9
Human Capital and International Labor Standards Compliance

In previous chapters the committee has explored definitions, indicators, and sources of data related to core labor standards compliance in order to develop an integrated and comprehensive monitoring system. In addition to this work, the U.S. Department of Labor requested that the committee, as part of its charge, explore the relationship between labor standards compliance and national policies related to human capital issues. The committee focused its work on exploring the extent to which investments in human capital create capacity within nations to comply more effectively with core international labor standards. The committee has interpreted its charge to explore the extent to which investments in human capital create capacity within nations to comply more effectively with core international labor standards. This examination is a critical piece of the international labor standards debate because human capital is an important factor in understanding the socioeconomic context in which these standards operate.1

Although human capital and labor standards compliance are much studied topics in and of themselves, the linkage between the two represents a new and unique field of investigation. Investments in human capital, or

1  

Other factors are important in understanding the socioeconomic context in addition to human capital (e.g., social capital, political participation, and international market integration). While the committee’s charge only specifically addresses the linkage with human capital, these factors are included in the committee’s database as background information.



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Monitoring International Labor Standards: Techniques and Sources of Information 9 Human Capital and International Labor Standards Compliance In previous chapters the committee has explored definitions, indicators, and sources of data related to core labor standards compliance in order to develop an integrated and comprehensive monitoring system. In addition to this work, the U.S. Department of Labor requested that the committee, as part of its charge, explore the relationship between labor standards compliance and national policies related to human capital issues. The committee focused its work on exploring the extent to which investments in human capital create capacity within nations to comply more effectively with core international labor standards. The committee has interpreted its charge to explore the extent to which investments in human capital create capacity within nations to comply more effectively with core international labor standards. This examination is a critical piece of the international labor standards debate because human capital is an important factor in understanding the socioeconomic context in which these standards operate.1 Although human capital and labor standards compliance are much studied topics in and of themselves, the linkage between the two represents a new and unique field of investigation. Investments in human capital, or 1   Other factors are important in understanding the socioeconomic context in addition to human capital (e.g., social capital, political participation, and international market integration). While the committee’s charge only specifically addresses the linkage with human capital, these factors are included in the committee’s database as background information.

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Monitoring International Labor Standards: Techniques and Sources of Information the lack thereof, can be an indicator of a failure to comply with labor standards, as discussed in the chapter on child labor. Human capital investments have also been cited in previous chapters as associated factors with respect to other labor standards, such as elimination of discrimination. Investments in human capital may also represent a tool for compliance with labor standards, and this compliance in turn may result in greater investments in human capital and an increase in the development capacity of a country. In the committee’s analysis, human capital includes both formal education—that is, primary, secondary, and tertiary education offered through traditional schooling—and nonformal education and training that may be available to both children and adults. Nonformal programs may include, for instance, vocational training, apprenticeships, literacy programs, and other programs by which both children and adults can obtain learning and job skills. Because this chapter explores new territory, it differs from previous ones: rather than exploring definitional issues and data sources and quality, it reviews empirical work on education, training, economic development, and labor standards and presents ideas for future research. A framework of human capital measures is offered as a means of assessing a country’s level of investment in education and training. In contrast to the indicators in previous chapters which are proposed as tools for measuring compliance toward core labor standards, the measures in this chapter provide contextual background that links with the core standards. This chapter focuses on the role of human capital as a catalyst in improving observance of core international labor standards. It reviews the empirical work on the measurement of direct and indirect effects of education on labor standards; proposes a broad framework of educational indicators to assess educational attainment in a country; and lays out a research agenda in broad terms to explore the linkages between human capital and labor standards compliance, particularly in developing countries. While this chapter focuses on the linkage in terms of human capital investment enhancing labor standards compliance, the relationship can also be examined in the other direction—in terms of labor standards being a form of human capital investment. Workers with the right to unionize and bargain collectively might fight for more or better quality education and training. Groups who are free from discrimination or forced labor have equal access to education and training and greater incentive to invest in their own human capital. Children who attend school regularly become

