Showing papers on "Human capital published in 1980"

Farm and off-farm work decisions: the role of human capital.

Abstract: W ITH modern economic growth, we observe people reallocating resources in response to changes in economic conditions. How accurately they perceive and efficiently they respond to these changes is attributed to allocative ability (Schultz, 1975). This ability is not restricted to managers of firms. People who supply labor services for hire or who are selfemployed also reallocate their time in response to changes in the value of the work they do. With long-term U.S. economic growth, one major adjustment has been a reallocation of labor between farm and nonfarm labor markets. After 1948, long-term economic forces created prospects of higher incomes in the nonfarm sector. A large proportion of both white and black families quit farming and took nonfarm jobs, causing a massive net exodus of people from farms.' Other farm families have continued to work their farms but have also taken off-farm jobs. Nationally, the percentage of farm operators reporting off-farm work rose from 39% in 1950 to 54% in 1969. Operators working 100 days or more per year off their farms increased from 23% to 40% during the same period (U.S. Department of Commerce, 1973, p. 178). The objective of this paper is to present some econometric evidence of the effect of investments in education and information (agricultural extension) on the off-farm labor supply of farmers.2 The data are county averages per farm for Iowa, North Carolina, and Oklahoma. Important findings are that raising the education level of farmers and increasing the agricultural extension input increase the off-farm labor supply of farmers. This implies that part of the return to education in agriculture arises from its effect on the reallocation of farmers' labor services between farm and nonfarm labor markets. In section I, a labor supply model is developed for household members who face options of having a wage job and a self-employed job. The labor supply decisions are treated as part of a set of joint decisions made by multiple-person farm households on inputs for household consumption and for farm production.3 Section II presents a discussion of the data, the empirical model, and the results from fitting the off-farm labor supply functions. Section III contains further implications, and section IV contains the conclusions.

Investment in entrepreneurial ability

Abstract: Entrepreneurship is a pervasive activity in a dynamic economy. A wide array of people at various points over the life cycle are entrepreneurs, not only bureaucrats and farmers but also laborers, students, housewives and consumers are entrepreneurs. Entrepreneurial returns are a significant source of income in a dynamic economy. The economic value of the entrepreneurial ability that is acquired by education can be identified and measured. Whereas conceptually every entrepreneurial action entails some risk, risk is not a unique attribute of a dynamic economy. The idea that the economic value of what entrepreneurs do is to be equated as a return for risk bearing, is rejected. This investment approach to entrepreneurial ability implies that the returns that actually occur to education are substantially undervalued. In large measure economic theory either omits the entrepreneur or it burdens him with esoteric niceties the implications of which are rarely observable. The entrepreneur is not required in equilibrium theory in solving the problems for which that theory is appropriate. In nearly all of the production function literature, the entrepreneur does not appear as an explicit economic agent. In the part of theory that deals with "pure profit", the entrepreneur is indentured to risk and uncertainty. The argument of this paper is that the abilities of entrepreneurs to deal with the disequilibria that are pervasive in a dynamic economy are a part of the stock of human capital. It is well documented that experience, health and especially schooling enhance the acquired abilities of entrepreneurs. Most of the relevant studies pertain to the effects of schooling of farmers on their ability to perceive and to interpret new information and to decide to reallocate their resources to take advantage of new and better opportunities. In this human capital approach, schooling is treated as an investment. Thus the argument of this paper features investment in entrepreneurial ability. Entrepreneurs have not received their due in economics; they are not given adequate credit for the contributions they make in a dynamic economy. It is

Taxation, Human Capital, and Uncertainty

Abstract: This paper analyzes the effect of wage and interest taxation on investment in human capital. It is shown that results derived under the assumption that human.capital is a riskless asset fail to obtain when the return on human capi- tal is uncertain. The interaction of the human capital investment decision with savings, consumption and labor-leisure choices are taken into account. An implication of the analysis is that, when the rate of return on human capi- tal is stochastic, efficient taxation requires positive taxation of wage income even when lump-sum taxation is feasible. (This abstract was borrowed from another version of this item.)

