slightly below the regional and LIC average, it is improving and the trend is encouraging.

Public spending on education (% of GDP) is satisfactory and is increasing in recent years. Based on income per capita and the size of the economy, Nepal’s expenditure on education is not that different from other low income countries. In fact, looking at the per capita income of regional counterparts like India, Bangladesh, and Pakistan, Nepal’s spending is pretty impressive.

Finally, the return to investment in education is low in Nepal. This is indicative of the fact that the economy is not suffering from a shortage of human resources because if it were so, then the wage rate of the existing employees should have been high. The shadow price of a binding constraint should be high and rising; if supply of skilled workers is binding, then firms would be offering them increasingly higher wages. This seems not to be the case in Nepal.

Source: Adapted from Patrinos & Psacharopoulos[1], 2002

These data and analysis are difficult to reconcile with a hypothesis that the provision of education (human resource) is a binding constraint on Nepal’s economic growth.

Note that I am not saying education (lack of human resources) is not a constraint on growth in the Nepali economy. As is seen above, it is definitely a strong constraint. However, I don’t think it is as binding a constraint as bad infrastructure is. Here is my take on bad infrastructure as the most binding constraint on economic activity in Nepal. I have expanded on it a lot and will post the whole stuff later on. So far, I have discussed these constraints: taxes, coordination failures, and a discussion of the evolution of the exports sector. Discussion on other constraints to follow soon.

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[1] Data correspond to studies done in the year indicated in the table. Dilip Parajuli from the World Bank did the study on returns to investment in education for Nepal in 1999. Latest data available are used. Readers should be cautious in interpreting these data for comparative purposes because some of the data for countries correspond to the state of education sector two decades ago.

Who gets hit the most by slow growth and recession?

This one pager argues that the working poor (the bottom 20th percentile in the income distribution) are hit less intensely than regular workers. Why? Because “wages at the bottom of the distribution are already so low that there is little room for further cuts”. Moreover, a large portion of the poor workers do part-time work, which is a desired over full-time workers by employers in order to put down pressure on payroll.

Zepeda, Alarcon, Soares, and Osorio look at the effect of recession and slow growth on the working poor. They study slow growth in Chile (2000-2003) and Mexico (2000-2004), and recession in Mexico (1994-1996) and its effect on the working poor. In a country where most of the working poor are engaged on agricultural sector and do part-time work to earn an extra income, this feature is kind of expected.

Is this a matter of relief or comfort? Well, not really! The paper does not say that poor do not get hurt; what it says is that the working poor are affected less intensely than full-time wage earners. The working poor might loose income marginally but the fact is that this marginal loss in income means a lot to their share of household income and the corresponding consumption budget. Also, it is generally agreed that poor people have the highest marginal propensity to consume. Social protection, cushioning the loss in marginal income, and social safety are necessary to not only help the poor but also to stimulate local economy.

… that periods of slow growth and recession in Mexico and Chile improved the poor’s relative income. That their labour income does not fall as much as others’ during crises may offer comfort, but even a small decline can exact a heavy toll. Safety nets and emergency assistance help protect minimum consumption levels, but policies to confront economic crises should not be mere mitigation strategies. They should include interventions to strengthen human capacity and improve the poor’s main asset: labour.

In a related IPC working paper the authors look at the changes in labor markets and the dynamics of inequality and poverty in Brazil, Chile, and Mexico. One interesting finding is that the earning per worker is a function of slow-moving changes in the structure of employment and the characteristics of workers and rapid changes in the prices of labor for specific workers. The structure of employment is affected by demographic changes, education, and structural transformation in employment from agricultural labor.

Demographic changes, better education and the decline of agricultural labour are among the most significant changes in the structure of employment, and they contribute to observed changes in earnings. Among the most important changes in prices contributing to the change in earnings are changes in the returns to formal and informal employees relative to the self-employed; changes to full-time employment relative to part-time workers; changes in the returns to urban workers relative to rural workers; and change in the earnings of workers in services relative to workers in agriculture. In general, changes in earnings frequently favoured low-earning workers, mostly because of the change in the returns for their labour. This is in contrast to the changes in the structure of employment, which tended to favour high-earning workers.

Geithner and Keynes

US Treasury Secretary Timothy Geithner echoes Keynes in an article published in the WSJ:

Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.

The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses. Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets.

When financial institutions come to us for direct financial assistance, our government has a responsibility to ensure these funds are deployed to expand the flow of credit to the economy, not to enrich executives or shareholders.

Irrationality and clean indoor air!

Behavioral economist Dan Ariely studies the bugs in our moral code: the hidden reasons we think it's OK to cheat or steal (sometimes). Clever studies help make his point that we're predictably irrational -- and can be influenced in ways we can't grasp.

Researcher Kamal Meattle shows how an arrangement of three common houseplants, used in specific spots in a home or office building, can result in measurably cleaner indoor air.

Protectionism? Nah, too dangerous!

Here is Catherine Ashton, European Commissioner for Trade, making a case for keeping open markets and not resorting to protectionism despite the fallout of the current global financial crisis. She makes a case for quick passage of the Doha Round by arguing that even if tariffs were raised to the level allowed under WTO, global income could reduce by at least half a trillion dollars.

To truly deliver on those commitments made at the G-20, we need to turn the rhetoric into the reality and complete the Doha round of  world trade talks. This agreement would add hundreds of billions of dollars to the world economy every year and allow the developing world to continue to lift its citizens out of poverty through the dignity of their own labor and the genius of their own ideas. Doha is also, too, our insurance policy against protectionism. Recent studies show that if tariffs were raised to levels still allowed under the current World Trade Organization’s ceilings, global income could be reduced by at least half a trillion dollars. That’s a large chunk of the financial fiscal stimulus gone.

