Human Capital Development and Labour Market Outcomes in Africa: Evidence from Sub-Saharan African Countries

Abstract

The abilities and qualities of labour that influence productivity include higher education, on-the-job training and health. Investment in these improves the abilities of the labour force to innovate and adopt new technologies. Thus, policy dimensions towards building human capital make the difference between inclusive growth and jobless economic growth that leaves large segments of the society behind. However, Sub-Saharan African (SSA) countries are bedeviled by poor performance of their labour markets mostly characterized by rising rate of unemployment, low labour productivity, among others. This study examines the effect of human capital development on labour market outcomes in Sub Saharan African countries while capturing labour market outcomes with labour productivity. Given that education, health and life expectancy are integrals of human capital investments and often viewed as factors determining a country's labour force, they are employed within a dynamic panel analysis framework using the Generalized method of Moments for 30 SSA countries from 2000-2019. In most developing countries, particularly SSA, the public sector is often significantly larger than the private sector. Given the role of policymakers in labour market performance, the study introduces government effectiveness as a control variable. Empirical results reveal that government expenditure on health and life expectancy exert significant effect on labour productivity, with government expenditure on health being positive and life expectancy being negative. Similarly, the effect of government expenditure on education is insignificant for labour productivity. Government effectiveness affects labour productivity positively and significantly. The study reiterates the importance of human capital in labour market outcomes while suggesting the need for policies that will ensure adequate investment in human capital.

An Empirical Investigation of the Effect of Manager’s Level of Education on Labour Productivity In the Manufacturing Sector in Uganda: 2006–2013

“…The HCT is supported by some empirical studies on manufacturing firms in SSA countries, which attribute low levels of labour productivity to education and training on human capital (Niringiye, Luvanda, & Shitundu, 2010;Heshmati & Rashidghlam, 2018;Okumu & Mwanjje, 2019;Okunade, Alimi, & Olayiwola, 2022;Omolara & Aderinto, 2022;Okumu & Buyinza, 2019). Recent studies that specifically link firm managers' education to labour productivity in manufacturing 1 The human capital theory attempts to explain the relations between education and income with the concept of human capital.…”

“…Previous studies used firm level data to investigate aggregated effect of either human capital or education on labour productivity in the countries of interest (Niringiye, Luvanda, & Shitundu, 2010;Okumu & Buyinza, 2018;Okumu & Mwanjje, 2019;Okunade, Alimi & Olayiwola, 2022;Omolara & Aderinto, 2022). However, in the case of Uganda, none have investigated the effect on productivity of firm manager's education in the manufacturing sector.…”

“…The analysis is based on World Bank Enterprise Surveys data of 2006 and 2013, which offered an opportunity to explore other salient issues. As pointed out earlier, data scarcity in African countries has made it rare to get country-specific studies; and previous studies aggregated manufacturing data from several African countries to draw conclusion on labour productivity in SSA (Okumu & Mwanjje, 2019;Okunade, Alimi & Olayiwola, 2022;Omolara & Aderinto, 2022). Thus, this paper seeks to address the specific case for Uganda using the Enterprise Survey 2006 and 2013 panel data that was available at the time of the study.…”

“…The study further concluded that completing the formal educational cycle was important in enhancing labour productivity. Similarly, a related study by Omolara and Aderinto (2022), using data from thirty (30) SSA countries spanning from 2000 to 2019, examined the effect of human capital development on labour productivity. The findings showed that human capital had a positive and significant effect on labour productivity.…”