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Monitoring International Labor Standards: Techniques and Sources of Information more productive workers as adults (Betcherman, 2003). The concepts presented in this chapter lay the groundwork for future analysis about the role of human capital in labor standards compliance. THE DEVELOPMENT CONTEXT FOR LABOR STANDARDS Human capital investment is an important factor in the development context and affects labor standards directly and indirectly through at least five channels: At a macro level, education is a critical source of economic growth and development. The level of economic development, in turn, is closely correlated with compliance with labor standards. It is widely observed that, on average, the higher the level of economic development, the better is the level of compliance. At a micro level, investment in education and training increases productivity and personal earnings over a lifetime. Differences in wage earnings are explained largely by differences in the level of education and skills. In addition, working conditions improve substantially as production moves from lower skilled processes to higher skilled ones. In their own self-interest, companies improve working conditions to attract and retain better workers, so as to ensure quality control and productivity. Schooling and other forms of education can help to lower the incidence of child labor. In a number of developing countries, targeted enrollment subsidies have been used as an effective way to break the cycle of poverty and illiteracy by addressing both the income loss to parents and education for children. By strengthening the civic institutions and democratization, higher educational attainment in a country raises the level of awareness of human and workers’ rights and helps workers form effective coalitions with other segments of society to ensure enforcement of labor standards. With freedom of association, worker organizations can develop in which individuals develop leadership and entrepreneurial skills and learn the value of cooperation and trust through democratic processes. The education and training of all stakeholders in the system improves enforcement mechanisms through enhanced capacity and understanding. In addition to workers, stakeholders include employers, managers, and government officials (i.e., labor inspectors).

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Monitoring International Labor Standards: Techniques and Sources of Information The effects of human capital through channels (2), (3), and (5) are direct on wages, working conditions at the plant level, child labor, and plant and organizational efficiency. The effects through channels (1) and (4) are indirect. Higher educational attainment creates an environment that is conducive to growth, broader economic development, and democratization. These, in turn, are closely associated with better observance of labor standards. The indirect effects operate with longer time lags. Central to the issue of advancing labor standards compliance is an understanding of the causes of noncompliance and the development of interventions to affect positive outcomes. Betcherman (2003) offers a conceptual framework for understanding the polar views in this debate. At one extreme of the spectrum, he argues, is the legalist view that sees regulation as a three-stage process, i.e., the design, monitoring, and enforcement of standards through national or international law. From this perspective, enforcement is the missing link in the regulatory chain. One of the limitations of this perspective is that it does not take into account the informal sector. Between 30 and 90 percent of the workforce in developing countries is in the informal sector, essentially beyond the reach of any legal protections, either in the form of court actions as individuals or in collective agreements with employers. At the other extreme of the spectrum, he argues, is the economic view. Compliance is seen as a result of economic development. From this perspective, a demand for better labor standards will be created once a country has reached a certain level of development, so the appropriate strategy is to encourage economic growth. One of the limitations of this perspective is that it does not adequately address the costs of making the transition from a poor country with bad labor conditions to a rich country with good labor practices. Given the limitations of these polar views, Betcherman (2003) argues for a third perspective that builds on the legal and economic arguments to include the development context. He states: [W]hile realizing the objectives of the core labor standards requires legal enforcement and economic growth, that is not enough. It also requires a more complex, and in a sense, proactive focus on the development context including an understanding of the causes and determinants of non-compliance and consideration of how policies and interventions can change the context, change the incentives, and change the outcomes. The committee finds this perspective useful in looking at the evidence on human capital and development.

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Monitoring International Labor Standards: Techniques and Sources of Information ROLE OF EDUCATION Education, Growth, and Economic Development There is a vast macro economic literature that examines the relationship among educational attainment and economic growth and the measurement of social returns to educational investment. For example, Mingat and Tan (1996), in estimating social returns to education based on countries’ economic growth performance, conclude that investments in human capital through formal education can produce high economic returns to society (see also Psacharopoulos, 1994). Their analysis demonstrates that social returns to educational expansion varies by a country’s income level, with highest social returns in primary education for low-income countries, in secondary education for middle-income countries, and higher education for high-income countries. A recent paper by Castelló and Doménech (2002) further examines the influence of human capital distribution on economic growth. The authors provide new human capital inequality measures to analyze inequality and economic growth for a broad number of countries. The results from this study suggest “human capital inequality negatively influences economic growth rates not only through the efficiency of resource allocation but also through reduction in investment rates” (Castelló and Doménech, 2002, p. 3). Hanushek (2002) and Hanushek and Kimko (2002) emphasize the importance of school quality on economic growth. In his analysis of international science and mathematics assessment scores, as a measure of cognitive skills, Hanushek (2002) finds a positive relationship between test scores and both individual productivity and economic growth. “One standard deviation difference on test performance is related to one percent difference in annual growth rates of per capita GDP [gross domestic product]” (Hanushek, 2002, p. 12). The effect of such differences on growth rates is very large: Hanushek notes that 1 percent higher growth over a 50-year period yields incomes that are 64 percent higher. He concludes that higher educational achievement is associated with faster growth of a nation’s economy. There are a number of studies that shed doubt on the relationship of human capital to economic growth. These studies, which use time-series, cross-country data on education and the labor force, have been questioned on grounds of data quality, particularly comparability and coverage

