ESTIMATING THE EFFECT OF AGGREGATED HUMAN CAPITAL ON LABOR PRODUCTIVITY OF MANUFACTURING SECTOR

CHAPTER ONE  

INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

Abstract

This work discusses the effect of human capital on labour productivity of manufacturing sector in Nigeria. The study applied the ordinary least squares regression analysis in the estimation. The evaluation result shows that human capital has a positive effect on the sectoral labour productivity level of the manufacturing firms. The study found that government expenditure on education maintained a positive relationship with the dependent variable, government expenditure on health has a positive relationship with the dependent variable but statistical insignificant while manufacturing capacity index has a negative relationship with labour productivity . Consequently, it was recommended among others that more stock of physical capital needed to be acquired, to facilitate more investment in human capital and thereby enhance productivity capacity in Nigeria

CHAPTER ONE

INTRODUCTION

• Background of the study

In the past 50 years, human capital theory (Schuttz 1961; Becker, 1964; Mincer, 1974) has attracted much attention by confirming the causal relationship between education and economic growth. This is because the human capital theory maintains that economic development can be achieved and sustained by an educated and productive workforce. The relationship between human capital and labour productivity has always been the focus in all economy’s sector (Agriculture, Industry and Services) of each country. Regarding the importance of industries in Nigeria and their contributions to economic Growth, this study investigates the effect of human capital on labour productivity in the manufacturing sector. Human capital theory also suggests that education or training raises the productivity of workers by future income increasing their lifetime earnings (Becker, 1964).

In the past 20 years there have been several attempts to investigate the role of human capital on labour productivity Mc-Mahon (1984) considered the relation of education and scientific and technical knowledge developed through research and development with labour productivity growth within the medium term. Hall and Mairesse(1995) investigated research and development investment of individual French manufacturing firms  for the 1980’s. Similarly health is fundamental to economic growth and development and is one of the key determinants of economic and labour performance both at the micro and macro levels. This derives from the fact that health is both a direct component of human well-being and a form of human capital that increases an individual’s capabilities (Bloom and Canning 2003). Meeting the commendable United Nation  Health  Millennium Development Goals (MDGS) of a reduction by two-thirds of the under 5 mortality ratio and a reduction by three-quarter in maternal mortality, halting and beginning to reverse the spread of HIV/AIDS, Malaria and other major diseases by 2015 will be completely elusive for Sub-sahara African countries like Nigeria if sufficient attention is not paid to health sector.

According to Bureau of labour statistics, Labour productivity is the quantity of real GDP produced by one hour of labour. Labour productivity = (Real GDP)  (Aggregate hours). Rearranging, Real GDP = (Aggregate hours)  (Labour productivity) so growth in real GDP can be divided into growth in aggregate hours and growth in labour productivity. Three factors influence the growth of  labour productivity, savings  and investment in physical capital, expansion of human capital, discovery of new technologies. It is now a generally accepted view that human capital plays a key role in the development of any nation. In fact, the differences in the level of socio – economic development across nations is attributed not so much to natural resource endowment and the stock of physical capital but to the quality and quantity of human capital. Human resource development tends to improve the quality and productivity of labour, which in turn, leads to economic growth. Besides, acting as an important vehicle of achieving equitable income distribution, human capital is also a potent means of addressing the problem of poverty. In the words of Nwaobi, (1996) “human resources constitute the ultimate basis for the wealth of the nations. Capital and natural resources are passive factors of production”. Human beings are 2 emphasizing the importance of education at various points in The Wealth of Nations, Adams Smith specifically includes the acquired and useful abilities of all the inhabitants or members of the society in his concept to fixed capital. Alfred Marshal also emphasizes the importance of education as a national investment and, in his view, “the most valuable of all capital is that invested in human beings. In spite of this awareness, most early economists still regard physical capital as the main component of a country’s productive wealth; they still relegate natural and human capital to the background. It took the effort of Schultz (1961a) and others to rediscover the importance of human capital, which has in a more recent effort to incorporate investment in education into the mainstream of economic analysis. In its very general form, human capital refers to the aggregate stock of a nation’s population that can be drawn upon for present and future production and distribution of goods and services. It comprises the essential variables (i.e knowledge, skills and attitude) available within each unit of a nation’s human resource stock. The United Nations Economic Commission for Africa (UNECA: 1990) describes human capital as the knowledge, skills, attitudes, physical and managerial effort required to manipulate capital, technology, and land among other things to produce goods and services for human consumption. In other words, human capital is the totality of human potentials (knowledge, skills, attitude, energy and 3 technology), inherent within a nations human capital stock. This, if properly developed and harnessed, would yield a high level of labour productivity. Human capital can therefore be conceived as a developed skill, knowledge and the capabilities of all the people of the society and which are needed in the labour market for the production of goods and services. In economic terms, it could be described as the accumulation of knowledge and its effective investment in the development of an economy (Harbison and Mayer 1964) Generally, human capital is developed in several ways. The first is through formal education, involving pre-primary, primary, secondary and higher education. The second is “in–service or on the job” training, which is a systematic or informal training programme in employing institutions in adult education programme and through membership of various political, social, religious and cultural groups. The third way is individual, selfdevelopment. This occurs when individuals seek to acquire greater knowledge, skills or capacities through preparation on their own initiatives. Human capital can also be developed through improvement in the health of the working population by means of better medical and public health programmes and improvement in nutrition, which jointly increase the working capacity of people on a man-hour basis as well as over a working life. The improvement in formal education, health and nutrition can be both a cause of productivity growth and a result of it. Finally, human capital can 4 be developed through importation of educated manpower, mostly technical expertise and consultants. Of the various ways of human capital development, formal education seems to be the most veritable. Corvers (1994) discussed the four effect of human capital on labour productivity: the worker effect, the allocative effect, the diffusion effect, and the research effect. The effects are based on the studies of Nelson and Phelps (1966), Welch (1970), Ram (1980) and Pencavel (1991), inter alia. The work argue that the first and second of these effects underpin the relevance of human capital for the productivity level, whereas the latter two effects underpin the relevance of human capital for productivity growth. Welch (1970) has explained the first of these, the worker effect (or productivity effect). He assumes that firms produce only one good with the production factor education, and that other resources are given. The worker effect refers to the positive marginal productivity of education with respect to that particular good. Workers with a high level of education are assumed to be more efficient in working with the resources at hand, (i.e. these workers produce more physical output). In other words, education increases the effective labour input. Therefore, a better educated labour force shifts the production possibility curves outward. According to Welch (1970; 43) the worker effect is presumably “related to the complexity of the physical production process”. The more complex the production technique is, the more is the ‘room’ left for the worker effect to improve the (technical) efficiency of production. An increase in the proportion of intermediate or highly skilled workers relative to low skilled workers increases the productivity level of physical units. Productivity shows output per unit of input employed. Increase in productivity comes about from increased efficiency on the part of labour.