The Demand for Life Insurance: An Application of the Economics of Uncertainty

Abstract: Financial economists typically assume that capital income uncertainty, derived from investments in uncertain returned marketable securities, represents the major source of household consumption uncertainty. But, for many households, if not most, labor income uncertainty dominates capital income uncertainty. This study analyzes households optimal reactions to labor income (human capital) uncertainty that is derived from the possibility of their wage earners' non-survival. By introducing a risk resolution mechanism-an insurance market-and allowing for the possibility that future tastes may be state-dependent, simple demand-for-insurance equations are mathematically derived to explicitly describe households optimal responses to human capital uncertainty. THIS PAPER ANALYZES A problem of consumer choice in an environment of uncertainty. In dealing with consumer choice, one has a rather wide latitude in the specification of the assumed source of uncertainty and the object of consumer choice. For example, as Merton [20] points out, the most common sources of consumer uncertainty might include: * uncertainty about the future inflows of household income derived from investing in marketable assets (uncertain capital income), * uncertainty about the future inflows of household income derived from the wage earner's labor input (uncertain labor income), * uncertainty about the future age of death, * uncertainty about the future investment opportunity set, * uncertainty about future relative prices of consumption goods, the types of consumption goods available in the future, and future tastes. While various combinations of these sources of uncertainty have been analyzed in the past, the investigation of household capital income uncertainty, derived from investments in uncertain returned marketable securities, has received the

Race and Sex Differences in Career Dynamics.

Abstract: In this paper, career differences by race and sex are analyzed. Careers are defined as trajectories of socioeconomic status and wages and are described by a linear differential equation model. It is assumed that the different groups defined by race and sex tend to be in different labor markets and economic sectors and to face different opportunity structures even within labor market divisions. This assumption guides predictions for and interpretation of results with respect to various aspects of career inequality: initial status and wage level; potential status and wage levels; effects of human capital, family background, and family of procreation variables on initial and potential wage and status levels; speed of advancement. Pooling of cross-sections and time-series techniques are used to estimate the model, with data from the National Longitudinal Surveys of the Labor Market Experience of Young Men and Women.

Specific Capital, Employment Contracts, and Wage Rigidity

Abstract: When firm-specific human capital is involved, both the worker and the employer have the incentive to prespecify future wages. This incentive arises from transaction costs associated with spot contracts and from opportunistic bargaining which may occur during the postinvestment period. In prespecifying wages the parties may use economic indicators to estimate productivities. To the extent that such indicators are less than perfect measures of true productivities, some wage rigidity will occur. Wage rigidity causes resource loss of various types. This article analyzes various contractual arrangements designed to minimize such a loss, and discusses potentially testable implications.

Toward an epidemiology of work disability.

Abstract: The indirect cost of illness due to lost wages exceeds the cost of medical services by a large margin. Social characteristics of persons with physical impairment are more important than the characteristics of their medical condition in predicting whether disability will lead to work loss. Public policy toward disability currently emphasizes the "human capital" with which persons with impairments confront the labor market; this study suggests a new emphasis on social characteristics of the workplace.

Are Women Economists at a Disadvantage in Publishing Journal Articles

Abstract: fact that women are disadvantaged in acquiring credentials, or in the current jargon, accumulating human capital, because of their traditional role as wife and mother.3 While some consideration has been given to the question whether discrimination also plays a part in this respect,4 a good deal more needs to be done. This note attempts to make a small contribution to our knowledge of this subject by focussing on one subgroup, namely economists, and one type of credentials, namely publications in scholarly journals. There are two crucial steps in becoming a successful author that we shall examine. The

Work Expectations, Human Capital Accumulation, and the Wages of Young Women.

Abstract: This article estimates the impact that young women's ex ante preferences for future labor force attachment have on their human capital accumulation and pay Empirical evidence from the National Longitudinal Surveys of Young Women aged 14 to 24 in 1968 supports the human capital hypothesis that receipt of on-the-job training is positively related to expectations of future labor force participation Comparing the actual labor force attachment of mature women with preferences for future participation of young women indicates that young women (as a group) may underestimate their future labor force attachment This implies that some young women may underinvest in on-the-job training

Age and the Acceptance of Cliometrics

Abstract: Popular wisdom asserts, and life-cycle theories of human capital investment seem to imply, that older scientists are slower to accept new theories than are younger scientists. When this view is tested with evidence on the acceptance of cliometrics, however, the year-of-birth variable, although statistically significant, explains less than 10 percent of the variance in acceptance.

A Direct Measure of the Relationship between Human Capital and Productivity

Abstract: The problem of hidden action in organizations makes direct measurement of managerial performance problematic. But in English association football hidden action is unlikely to be as serious a problem because the owner observes the manager's performance ...