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Monitoring International Labor Standards: Techniques and Sources of Information (Behrman and Rosenzweig, 1994). Behrman and Rosenzweig demonstrate the flaws in educational investment data, such as problems with enrollment rates and the lack of data on school quality. They also note that “… if the interest is in education as opposed to schooling, … nonschooling forms of education (e.g., training) are not included in the measures usually used” (Behrman and Rosenzweig, 1994, p. 153). They conclude that the use of weak empirical data to draw conclusions about development can be misleading and that investment in data quality would substantially improve understanding of the determinants and consequences of development. More recently, Krueger and Lindahl (2000) have examined the effects of measurement error on basic results for a number of the studies that conclude that increases in educational attainment are unrelated to economic growth. Their findings indicate that, once measurement error in education is accounted for, change in years of schooling is positively associated with economic growth. Their analysis addresses some of the concerns raised regarding data quality, but further work is required to address country-level infrastructure for data collection and to formulate measures for nonschooling education. Pack (2003) argues that the low payoff to education in developing countries may be explained by the absence of complementary and simultaneous characteristics, such as local innovation, imports of new foreign technology, and a relatively competitive environment. He examines the Nelson-Phelps (see, e.g., Nelson and Phelps, 1966) view that education has its greatest effect when rapid technological change challenges workers and managers to understand and adapt the innovation to local conditions. Pack cites research from a large sample of factories in Ghana, Kenya, and Zimbabwe that shows no productivity benefit from the presence of highly educated managers and workers because of the long-term use of static technologies that workers have learned how to use effectively: Given that the firms are incapable of obtaining foreign exchange for the import of new technological elements (such as technology licenses or new equipment), the presence of educated personnel has no benefit. The firms lack of new inputs reflects in turn bad economic policies that limit the ability of the country to earn foreign exchange (Pack, 2003, p. 2). Yet, Pack concludes that this evidence does not imply that education is unimportant:

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Monitoring International Labor Standards: Techniques and Sources of Information It does suggest that education or human capital more broadly may not solve the problems of nations unless many complementary characteristics are simultaneously present—local innovation, imports of new foreign technology, and a relatively competitive environment (Pack, 2003, p. 2). The relationship between core labor standards and economic performance, in particular on foreign direct investment, seems relevant. A recent publication from the Organisation of Economic Co-operation and Development (OECD) (2000) explores a number of studies that suggest that respect for core labor standards increases economic efficiency and foreign direct investment. A recent study by Kucera (2002) explores the ways in which worker rights may affect that investment by facilitating human capital development and political and social stability. He finds no evidence to support the argument that countries with more child labor and greater gender inequality have a comparative advantage in attracting foreign direct investment. Kucera argues that the effects of worker rights on such investments are multifaceted. “That is, the effects of worker rights may be transmitted not only through the labor cost-labor productivity nexus, but also through the enhancement of political and social stability (particularly through freedom of association and collective bargaining) and levels of human capital (particularly regarding child labor and gender inequality)” (Kucera, 2002, p. 63). Although the relationship between human capital and economic growth remains controversial, evidence exists to support a link between the two. Clearly, human capital is an important factor in understanding the socioeconomic context in which labor standards operate. Education, Earnings, and Working Conditions The microlevel research in this field investigates private rates of return on investment in education by examining the correlation between educational attainment and increased productivity and earnings over a lifetime. The OECD (2001a) reports that an additional year of education is associated with raised earnings of, on average, between 5 and 15 percent. In a study of labor income inequality in urban Bolivia, regression results indicate that each year of education is associated with an increase in earnings of approximately 10 percent, implying that a worker who has attained the mean level of education (9.5 years) earns 147 percent more than a worker without education (Fields et al., 1998). Fields and colleagues conclude:

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Monitoring International Labor Standards: Techniques and Sources of Information “… education accounts for between seventy and eighty percent of the inequality of labor income [explained by their model of decomposition analysis for sources of income inequality] implying that education is the most important place to look to reduce poverty” (1998, p. 12). In addition, Carneiro and Heckman (2002) argue that early investment in human capital has an effect on higher returns in the future. They demonstrate the importance of the early years in developing abilities and motivations that affect learning and foster productivity. They state that cognitive and noncognitive deficits emerge early and, if uncorrected, lead to low-skilled adults. In determining the returns to education it is important to recognize that individuals who stay in school longer may have other characteristics, such as unobserved ability, that would result in higher wages. If this unobserved ability is correlated with measured years of schooling and not taken into account, the estimated returns would be too high. However, as detailed in Griliches (1977), once one also takes into account problems with measurement error associated with measuring years of schooling that would bias the returns to education downward, the two biases cancel each other out. Although this issue continues to be debated (see, e.g., Behrman and Rosenzweig, 2002; Organisation for Economic Co-operation and Development, 2002, Chapter 5), more recent research that takes advantage of “natural experiments” to estimate the returns to education as detailed in Krueger and Lindahl (2001) concludes that education is an important determinant of individual income and that unobserved ability does not appear to cause upward bias in the return to education. In particular, the returns to the most disadvantaged appear to be the highest. Learning and training affect working conditions, too. Using evidence from operations of foreign investment in export processing zones in the Philippines, the Dominican Republic, and Costa Rica, Moran (2002) compares treatment of workers in very low-skill-intensive production, such as garments and footwear, to the treatment of workers in slightly higher-skill-intensive operations, such as electronics, auto parts, and other industrial products. The results indicate that as investors move from low-skill to higher-skill operations they are forced to institute good worker-management practices and improve the treatment of workers substantially to attract and retain better workers so as to ensure quality control and productivity. An interesting finding of Moran’s study is the strong spillover effects of this transformation. It occurs not only in the newer and more sophisticated plants, but also in older plants and in those engaged in low-skill operations as well.

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Monitoring International Labor Standards: Techniques and Sources of Information Moran’s study shows that there is a high payoff to governmental support for elementary and high school or vocational training programs in attracting foreign direct investment and moving foreign operations from low-skill to higher-skill operations. The higher-skill operations pay wages two to five times those of low-skill occupations and have far superior human resource management policies, including access to health care, child care, and evening classes. When low- and high-skill foreign direct investment plants coexist, there is an empirically observable tendency for the more advanced investors to insist that the investors in low-skill operations improve their worker treatment to pull the standards up to the higher level (Moran, 2002). Given that education and training affect earnings, productivity, and working conditions, the question becomes how does human capital investment affect labor standards compliance. Education and Child Labor While human capital investment may be related to compliance across all the labor standards, the standard with which the linkage is most clear is child labor. Unlike the other standards, human capital investment is already one of the key policy interventions of the International Labour Organization (ILO) in reducing the incidence of child labor. In the committee’s proposed list of indicators on child labor (see Chapter 6) the main process indicator is schooling, under which other indicators, such as the availability of schools, quality of schools, enrollment ratios, student-teacher ratios, and remediation programs, fall. The committee maintains that investment in schooling and other forms of education may help to lower the incidence of child labor. This argument is borne out by the academic literature on child labor in two ways. First, investment in human capital addresses some of the root causes of child labor, in part through breaking the “child labor trap.” The trap is created when a child with no skills becomes a low-wage-earning adult. Then, because of poverty, the adult has to send his or her children into the labor force, thereby depriving them of an education. The cycle has a negative effect at both the household level, carrying poverty forward from one generation to the next, and the national level (Basu, 1999). At the microlevel, investments such as targeted enrollment subsidies offer a way to break the vicious cycle of poverty and illiteracy by addressing both the income loss to parents and the education of children. Examples include bolsa escola in Brazil, PROGRESA in Mexico, and Food-for-Education in Bangladesh. These programs provide stipends to poor families to

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Monitoring International Labor Standards: Techniques and Sources of Information keep their children enrolled in school. PROGRESA, for example, distributes educational grants to poor families every 2 months, the level of support determined in part by what a child would earn in the labor force. Grants are slightly higher for secondary school girls, who may be more likely to drop out at earlier ages. The benefits are given exclusively to mothers, recognizing that they are more likely to use resources to meet the immediate needs of their families. Initial analysis of PROGRESA shows a positive effect on the welfare and human capital of poor rural families in Mexico (Skoufias and McClafferty, 2001). Investments in nonformal education programs provide basic literacy and teach job skills, usually in a setting near where children work outside of working hours. “By scheduling classes at night, or bringing teachers to where children are working, nonformal education can reduce the opportunity cost of time spent learning” (Stern, 2003, p. 4). They may be particularly effective in reaching working children who live and work apart from their families, such as street children, populations that would not be served by targeted enrollment subsidies. Bhima Sangha, in Karnataka, India, is an example of a program that provides education for local political involvement. It is one of the few organizations that has been created by working children, with the main goal of unionizing working children, to strengthen their voices and to fight exploitation at the political level. The educational curricula offered include vocational training, literacy, and civic education designed to meet the needs of working children. Stern (2003) notes that these types of programs do not eliminate child labor directly. The larger goal, as viewed by the nongovernmental organizations that promote them, is to give children a space and support to reflect on and analyze their situation to empower them to become active agents in their own development. At the macrolevel, it has been recognized that an outright ban on child labor in developing countries can harm the poor, particularly the working children, because it fails to address the root causes of child labor (Grootaert and Patrinos, 1999; Ravallion and Wodon, 1999). Bans might actually exacerbate the child labor problem by driving children underground, into the worst forms of child labor. Torres argues that trade sanctions are another counterproductive intervention for a number of reasons (National Research Council, 2003). First, child workers are often employed in rural agriculture and therefore not exposed to trade. Second, sanctions may only serve to aggravate the child labor situation because they ignore one of the root causes, poverty. If interventions do not go hand in hand with education programs and family income support, they are likely to fail. Indeed, in

