Publication: Economic Freedom, Human Rights, and the Returns to Human Capital : An Evaluation of the Schultz Hypothesis
Loading...
Published
2010-08-01
ISSN
Date
2012-03-19
Editor(s)
Abstract
According to T.W. Schultz, the returns to human capital are highest in economic environments experiencing unexpected price, productivity, and technology shocks that create "disequilibria." In such environments, the ability of firms and individuals to adapt their resource allocations to shocks becomes most valuable. In the case of negative shocks, government policies that mitigate the impact of the shock will also limit the returns to the skills of managing risk or adapting resources to changing market forces. In the case of positive shocks, government policies may restrict access to credit, labor, or financial markets in ways that limit reallocation of resources toward newly emerging profitable sectors. This paper tests the hypothesis that the returns to skills are highest in countries that allow individuals to respond to shocks. Using estimated returns to schooling and work experience from 122 household surveys in 86 developing countries, this paper demonstrates a strong positive correlation between the returns to human capital and economic freedom, an effect that is observed throughout the wage distribution. Economic freedom benefits those workers who have attained the most schooling as well as those who have accumulated the most work experience.
Link to Data Set
Citation
“King, Elizabeth M.; Montenegro, Claudio E.; Orazem, Peter F.. 2010. Economic Freedom, Human Rights, and the Returns to Human Capital : An Evaluation of the Schultz Hypothesis. Policy Research working paper ; no. WPS 5405. © World Bank. http://hdl.handle.net/10986/3890 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication Intergenerational Income Mobility around the World(Washington, DC: World Bank, 2025-07-09)This paper introduces a new global database with estimates of intergenerational income mobility for 87 countries, covering 84 percent of the world’s population. This marks a notable expansion of the cross-country evidence base on income mobility, particularly among low- and middle-income countries. The estimates indicate that the negative association between income mobility and inequality (known as the Great Gatsby Curve) continues to hold across this wider range of countries. The database also reveals a positive association between income mobility and national income per capita, suggesting that countries achieve higher levels of intergenerational mobility as they grow richer.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Higher Education Expansion and Firm Organization(Washington, DC: World Bank, 2025-09-17)This paper investigates the impact of higher education expansion on firm performance in developing countries. It focuses on the significant expansion of higher education in Brazil between 2000 and 2012, which substantially increased higher education enrollment and graduation rates, thereby reducing the costs of hiring college-educated workers. Building on the theory of knowledge-based hierarchies and using a difference-in-differences approach and matching techniques, the paper finds that the surge in skilled labor supply led to a rise in the proportion of college-educated workers within firms in the treated microregions. This increase was accompanied by an increased prob-ability of firms adding knowledge hierarchies, followed by a rise in productivity and an increased likelihood of export. The findings suggest that policies affecting the cost and accessibility of hiring professionals and managers can significantly influence firms’ organizational structures, with implications for firm performance and productivity.Publication The Exposure of Workers to Artificial Intelligence in Low- and Middle-Income Countries(Washington, DC: World Bank, 2025-02-05)Research on the labor market implications of artificial intelligence has focused principally on high-income countries. This paper analyzes this issue using microdata from a large set of low- and middle-income countries, applying a measure of potential artificial intelligence occupational exposure to a harmonized set of labor force surveys for 25 countries, covering a population of 3.5 billion people. The approach advances work by using harmonized microdata at the level of individual workers, which allows for a multivariate analysis of factors associated with exposure. Additionally, unlike earlier papers, the paper uses highly detailed (4 digit) occupation codes, which provide a more reliable mapping of artificial intelligence exposure to occupation. Results within countries, show that artificial intelligence exposure is higher for women, urban workers, and those with higher education. Exposure decreases by country income level, with high exposure for just 12 percent of workers in low-income countries and 15 percent of workers in lower-middle-income countries. Furthermore, lack of access to electricity limits effective exposure in low-income countries. These results suggest that for developing countries, and in particular low-income countries, the labor market impacts of artificial intelligence will be more limited than in high-income countries. While greater exposure to artificial intelligence indicates larger potential for future changes in certain occupations, it does not equate to job loss, as it could result in augmentation of worker productivity, automation of some tasks, or both.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Finance and inequality : Theory and evidence(2009-06-01)This paper critically reviews the literature on finance and inequality, highlighting substantive gaps in the literature. Finance plays a crucial role in most theories of persistent inequality. Unsurprisingly, therefore, economic theory provides a rich set of predictions concerning both the impact of finance on inequality and about the relevant mechanisms. Although subject to ample qualifications, the bulk of empirical research suggests that improvements in financial contracts, markets, and intermediaries expand economic opportunities and reduce inequality. Yet, there is a shortage of theoretical and empirical research on the potentially enormous impact of formal financial sector policies, such as bank regulations and securities law, on persistent inequality. Furthermore, there is no conceptual framework for considering the joint and endogenous evolution of finance, inequality, and economic growth.Publication Gender Aspects of the Trade and Poverty Nexus : A Macro-Micro Approach(Washington, DC: World Bank and Palgrave Macmillan, 2009)This report is on the findings of a major international research project examining the links between trade, gender, and poverty. Trade liberalization can create economic opportunities, but women and men cannot take advantage of these opportunities on an equal basis. Women and men differ in their endowments, control over resources, access to labor markets, and their roles within the household. It may seem obvious that gender differences play an important role in transmitting the effects of trade expansion to poverty, especially in less developed countries, where gender inequality is usually more pronounced. Although the literature includes numerous analyses on the links between trade and poverty and between gender inequality and poverty, it seems not