Income Inequality and City Size: An Examination of Alternative Hypotheses for Large and Small Cities

Abstract: A N important and growing interest among scholars is the examination of the relationship of the size distribution of income to city size. Such information is critical to the development of urban growth policies and to our understanding of living costs, poverty, and public expenditures in urban areas. Previous studies of this relationship have been motivated by one of the following distinct, although not mutually exclusive, hypotheses: (1) the occupational and wagestructure of the local labor market will change with increasing city size to cause income inequality either to decrease as a result of rising average incomes (Duncan and Reiss, 1956; Murray, 1969; and Richardson, 1973) or increase via a widening distribution of labor skills (Mathur, 1970; Farbman, 1975);' (2) the functioning of capital markets will improve as city size increases so that investment in human capital rises and the average rate of return is depressed to reduce inequality (Frech and Burns, 1971; and Burns 1976); and (3) the principal beneficiaries of increasing city size and urban growth will be those individuals who possess "monopoly" advantages in the marketplaces, such as landlords and individuals owning enterprises with scale economies or holding important non-duplicative executive and bureaucratic positions, so that the benefits from increasing city size will be unequally distributed and cause the level of income inequality to rise (Haworth, Long, and Rasmussen, 1978). To our knowledge none of these hypotheses have been examined for cities that are partially or totally removed from the influence of SMSA economic regions. However, each argument possesses implications for smaller cities which, when examined, produce results relating to the validity and overall understanding of the hypothesis being presented. For example, the monopoly hypothesis may be relevant to SMSAs but we do not know the city size at which monopoly advantages in the marketplaces become significant in worsening income inequality. The relatively smaller demand for rental properties, more competitive business environment, and lesser importance of executives and bureaucrats will substantially reduce the effect of monopoly advantages in smaller cities. It is therefore quite possible that growth in smaller cities may not exert an independent inequality increasing effect on the distribution of income. Arguments can also be made for modificationis in the human capital hypothesis. While an individual's investment in human capital may substantially define his earnings' potential, imperfections in factor markets and discriminatory employment barriers will influence the earnings that are realized. Furthermore, disequilibrium effects in both capital and factor markets resulting from urban growth (in addition to possible changes in attitudes affecting employment barriers) are likely to vary among cities. Consequently, these additioial considerations can influence the equalizing role which capital markets are presumed to play with increasing city size. Moreover, businesses and labor will be attracted or repelled by existing agglomeration economies that are related to city size. Therefore, changes in the occupational and wage structure are not independent of city size. Increases in population in smaller cities may yield gains from specialization and diversification that permit lower income groups to increase their Received for publication May 21, 1979. Revision accepted for publication December 10, 1979. * Northern Illinois University. The author wishes to thank Barry Field and two anonymous referees of this REVIEW for their helpful comments on earlier drafts of this paper. 1 Citing the labor-supply-oriented model by Newhouse (1971) and the labor-demand-oriented model by Thurow (1975), which' both assign industrial mix a major role in inequality, Danziger (1976) finds that 7 out of the 11 major Census occupational groups are significant in explaining inter-city variations in inequality but was unable to relate city size to inequality. Long et al. (1977), on the other hand, found population size and change in population variables to be positive and significantly related to inequality but failed to relate their finding to any particular hvyothesis.

Interrupted Work Careers

Abstract: The quantitative effects and even the existence of "human capital depreciation" phenomena has been a subject of controversy in the recent literature. Prior work, however, was largely cross-sectional and theiotgitudina1 dimension, if any, was retrospective. Using longitudinal panel data (on married women in NLS) we have now established that real wages at reentry are, indeed, lower than. at the point of labor force withdrawal, and the decline in wages is bigger the longer the interruption. Another striking finding is a relatively rapid growth in wages after the return to work. This rapid growth appears to reflect the restoration (or "repair") of previously eroded human capital. The phenomenon of "depreciation" and "restoration" is also visible in data for immigrants to the United States. However, while immigrants eventually catch up with and often surpass natives, returnees from the non-market never fully restore their earnings potential.

Economic growth and human resources

Abstract: There have been many attempts to determine the role of human capital in the process of economic growth, including growth accounting and the measurement of social and private returns to investment in education. Both approaches have tended to indicate positive returns to investment in human capital, but both have been criticized on theoretical and empirical grounds. An analysis is conducted on two levels. First, some simple statistical manipulations are used to see what can be inferred about the relation between growth and human resources. Then, multiple regression techniques are used for treatment of the same issue in greater depth. In these regressions, it is assumed that the growth of GDP per person is influenced by three important factors: the rate of investment, the growth rate of imports, and the level of human resource development at the beginning of the period.