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Monitoring International Labor Standards: Techniques and Sources of Information several cases in recent years, threats of consumer boycotts or of trade sanctions have stimulated the negotiation of multistakeholder agreements that removed children from work, provided them with educational or other rehabilitative services, and maintained support for trade in clothing, soccer balls, and cocoa (Elliott and Freeman, 2003). Barriers to enforcement of interventions are another complicating factor. Basu (1999, p. 1090) argues that “it is more effective to legislate for compulsory education instead of simply banning child labor” in part because it is easier to monitor a child’s presence in school than a child’s absence from work. Thus, the promoted policy interventions have focused on providing education. For example, international organizations, including the World Bank and the United Nations, are promoting the “Education for All” initiative that calls for providing primary education for all children by 2015. Investments that affect adult literacy and education also affect child labor. One of the most influential household determinants of child labor is parents’ education and their participation in the labor force (Grootaert and Patrinos, 1999). Ray (1999) examines the role of parents in child labor decisions, comparing data from Pakistan and Peru. In Pakistan, household poverty results in reduced schooling for children, especially girls. In Peru, however, poverty does not reduce schooling. Ray attributes the difference in part to Pakistan’s lack of schools, but he also argues that the value a parent puts on education is an important factor in the overall equation. The data also reveal differences in child labor hours in response to adult wages in each country. Child labor hours for girls are reduced significantly as adult male wages increase in Peru; rising adult female wages have a large and significantly positive effect on labor hours for girls in Pakistan. Ray concludes that findings from both countries reveal the positive role that increasing adult education, especially mother’s education, can play in child labor and child schooling. “A large and sustained investment in adult education and schooling infrastructure is a necessary condition” (Ray, 1999, p. 22) to keep one generation’s lack of education from causing the next to remain uneducated. In sum, the research and policy interventions discussed above that are designed to help eliminate child labor link human capital issues with the child labor standard. Experts, including those from the ILO, recognize that compliance with child labor legislation cannot be effectively enforced if measures do not take account of human capital investments. Therefore, the long-term solution to the causes of child labor must include investment in

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Monitoring International Labor Standards: Techniques and Sources of Information dards and implementing the principles in practice. In the business case, trainers discuss the link between good labor practices and improved productivity. This module includes showcasing practices from the ILO field offices to demonstrate successful initiatives. The “principles to practice” module is designed to equip managers with action planning tools to design solutions. Urminsky notes that the module addresses the general lack of knowledge about workers rights in practice (National Research Council, 2003). For example, the ILO training team finds that managers rarely think about discrimination in terms other than gender. In their experience, managers are not aware of ethnic or political discrimination. The problem-based training helps managers work through real-life situations to resolve, for example, anti-union discrimination. In order to ensure sustainability, the ILO builds training capacity within employer groups and industry associations in a train-the-trainer approach. This type of training addresses the ignorance and incompetence described by Schrage that lead to noncompliance. Government Another key stakeholder group is the government ministry in charge of labor inspection. Schrage explains that government officials have to have a much better sense of training and education to know how national laws interact with management practices (National Research Council, 2003). This interaction can help managers develop appropriate systems for compliance with international core labor standards. Von Richthofen (2003) characterizes labor inspectorates as organizations that are often poorly performing, stagnant, and staffed by officials who lack a clear purpose or motivation. He argues that training is the single most important tool in building a more efficient and effective organization through improved performance. He writes: Training is the instrument of choice to bring about change in an organization. It is the main management strategy used to transfer knowledge, develop skills, change attitudes, and impart a set of organizational and societal values (Von Richthofen, 2002, pp. 110-111). A comprehensive training strategy should be well organized and relevant to the organization’s needs. He argues that the wrong kind of training is probably worse than no training at all. Low-performing inspection systems tend