And if the Doha round is concluded, it’s certainly not just others that will gain, as some have already claimed. U.S. exports to key markets in Europe, Asia, Latin America will grow, in some cases at double-digit rates. The U.S. trade deficit is expected  to improve and U.S. GDP would increase. But let me make a  point about the impact on jobs. Our analysis shows that Doha will modestly improve real wages in all sectors of the United States economy for both skilled and unskilled workers and that the net effect of the round will be job creating.

The loss in welfare is on average; it has to be seen in perspective and one should not hasten to a conclusion that there will be a huge loss in welfare. Of course, there will be loss in welfare (arising from higher deadweight loss) and increasing tariffs above the existing levels would be terrible, both in terms of growth and employment. But, if we break up the dividends of the full Doha Round, it seems that the poorer countries would get the least of the benefit pie. The most going to China, Brazil and South Africa. In fact, Sandra Polaski’s general equilibrium model of global trade flows under different scenarios shows that the total gains from trade would be between $32-55 billion, with rich nations getting $30 billion; middle income countries like China, Brazil and SA getting $20 billion; and poor countries getting $5 billion (about $2 per head). So, argument for not raising tariff from existing levels makes sense. But, without looking at the spread of benefits out of the Doha round, it does not make sense to argue for its quick passage. Let the Doha Round be rewritten for what it was first perceived to be- a development round. Putting development argument first before tariff and protectionism arguments would give a clearer picture (that includes the argument for policy space, not necessarily tariffs).

Meanwhile, Becker and Murphy put inputs on the ongoing chorus (among rightists) against growing government spending (despite the desperate need for stimulus, which the markets can’t do own its own right now!). Honestly, they cherry-pick their arguments from a narrow base and make a case against government spending and try to over glorify markets.

As governments continue to determine how many restrictions to place on markets, especially financial markets, the destruction of wealth from the recession should be placed in the context of the enormous creation of wealth and improved well-being during the past three decades. Financial and other reforms must not risk destroying the source of these gains in prosperity.

Therefore, in devising reforms that aim to reduce the likelihood of future severe contractions, the accomplishments of capitalism should be appreciated. Governments should not so hamper markets that they are prevented from bringing rapid growth to the poor economies of Africa, Asia and elsewhere that have had limited participation in the global economy.

Most interventions, including random policies, by their very nature would hurt rather than help, in large part by adding to the uncertainty and risk that are already so prominent during this contraction. Government reactions have demonstrated the danger that interventions designed to help can exacerbate the problem. Even though we had well-qualified policymakers, we have gone from error to error since August 2007.

Oops, despite growth, poverty reduction remains stagnant in Africa (more people actually fell below the poverty line in SSA after the experimentation with SAPs and Washington Consensus). Inequality has also increased. Regulations succumbed to lobbyists’ petty interests (in reference to the failure to regulate investment banks and their shady securities that were priced far less than the risk they posed).That being said, the rise in global income is definitely due to the wonders of market mechanism. However, with this comes the responsibility to take care of the leftovers, those who perpetually remain at the lowest strata of income and social opportunities. Moreover, some lose and some gain by following the price signal and participating in the market. It is the government’s responsibility to take care of those who are left behind by the market, which itself is either reluctant to help or ignorant of those squeezed hard by its process. Always worth to read Krugman’s response on these sort of issues.

Also here is Jack Schwager writing in the FT:

Taken as a whole, Republicans seem to be following a new economic doctrine of deficit spending during bubble economies and deficit restraint in collapsing economies. This could be termed as “Bizarro Keynesianism” – in the Bizarro World, a creation of the Superman comic book series, everything is the opposite of what it is in our world.

The demise of CCTs in Nicaragua

This one pager published the IPC looks at why a popular Conditional Cash Transfers (CCT) program in Nicaragua, Red de Proteccion Social (RPS), was put to death bed despite initial success in education and health sectors.

In the CCT program, funds were channeled to female households in exchange for commitment to send children to school and administer regular medical check-ups at local health centers. This had positive impact on school enrollment and other education indicators and reduced stunting by 5 percentage points. Despite these successes, the program was discontinued by the Nicaraguan government in 2006, thus marking the demise of a successful 6 years of CCTs.

The end of the Nicaraguan experience with RPS is disappointing
in light of the programme’s achievements, but it provides relevant lessons to policymakers working with CCTs, particularly those receiving external funding. Even if a programme is deemed successful to the international community, domestic constituents must still approve of it. The support of both the non-beneficiary populace and government officials is important. Key domestic officials may change over time, and support cannot be provided solely by a few officials who may not remain in their positions. Frequent communication of a programme’s purposes, policies and results is important to gaining and maintaining support. Without steady domestic approval, even an excellent programme may lose support and eventually be discontinued. With such support, the programme is more likely to continue to function, improve and enjoy greater backing and influence.

Here is my earlier blog post on the need for CCTs during the financial crisis. And, here is a review of CCTs in Latin America and Sub-Saharan Africa.

How green are human rights?

There was an event held at my college yesterday. It was about the how human rights are connected with environment sustainability. There were three panelist- three professors from Mexico, Britain, and Cameroon.

I found this quote, by Professor Bruce (from UEA), interesting:

It is our human rights to use water. However, our choice/decision to use water affects the usage by others. Imports and waste of water, while exercising human rights in one part of the world, is in a sense exports of water (potential stream) from other part of the world. Hence, the very daily choices arising from exercise of human rights is not independent of how individuals use water for daily purposes.