• STATEMENT OF THE PROBLEM

Although, Human capital theory is not exactly watertight nor is causality easy to establish, yet the impact of human resource development on the industrial productivity is decidedly positive. It is really a matter of regret that after over decades of experimenting in the art of industrialization, most of our industries still remain lukewarm to the fundamental concepts of industrial engineering technology. The level of technology has been very low. It is a common observation that many of the capital equipment and machinery used in the factories are obsolete and are of low yielding and low efficiency capacity. In case of their breakdown, repairs are more difficult because their models have since been discarded. The result is that production is often disrupted in our factories. The corpus of empirical research unequivocally leans toward an affirmation of direct causation for which the East Asian countries are recent examples. This consensus was not forged from the beginning; it was inspired partly by disenchantment with absolute growth oriented development strategies pursued in the fifties and sixties which neglected or marginalized the social sector- education, health and others, yet failed to deliver robust growth in industries or achieve poverty reduction as well. Moreover, it constitutes a direct affront on the economic doctrine that holds income maximization as the supreme objective of national economic policy and a measure of the wealth of nation. Undoubtedly, human beings are the active agents who accumulate capital, exploit natural resources, build social, economic and political organizations to advance productivity in industries and national development. Significantly though, the progress made has been less rapid to markedly attenuate Nigeria’s dependence on expatriates for the operation of many vital functions. Particularly worrisome has been the deterioration in the quality of educational service at all levels, especially at higher education levels where persons are trained to take up leadership roles in science, technology, management and business. Moreover, the expansion of human capital stock has not been matched by a commensurate advancement in physical capital. The net consequence has been paltry growth of productivity, income and meager returns to education over the years. It is on this premise that the researcher is spur to investigate the effectiveness of human capital on labor productivity.

1.3  OBJECTIVE OF THE STUDY

The general objective of the study is to investigate the impact of human capital on labour productivity in the manufacturing sector in Enugu states. The specific objectives of this research are:

1. To evaluate the impact of human capital on labour productivity in Enugu states.
2. To examine the effect of human capital on labour productivity
3. To determine the factors that enhanced human capital productivity in Nigeria
4. To examine the relationship between human capital development and labor productivity of manufacturing sector

1.4 RESEARCH HYPOTHESES

To aid the completion of the study, the following hypotheses will guide the researcher

H₀: Human capital does not affect productivity in the manufacturing sector

H₁: Human capital does affect productivity in the manufacturing sector

H₀²: there is no significant relationship between human capital development and labor productivity

H₂: there is a significant relationship between human capital development and labor productivity

1.5 SIGNIFICANCE OF THE STUDY

The relevance and usefulness of this study is not in doubt. Productivity involves embracing not only a necessary change for attaining better results but also an ability to review situations whenever circumstances demand. It involves the adoption of an analytical approach in determining proper objectives and the best operational options for achieving optimum results, using the best combinations of men and material resources (or what is available of these) for the best possible production of goods and services within a given time or period. We must accept the general view held all over the would, that a nations level of comfort and wellbeing of its citizenry, bear close relationship with the quality and quantity of what it produces for consumption and for exchange. In our prevailing circumstances the need for improved productivity in every facet of our industries takes on an urgent significance. It becomes not just a method of ensuring a better quality of life, but rather a necessity for our national survival.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers an estimate of the effect of aggregated human capital on labor productivity of manufacturing sector; but in the cause of the study, there were some factors which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

1.7 OPERATIONAL DEFINITION OF TERMS

Human capital

Human capital refers to the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value

Labor

Labor also refers to the workers themselves, esp. those who do practical work with their hands

Labor productivity

Labor productivity measures the output of a country’s economy, or goods and services produced, per hour. Labor productivity measures the number of goods and services produced by one hour of labor; specifically, labor productivity measures the  amount of real gross domestic product (GDP) produced by an hour of labor.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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