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Monitoring International Labor Standards: Techniques and Sources of Information to allocate few resources to training, with little understanding of its central role as a management tool. High-performing systems, on the other hand, tend to make considerable investment in training that operates under a well-organized and regularly reviewed policy. EDUCATION MEASURES The critical importance of human capital investment for observance of labor standards requires an assessment of educational attainment to identify the main weaknesses in the education system and suggest steps to improve it. To help make such an assessment, the committee proposes a framework of human capital measures in four broad groups: children and youth, adults, allocation of public resources, and awareness of rights. Unlike previous chapters, these data are not direct measures of compliance with core labor standards. Rather, they are presented as complementary factors to the indicators of compliance discussed in previous chapters, to provide socioeconomic contextual information, recognizing that the linkages between human capital and labor standards compliance can go in both directions.3 Children and Youth The population of young people in a country represents its future labor force. The degree to which a country invests in the human capital of its youth affects national development and the economy, as described above. The child labor trap perpetuates the cycle of children with no skills becoming low-wage earning adults who go on to send their young children into full-time work. Human capital investment is a key component in breaking this cycle of poverty and illiteracy. To assess the degree to which a country is investing in human capital of youth, the committee proposes five measures. Compulsory schooling: A country’s laws requiring children of certain ages to attend school represents its commitment to promoting education. In addition, measures of compliance regarding the abolition of child 3   Definitions and data sources in the database draw on work by the Organisation for Economic Co-operation and Development (2001a), the World Bank (2002), and the United Nations Educational, Scientific and Cultural Organization (2003).

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Monitoring International Labor Standards: Techniques and Sources of Information labor relate the laws governing minimum age of work with compulsory schooling laws (see Chapter 6). Size of school population: This measure represents the potential demand for education/training and renewal of the workforce. Net enrollment, at the primary and secondary levels, by gender and ethnicity: This measure of the percentage of the relevant age group attending primary and secondary schooling demonstrates the extent to which children are in school. The distribution by gender and ethnicity provides information about the differences between boys and girls and different ethnic groups in educational opportunities and investment, which partly relates to the nondiscrimination standard. Gross enrollment ratio at the primary level: This is the total number of students enrolled at the primary level of education, regardless of age, expressed as a percentage of the population corresponding to the official school age of primary education in a given country. This ratio may be higher than 100 percent because total enrollment includes students above and below the primary school age, as well as repeaters. Participation and completion rates of higher education: Participation rates in tertiary education are a measure of high-level skills and knowledge acquisition. Completion rates are an indicator of the current production rate of higher-level knowledge by a country’s education system. These measures relate to the development and maintenance of a highly skilled labor force. Adults Adults represent the existing labor force population in a country. A well-educated work force is critical for economic and social development and contributes to a country’s capacity to meet or even exceed labor standards. To measure the degree to which a country is investing in the human capital of adults, the committee proposes three measures. Participation in continuing education and training: This measure shows the extent of skills maintenance and upgrading for the workforce. Educational attainment: This measure is the percentage of the adult population by highest level of education completed through secondary school in total and by gender and ethnicity. It provides a quantitative measure about the amount of schooling a population receives and is the most commonly used proxy to measure human capital.

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Monitoring International Labor Standards: Techniques and Sources of Information Illiteracy rates: This measure is a proxy for the performance of the national education system. This measure also provides information about the human resource capacity within a country in relation to their potential for growth and contribution to development and quality of life. Allocation of Public Resources Allocation of resources is a good indicator of country’s priorities. The emphasis here is on the public (budgetary) resources because information about private resources in the education sector is not available in most countries. The committee proposes three measures. Public expenditure on education relative to GDP: This measure serves as a point of reference for the volume of educational spending in relation to size of national wealth. Public expenditure on education relative to total budgetary expenditure: This measure serves as a proxy for the extent to which countries value education relative to other sectors. Public educational expenditure per student: This measures the resources devoted to prepare each student for life and work and serves as another proxy for quality of education. Awareness of Rights Monitoring compliance with labor standards depends a great deal on workers’ awareness of rights and their ability to act on those rights. With respect to freedom of association, for example, workers who are aware of protections under national legislation to form unions and bargain collectively will be more likely to act on those rights. To what extent does education and training, then, impact on compliance? Important indicators to consider, as described in previous chapters, include the extent to which governments promote education programs or campaigns related to freedom of association, forced labor, equality, and child labor. RECOMMENDATION AND RESEARCH AGENDA 9-1 The committee recommends research at the micro and macro levels to explore the mutually reinforcing links between the investments in education and training labor standards compliance.