Farm and Off-Farm Work Decisions: The Role of Human Capital

Abstract: W ITH modern economic growth, we observe people reallocating resources in response to changes in economic conditions. How accurately they perceive and efficiently they respond to these changes is attributed to allocative ability (Schultz, 1975). This ability is not restricted to managers of firms. People who supply labor services for hire or who are selfemployed also reallocate their time in response to changes in the value of the work they do. With long-term U.S. economic growth, one major adjustment has been a reallocation of labor between farm and nonfarm labor markets. After 1948, long-term economic forces created prospects of higher incomes in the nonfarm sector. A large proportion of both white and black families quit farming and took nonfarm jobs, causing a massive net exodus of people from farms.' Other farm families have continued to work their farms but have also taken off-farm jobs. Nationally, the percentage of farm operators reporting off-farm work rose from 39% in 1950 to 54% in 1969. Operators working 100 days or more per year off their farms increased from 23% to 40% during the same period (U.S. Department of Commerce, 1973, p. 178). The objective of this paper is to present some econometric evidence of the effect of investments in education and information (agricultural extension) on the off-farm labor supply of farmers.2 The data are county averages per farm for Iowa, North Carolina, and Oklahoma. Important findings are that raising the education level of farmers and increasing the agricultural extension input increase the off-farm labor supply of farmers. This implies that part of the return to education in agriculture arises from its effect on the reallocation of farmers' labor services between farm and nonfarm labor markets. In section I, a labor supply model is developed for household members who face options of having a wage job and a self-employed job. The labor supply decisions are treated as part of a set of joint decisions made by multiple-person farm households on inputs for household consumption and for farm production.3 Section II presents a discussion of the data, the empirical model, and the results from fitting the off-farm labor supply functions. Section III contains further implications, and section IV contains the conclusions.

The Work and Wages of Single Women: 1870 to 1920

Abstract: Single women dominated the U.S. female labor force from 1870 to 1920. Data on the home life and working conditions of single women in 1888 and 1907 enable the estimation of their earnings functions. Work in the manufacturing sector for these women was task-oriented and payment was frequently by the piece. Earnings rose steeply with experience and peaked early; learning was mainly on-the-job. Occupational segregation by sex was a partial product of the method of payment, and the early termination of human capital investment was a function of the life-cycle labor force participation of these women, although the role of the family was also critical.

A Home Production Activity Model

Abstract: The basic theoretical framework for a home production activity model is developed here. This model provides a unified context in which to view production activities, especially within the home. A rationale for the widely held concept of utility is explained, thereby integrating social, psychological, and economic theory in a single theoretical construct. Such an inter disciplinary approach facilitates the understanding and explanation of the processes by which the family carries out its diverse functions. Production activities are examined in an input-output model and are differentiated accord ing to a classification of household, market, or home production. Output is defined in such a manner as to specifically expand the recently developed characteristic approach to consumer decision- making. This process allows us to view a broad range of family activities and place them on a continuum extending from production to consumption. Such a perspective pro vides a framework for analyzing home management and family development decisions of re source allocation with respect to human capital, material capital, time, consumption, and production.

Primary Schooling and Economic Development a Review of the Evidence

Abstract: This paper pulls together recent work and evaluates the evidence on the contribution of primary schooling to development The paper shows that primary schooling increases productivity in all sectors of the economy, and that the economic returns to investment in primary education are in many countries considerably greater than those arising from other levels of schooling In addition it has other important socio-economic effects: it reduces fertility, improves health and nutrition, and promotes significant behavioral and attitudinal changes at the level of both the individual and the community, which are helpful to the process of economic development The evidence shows that the benefits of expanding primary schooling to cover all of the eligible age group are very considerable, even when school quality is low It further shows that subsequent efforts to raise school quality by upgrading teachers and school resources are also likely to result in high economic returns in most poor countries Lending strategies which give primary schooling a central place appear well justified; such approaches would be more conductive of growth-with-equity than most available alternatives