to have combined these two sets of studies in a consistent empirical framework. The main objective for the research project documented in this book was to fill, at least in part, this gap in the literature. This report describes the simplest conceptual framework that can be used to analyze the linkages between trade and poverty through gender. It includes two parts. The first, based on standard international trade models, considers the linkages between trade and gender. The second, based mainly on the microeconomic models of household behavior, deals with the linkages between gender and poverty.Publication The Composition of Public Expenditure and Growth : A Small-Scale Intertemporal Model for Low-Income Countries(World Bank, Washington, DC, 2007-12)This paper presents a small-scale intertemporal model of endogenous growth that accounts for the composition of public expenditure and externalities associated with public capital. Government spending is disaggregated into various components, including maintenance, security, and investment in education, health, and core infrastructure. After studying its long-run properties, the model is calibrated for Haiti, using country-specific information as well as parameter estimates from the literature. A variety of policy experiments are then reported, including a reallocation of spending aimed at creating fiscal space to promote public investment; an improvement in fiscal management that leads to a reduction in tax collection costs; higher spending on security; and a composite fiscal package.Publication Migrant Labor Markets and the Welfare of Rural Households in the Developing World : Evidence From China(World Bank, Washington, DC, 2008-04)In this paper, the authors examine the impact of reductions in barriers to migration on the consumption of rural households in China. The authors find that increased migration from rural villages leads to significant increases in consumption per capita, and that this effect is stronger for poorer households within villages. Household income per capita and non-durable consumption per capita both increase with out-migration, and increase more for poorer households. The authors also establish a causal relationship between increased out-migration and investment in housing and durable goods assets, and these effects are also stronger for poorer households. The authors do not find robust evidence, however, to support a connection between increased migration and investment in productive activity. Instead, increased migration is associated with two significant changes for poorer households: increases both in the total labor supplied to productive activities and in the land per capita managed by the household. In examining the effect of migration, we pay considerable attention to developing and examining our identification strategy.Publication A Gender (R)evolution in the Making? Expanding Women's Economic Opportunities in Central America : A Decade in Review(Washington, DC, 2012-01)A Gender Revolution in the Making was produced by the World Bank as a special report on the dichotomy of the economic participation of women in Central America from 1997-2007. Central America made considerable progress during 1997-2006: stronger economic and political stability, overall positive albeit modest economic growth and improvements in socio-economic outcomes. Nonetheless, the panorama for women in the region, and in particular their ability to work and generate income is mixed. Labor force participation of women in Central America remained unchanged over the decade, with one in every two women of working age still not participating economically. This is lower than the rest of Latin America, a region with the lowest labor force participation in the world, although it has improved significantly in recent years. And yet, women in the region have made major advances in closing the gender earnings gaps and increasing their ability to earn income. Women's contribution to overall income generation in Central America rose significantly over the decade. This report aims to identify the factors behind these three trends. However, stagnant labor force participation rates for women contrasted with narrowing earnings gaps and a greater contribution to overall income apparent in Central America from 1997 to 2006.
Users also downloaded
Showing related downloaded files
Publication Lebanon Economic Monitor, Fall 2022(Washington, DC, 2022-11)The economy continues to contract, albeit at a somewhat slower pace. Public finances improved in 2021, but only because spending collapsed faster than revenue generation. Testament to the continued atrophy of Lebanon’s economy, the Lebanese Pound continues to depreciate sharply. The sharp deterioration in the currency continues to drive surging inflation, in triple digits since July 2020, impacting the poor and vulnerable the most. An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and much needed reforms; this includes prior actions as part of the April 2022 International Monetary Fund (IMF) staff-level agreement (SLA). Divergent views among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform agenda. Lebanon needs to urgently adopt a domestic, equitable, and comprehensive solution that is predicated on: (i) addressing upfront the balance sheet impairments, (ii) restoring liquidity, and (iii) adhering to sound global practices of bail-in solutions based on a hierarchy of creditors (starting with banks’ shareholders) that protects small depositors.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication The Journey Ahead(Washington, DC: World Bank, 2024-10-31)The Journey Ahead: Supporting Successful Migration in Europe and Central Asia provides an in-depth analysis of international migration in Europe and Central Asia (ECA) and the implications for policy making. By identifying challenges and opportunities associated with migration in the region, it aims to inform a more nuanced, evidencebased debate on the costs and benefits of cross-border mobility. Using data-driven insights and new analysis, the report shows that migration has been an engine of prosperity and has helped address some of ECA’s demographic and socioeconomic disparities. Yet, migration’s full economic potential remains untapped. The report identifies multiple barriers keeping migration from achieving its full potential. Crucially, it argues that policies in both origin and destination countries can help maximize the development impacts of migration and effectively manage the economic, social, and political costs. Drawing from a wide range of literature, country experiences, and novel analysis, The Journey Ahead presents actionable policy options to enhance the benefits of migration for destination and origin countries and migrants themselves. Some measures can be taken unilaterally by countries, whereas others require close bilateral or regional coordination. The recommendations are tailored to different types of migration— forced displacement as well as high-skilled and low-skilled economic migration—and from the perspectives of both sending and receiving countries. This report serves as a comprehensive resource for governments, development partners, and other stakeholders throughout Europe and Central Asia, where the richness and diversity of migration experiences provide valuable insights for policy makers in other regions of the world.