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Monitoring International Labor Standards: Techniques and Sources of Information Although evidence exists to substantiate the linkages between human capital investment and labor standards compliance, the limited amount of empirical research linking the two warrants attention. The committee has been asked to suggest a research agenda as part of its charge in exploring human capital. Based on its review of the literature and discussions with experts in development and labor economics, human capital, and labor standards compliance (see also National Research Council, 2003), the committee proposes three areas for future research: the mutually beneficial linkages between human capital and labor standards, human capital indicators, and evaluation of best practices. Future Research Agenda Mutually Beneficial Linkages Between Human Capital and Labor Standards This chapter has provided a preliminary analysis of the links between human capital investment and labor standards compliance, focusing primarily on the investment in education and training to improve labor standards compliance. Further analysis is needed from the policy and research perspectives at the micro and macro level. Additional analysis is also needed to explore the linkage in the opposite direction. An analysis of how compliance with core labor standards promotes human capital enhancement would be useful in furthering an understanding of the linkage. What economic incentives exist to invest in labor standards as a form of human capital investment? A comprehensive analysis of human capital policy should account for the full range of institutions that produce it—families, schools, and firms (Carneiro and Heckman, 2002). This research and policy agenda must then consider policies that affect human capital formation through various institutions as it relates to labor standards. Of particular relevance would be examining the complexities of providing universal primary education in developing countries with limited resources, improving the quality of education and training, and increasing access to education and training. Human Capital Indicators Existing proxies for human capital are useful measures in assessing a country’s level of investment in education and training. However, these

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Monitoring International Labor Standards: Techniques and Sources of Information indicators are limited in many respects. Educational attainment is a common measure of the quantity of education received but it does not take into account the skills developed through nonformal education and experiential learning (Organisation for Economic Co-operation and Development, 2001b). Quality of education clearly matters in skills development. To better understand how cognitive skills and knowledge affect economic performance and labor standards, better measures of quality are needed. Indicators such as class size are limited because of the lack of analysis of cultural context. Methodological advances in large-scale cross-national assessments, such as the Third International Mathematics and Science Study (TIMSS) and the Program for International Student Assessment (PISA), have improved measures of student achievement as a proxy for schooling outcomes (National Research Council, 2002). Unfortunately, participation by developing countries has been limited, and these are the countries of most concern in terms of labor standards compliance. The social capital research offers proxy measures related to freedom of association that are useful in theory but require survey data that is culturally relevant. Building on existing indicators and devising new ones will increase the capacity to assess how a country’s level of investment in human capital affects labor standards compliance. It is also imperative to build capacity within developing countries to collect reliable data on indicators of human capital investment. Such capacity is especially important with respect to the measurement of postschool investments in human capital, such as employer-provided training. The measurement of the amount, duration, and costs of adult training is an important omission in the availability of data on investment in human capital. Although there are some data available on the amount of public expenditures on training, private expenditure for education and training is unevenly covered, and in some countries the coverage is extremely poor. It is therefore difficult to arrive at a picture of how much total expenditure is devoted to different levels of education or training, not to mention the relationship between investment and outcomes for different actors. If current human capital measures and empirical studies capture only a limited range of human capital investments, the risk is that the policy debate will focus exclusively on those more easily (and perhaps inaccurately) measured human capital indicators. This may result, for example, in underinvestment in postschool training simply because the data to evaluate the returns to those types of investments are not readily available. Expanding the information set available to policy makers on human capital indica-

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Monitoring International Labor Standards: Techniques and Sources of Information tors helps to ensure that funding is directed to the best investments, not what is just easily measured. Evaluation of Best Practices Evidence presented in this chapter indicates that education and training programs raise the level of human capital, with positive effects on labor conditions. The question remains regarding the effectiveness of such programs. Evaluations of PROGRESA, for example, show increases in school enrollment by 10-15 percent for boys and girls ages 12-14 (National Research Council, 2003). However, child labor and school enrollment are not completely incompatible in Latin America. Children work and go to school, but the evidence shows negative effects of child labor on school progression and quality of education (National Research Council, 2003). Measuring the effect is critical to ensuring effective policies and strengthening programs; additional work is needed to develop better performance indicators, particularly with respect to nonformal education programs. Most policy makers would agree that education is important: The issue in developing countries is funding initiatives that are most effective, given limited resources. Finding better ways to measure costs and benefits for initiatives such as “Education for All” and PROGRESA would help increase awareness of their economic impacts and tradeoffs. If one extrapolates the cost of eliminating child labor through programs like PROGRESA, which costs approximately $80 a month, the expense is an estimated $200 billion (National Research Council, 2003). How would policy makers evaluate the expenditures and benefits of nonformal education as an alternative? How would businesses conduct cost-benefit analyses of worker training programs? And the question of who pays remains to be addressed. REFERENCES Basu, K. (1999). Child labor: Cause, consequence, and cure, with remarks on international labor standards. Journal of Economic Literature, 37, 1083-1119. Behrman, J.R., and Rosenzweig, M.R. (1994). Caveat emptor: Cross-country data on education and the labor force. Journal of Development Economics, 44, 147-171. Behrman, J.R., and Rosenzweig, M.R. (2002). Does increasing women’s schooling raise the schooling of the next generation? American Economic Review, 92(1), 323-334. Behrman, J.R., and Stacey, N. (1997). The social benefits of education. Ann Arbor: University of Michigan Press.