Arab Manpower: The Crisis of Development

Abstract: This study describes and evaluates economic development in the capital-rich and captial-poor states of the Arab world by focusing on the national labor markets. In the Arab world the labor market is a particularly useful means of approaching an analysis of economic development. Normally labor is one of several limiting parameters and constraints upon economic development but in the capital-rich states shortage of human capital is the major constraint upon development. The excess of financial capital has meant that the most common constraint to growth lack of investment income has been effectively removed. Evaluation of economic development by analysis of the labor market is equally apt in the capital-poor states but for slightly different reasons. The various national labor markets are evaluated by demand and supply analysis. The empirical supply of labor is comprised of the national population and demographic indices. Qualitative refinements of this labor supply are affected by examination of educational status the skills and crafts acquired by the population and the extent of modern-sector work experience. In sum full evaluation is made of each states stock of human capital. The demand for labor is approached through the rate and pattern of growth of the domestic economy. Analysis begins with basic assessment of gross national product (GNP) GNP per capita and by economic activity. Growth by sector of the economy and major planned projects affecting labor demand are evaluated before resolving labor demand and supply through the labor market. Employment is analyzed by economic activity occupation sex and nationality. Trends of employment are established and their past present and future significance described. The books structure is based upon a thematic analysis of individual national labor markets in the Arab world and these state-by-state studies are drawn together by international comparisons and examination of the international linkages between these national labor markets. The result is a regional prespective on manpower in the Arab Middle East.

35 – economic development and the growth of income1

Abstract: Publisher Summary This chapter describes economic growth as a positive concept. Extensive growth is present when the real gross national product of a nation expands. Intensive growth requires an increase in output per person. Economic development is a normative concept encompassing distributional and structural factors and higher per capita income. Economic development implies an advance in the standard of living of a broad cross section of a nation's population, including those people in the bottom half of the income distribution. Small differences in growth rates can be important in the long run. For the less developed countries that have experienced substantial economic development, population growth is a problem and an opportunity. The presence of a skilled and disciplined work force is a major determinant of economic well-being. Investment in physical and human capital, technological advancements, and improvements in the efficiency of economic organization are important sources of economic growth. Although technological advancement has played an important role in the promotion of material progress, it is not a sufficient condition for sustained economic growth. If technology were the only requirement for economic growth, the less developed nations would be growing rapidly.

Interrupted Work Careers

Abstract: The quantitative effects and even the existence of "human capital depreciation" phenomena has been a subject of controversy in the recent literature. Prior work, however, was largely cross-sectional and theiotgitudina1 dimension, if any, was retrospective. Using longitudinal panel data (on married women in NLS) we have now established that real wages at reentry are, indeed, lower than. at the point of labor force withdrawal, and the decline in wages is bigger the longer the interruption. Another striking finding is a relatively rapid growth in wages after the return to work. This rapid growth appears to reflect the restoration (or "repair") of previously eroded human capital. The phenomenon of "depreciation" and "restoration" is also visible in data for immigrants to the United States. However, while immigrants eventually catch up with and often surpass natives, returnees from the non-market never fully restore their earnings potential.

Person-Specific Information in the Labor Market

Abstract: Heterogeneity on both sides of the labor market implies that the correct matching of individuals to firms is of importance. If there is uncertainty about individual productive characteristics, there are both private and social returns to activities that generate information facilitating the assortative matching process. A model of individual investment in information is presented and analyzed. A key assumption is that there are no individuals who have an absolute advantage in all jobs. Under this assumption, all individuals view more accurate information as beneficial and therefore invest in its production. Comparative statics are derived and the model is compared to human capital and signaling-screening models.

Repeat migration information costs and location-specific capital

Abstract: The author investigates reasons for repeat and return migration in the United States according to number recency and outcome of previous moves. An extended human capital model of migration is discussed in which the concepts of location-specific capital and information costs are considered. Six hypotheses are then formulated and tested in an attempt to discover a systematic pattern of multiple movement propensities (ANNOTATION)

Specific Training and Inter-Industry Wage Differentials in U.S. Manufacturing

Abstract: H UMAN capital theory posits that individuals invest in the acquisition of productive skills in order to derive higher future earnings. While the dichotomy between investments in "general" and "specific" skills has long been recognised,t empirical tests of the theory do not usually distinguish between the two earnings components.2 In this paper the conventional earnings model is expanded to incorporate worker-financed specific training. The inclusion of tenure allows a segregation of estimates of returns to general and specific human capital. This disaggregation permits an examination of the relationship between worker-financing of specific training and interindustry wage differentials. Cross-section investigations typically report the importance of industry of employment as a wage determinant, even controlling for a myriad of individual characteristics.3 This result has been taken, perhaps prematurely, as evidence of pervasive labor market imperfections. If interindustry differences in skill specificity are important, we should expect systematic wage differentials. Increased acquisition of worker-financed specific training will be associated with lower initial wages and subsequent higher rates of wage increase. In section I we consider the implications of using alternative specifications of the earnings model. The distinction is drawn between general and specific human capital, allowing a relaxation of the assumption constraining the returns from these mix of skills to be equal across individuals. In the process of this exposition the specific training prediction of a negative relationship between industry standing wages and subsequent rates of wage growth is derived. This hypothesis is subjected to test using individual data from the 1971 National Longitudinal Survey of Young Men, and the results are reported in section II. The complication is raised that workers remain longer in jobs paying higher wages independently of specific training. A simultaneous equations model treating tenure and wage as endogenous variables is tested revealing little bias in the single equation specification. A concluding section summarizes the main findings and offers suggestions for future research in this area.

