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

Abstract

The abilities and qualities of labour that influence productivity include higher education, on-the-job training and health. Investment in these improves the abilities of the labour force to innovate and adopt new technologies. Thus, policy dimensions towards building human capital make the difference between inclusive growth and jobless economic growth that leaves large segments of the society behind. However, Sub-Saharan African (SSA) countries are bedeviled by poor performance of their labour markets mostly characterized by rising rate of unemployment, low labour productivity, among others. This study examines the effect of human capital development on labour market outcomes in Sub Saharan African countries while capturing labour market outcomes with labour productivity. Given that education, health and life expectancy are integrals of human capital investments and often viewed as factors determining a country’s labour force, they are employed within a dynamic panel analysis framework using the Generalized method of Moments for 30 SSA countries from 2000-2019. In most developing countries, particularly SSA, the public sector is often significantly larger than the private sector. Given the role of policymakers in labour market performance, the study introduces government effectiveness as a control variable. Empirical results reveal that government expenditure on health and life expectancy exert significant effect on labour productivity, with government expenditure on health being positive and life expectancy being negative. Similarly, the effect of government expenditure on education is insignificant for labour productivity. Government effectiveness affects labour productivity positively and significantly. The study reiterates the importance of human capital in labour market outcomes while suggesting the need for policies that will ensure adequate investment in human capital. Keywords: Education, Health, Labour Productivity, Sub-Saharan Africa, Human Capital. DOI: 10.7176/JESD/13-6-05 Publication date: March 31 st 2022