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Monitoring International Labor Standards: Techniques and Sources of Information Benhabib, J., and Spiegel, M. (1994, October). The role of human capital in economic development: Evidence from aggregate cross-country data. Journal of Monetary Economics, 34(2), 143-174. Betcherman, G. (2003, February). Placing core labor standards in the development context. Paper presented at the National Research Council Workshop on Human Capital Investment and International Labor Standards Compliance. Washington, DC. Available: http://www.nationalacademies.org/internationallabor/HCworkshop.html [October 29, 2003]. Carneiro, P., and Heckman, J.J. (2002, April). Human capital policy. Paper presented at the Alvin Hansen Seminar at Harvard University, Cambridge, MA. Revised August 2002. Castelló, A., and Doménech, R. (2002). Human capital inequality and economic growth: Some new evidence. The Economic Journal, 112(478), C187-C200. Elliott, K.A., and Freeman, R. (2003). Can labor standards improve under globalization? Washington, DC: Institute for International Economics. Fields, G.S., Leary, J.B., López-Calva, L.F., and Pérez-de-Rada, E. (1998). Education’s crucial role in explaining labor income inequality in urban Bolivia. (Development Discussion Paper No. 658). Cambridge, MA: Harvard University Institute for International Development. Available: http://www.cid.harvard.edu/hiid/658.pdf [October 29, 2003]. Grootaert, C., and Patrinos, H.A. (1999). The policy analysis of child labor: A comparative study. Washington, DC: World Bank. Hanushek, E.A. (2002). The long run importance of school quality. (NBER Working Paper No. 9071). Cambridge, MA: National Bureau of Economic Research. Available: http://www.nber.org/papers/w9071 [October 29, 2003]. Hanushek, E.A., and Kimko, D.D. (2000). Schooling, labor force quality, and the growth of nations. American Economic Review, 90(5), 1184-1208. Available: http://edpro.stanford.edu/eah/eah.htm [October 29, 2003]. Krueger, A., and Lindahl, M. (2000). Education for growth: Why and for whom? (NBER Working Paper No. 7591). Cambridge, MA: National Bureau of Economic Research. Available: http://www.nber.org/papers/w7591 [October 29, 2003]. Kucera, D. (2002). Core labour standards and foreign direct investment. International Labour Review, 141(1-2), 31-69. Marshall, R. (2003, February). Conceptualization of the link between labor standards and human capital. Paper presented at the National Research Council Workshop on Human Capital Investment and International Labor Standards Compliance. Washington, DC. Available: http://www.nationalacademies.org/internationallabor/HCworkshop.html [October 29, 2003]. McMahon, W.W. (1999). Education and development: Measuring the social benefits. New York, NY: Oxford University Press. Mingat, A., and Tan, J.P. (1996). The full social returns to education: Estimates based on countries’ economic growth performance. (Human Capital Development Working Paper 73). Washington, DC: World Bank. Moran, T.H. (2002). Beyond sweatshops: Foreign direct investment and globalization in developing countries. Washington, DC: Brookings Institution Press.

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Monitoring International Labor Standards: Techniques and Sources of Information Stern, D. (2003, February). Nonformal education for working children. Paper presented at the National Research Council Workshop on Human Capital Investment and International Labor Standards Compliance. Washington, DC. Available: http://www.nationalacademies.org/internationallabor/HCworkshop.html [October 29, 2003]. U.N. Educational, Scientific and Cultural Organization. (2003). Education indicators. Quebec: United Nations Institute for Statistics. Available: http://portal.unesco.org/uis/ev.php?url_ID=5187&URL_DO=DO_TOPIC&URL_SECTION=201 [January 2003]. U.S. Department of Labor. (2000). By the sweat and toil of children (Volume VI): An economic consideration of child labor. Washington, DC: Author, Bureau of International Labor Affairs. Von Richthofen, W. (2002). Labour inspection: A guide to the profession. Geneva: International Labour Office. Watkins, K. (2000). The Oxfam education report. Bath, England: Redwood. World Bank. (2002). World development indicators. Washington, DC: Author.

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