Has the Golden Age of American Higher Education Come to an Abrupt End

Abstract: When producers are uncertain or have imperfect information about the profitability of adopting new technology, their adoption behavior depends on the endowment of human capital and the investment in adoption information This study analyzes the role of

Overeducation and Unemployment in the Third World: The Paradoxes of Dependent Industrialization

Abstract: There is increasing recognition of the shortcomings of the development undertaken during the past decades. Developing countries based these efforts on a strategy of accelerated industrialization; that is, the creation and expansion of a modern, industrialized, and high-productivity sector of the economy. Educational policies were designed to provide high-level qualified manpower thought to be required for this task. In terms of the "modern sector" development theories, this strategy assumed that its benefits would spread as the modern techniques and efficient forms of organization of production activities become more widely adopted in the traditional and backward sectors of the economy. But these hopes have not been realized. Even in cases where industrial output and gross national product per head have risen impressively, there have not been commensurate improvements in the welfare and standards of living of the population, and massive poverty still persists. As to education, for all practical purposes, the majority of the population has been excluded from obtaining a complete cycle of primary education, which is necessary for functional literacy. In addition, it is claimed that neither has it fulfilled its expected role of providing the manpower requirements of an industrializing economy. This is reflected in the excessive number of enrollments within the traditional humanistic educational programs, while there are relatively few in the technological and scientific ones, even though these are indispensable for the industrialization and modernization of the economy. Worse yet, although the majority of the working population has not completed primary education, there is a growing number of educated unemployed and of underutilized educated manpower. The dominant explanations of this set of problems focus mostly on labor market imperfections, institutional deficiencies, and misguided educational and curriculum policies. It is generally assumed that government and educational institutions bear responsibility for these problems. Some of the underlying factors associated with these problems are: the mismatches of educational and training programs in relation to the occupational skills requirements for industrialization; the irrelevance of curriculum orientations to the processes of development: the traditional preferences of the people of underdeveloped societies for humanistic education over manual, technical, and scientific training; the government's discrimi-

An Exploratory Analysis of Individualist Versus Structuralist Explanations of Income

Abstract: This paper tests two divergent explanations of income: one model based on human capital variables, the other based on neo-Marxian, structural variables. In particular, our paper extends the work of political economists and the very recent work of sociologists (especially, Bibb and Form, Beck et al., and Wright and Perrone). Our sample was a national one drawn from a larger study conducted by the National Opinion Research Center; the final sample consisted of 763 members of the labor force (415 males and 348 females). While the human capital variables produced greater explained variance than the structural variables, in a combined model the structural variables increased the explanatory power by 27 percent. The structural model worked better for men; the human capital model worked better for women.

Is the a tradeoff between growth and basic needs

Abstract: Theoretical and empirical arguments maintaining that the provision of the poor and neglected with basic goods and services implies a sacrific of productive investments and economic growth are reviewed. Proponents of a basic needs approach claim that the direct provision of essential goods and services is a more efficient and rapid way of eliminating poverty than an approach based on the hope that the benefits of increased national growth will eventually reach the poor. The argument against direct provision of basic needs is based on 2 contentions: 1) transfers of essential goods and services result in increasing the consumption level of the poor at the cost of eventually reducing the net level of investment and saving in the economy and therefore the welfare of everybody; and 1) the poor would be better provided for in the long run through the higher incomes realized by greater overall investment under a more conventional growth-oriented development strategy. Evidence from 83 developing countries is used to show that the provision of basic needs can improve growth performance. It appears that economists previously concentrated too narrowly on 1 aspect of human capital -- education. It is possible that other aspects of a basic needs approach to development which aim to improve the health and living conditions of the poor should also be considered as building up a countrys human capital.