Human Capital Investment and Employment Growth in Nigeria

This paper mainly examines the link between human capital investment and employment growth in Nigeria for the period spanning 1980–2019 using timeseries data. The theoretical model is rooted in the simple theory of investment in human capital based on Ashton and Green (1996) relating to maximization of lifetime earnings and wealth. Diagnostic tests show that the ordinary least square (OLS) estimation technique is plausible. Results show that employment rate can positively induce government expenditure on education and health and secondary school enrollment.Creation of investment opportunities through basic infrastructural facilities – electricity, roads,etc. – is key to employment growth and human capital investment.


INTRODUCTION
It has been argued that production depends not only on labour; labour is together with other factors and thus production cannot be identified only on the basis of number of heads or hours of work, since it depends on the quality of labour as determined by knowledge and skills subject to further development. The emergence of the economic transformation of many Western nations recognises knowledge and skills as key in enhancing greater output level, be it at the microeconomic ormacroeconomic level. Hence, human civilization mainly focuseson education alongside with other factors and this has motivated nations toincrease spending on education.
Human capital (HC) consists of general skills, specific skills and technical and scientifiknowledge used in determining productivity at the individual and aggregate level at large.Accordingly, regions characterised by a high concentration of human capital often generally farebetter economically in terms of employment growth and hence increases in productivity and income compared to other regions. Hence, human capital is directly related to the rates of employment, productivity and wage levels. Employment remains vital not only for the wellbeing of an individual but also for the society at large. Even though economic conditions differ from one region to the other, a general economic policy goal is the delivery of employment opportunities accompanied by highly qualified skilled labour. It therefore follows that education and acquisition of skills remain crucial for facilitating sustainable growth and employment. While it is possible for acquisition of skills to lead to high employment rates, it is equally possible for educated individuals to move to areas in which higher employment rates exist. Thus, causality runs from both ends.
In Nigeria, attempts to effect stabilisation and structural adjustment policies over the last three decades to enhance economic growth and development have not successfully overcome the problem of unemployment. Just as many African nations, efforts towards increasing human capital development have not reduced the high rate of unemployment, just as investment in education has not resulted in expected output. The issue of employment and human capitadevelopment is fundamental, as this provides some of the explanations forthe poverty growth thresholds of the economy. In spite of the low acquisition of skills in Nigeria compared to some other nations, on a yearly basis, the number of educated individuals on the aggregate level is comparatively higher than the rate of employment. The experience has been that unemployment has been on the increase and has continued to exist amidst a relatively high rate of educated individuals. Undoutedly, this has cut across most of the notable sectors of the economyincluding industry, banking, education and most importantly the private sectors as frequently observed and thesehave succeeded in adding to the present unemployment problems. Again, socioeconomic problems including poor infrastructure such as roads, electricity supply etc, have also contributed in no small way to the current unemployment crisis.Recessionssuch as thatof 2016further aggrevated the problem, as many sectors are unwilling to employ more workers, irrespective of the levels education and skill acquired.
Many studies have either focused on human capital investment or employment related issues but attempts at linking the two have beengrossly inadequate. For example, Kenny (2019)examined the effect of human capital on unemployment volatility in Nigeria, and Imide &Dania (2019) studied thehuman capital and economic growth relationship. These two studies mentioned do not connect human capital with employment issues and so making studies in this area scanty. Linking the two informs policy makers in striking a balance in such a way that the number of educated individuals does not outweigh available employment opportunities. This isnecessary to curb the increasing level of poverty and move closer to attaining sustainable growth in Nigeria. In the search of the literature, emphasis has mostly been laid on impacts of human capital on employment/unemployment growth but the reverse is without adequate attention. This is indeed a good motivation and thus, subsequently, the objective of this paper is basically to examine the role employment opportunities play in human capital investment, with an emphasis on the primary and secondary levels of formal education. Following the introduction, Section 2 provides relevant literature, Section 3 provides the theoretical model, estimation and discussion are provided in Section 4, while Section 5 concludes.

LITERATURE REVIEW
Studies in the literature have identified and recognised investment in human capital (HC) and the theory in line with it. Schultz (1963) as cited in Devadas (2015) was first to identify education as a formof capital with uncertainty that skills and knowledge are a form of capital (Schultz, 1961).In the studies of Becker (1960Becker ( , 1961, he establishes a theoretical relationship between education and economic development or high income earnings with the use of an external rate of return on education (Becker, 1960) and internal rate of return (Becker, 1964). The evolution of HC theory has passed through some eras: classical economic thought, economic foundation studies of HC theory and contemporary views, as shown in Figure 1 Sweetland (1996) in anearlier review considers economic viewpoints, economic foundation studies, and HC theory. Therefore, consideration is given here to developments that took place after Sweetland's work.
To the classical economists, particularly Adam Smith, human efforts have been considered as the root of all wealth, as emphasised by Sweetland (1996). Other economists equally contribute in this area of HC. As noted by Sweetland (1996), Marshall considers human abilities as personal wealth, interpreting this as capitaland as an agent of production. The commencement of HC formalised classical thought of HC. In this regard, Sweetland (1996) highlights some studies by Mincer (1958), Fabricant (1959, Becker (1960) and Schultz (1961) as cited in Devadas (2015), were significant contributors prior to the official establishment of the HC theory in the early 1960s. Mincer (1958) notes that training and skills to a large extent affected personal income dispersions. Fabricant (1959) in his studiesemphasises the importance of intangible capital -improvement in basic science, technology, business administration and education and training. Schultz (1961) identifies five major challenges of human activities (investments) in the areas of health facilities and services, on job training, formally organised education at various levels and migration of individuals and families in response to new job opportunities. According to HC theory, employee productivity is increased through development in their knowledge, skills and attitude that can facilitate better performance (Ofobruku&Nwakoby, 2015;Ofobruku&Yusuf, 2016;Anike et al., 2017).
In their contribution to HC,economic fundational studies highlight the role of education (training and skill) indisparities in personal income (Mincer, 1958), the importance of intangible capital (Fabricant, 1959), appropriate methologiesforstudying HC (Becker, 1960) and how education relates to HC, including the types of HC (Schultz, 1961). Similarly, Sweetland (1990) provides an insight into the various contributions of Denison (1962), Schultz (1963), Becker (1964) to the HC theory of development studies.
Based on the views of HCearlier in existence, Becker (1993) put forward adefinition of HC and notedthat expenditures on education, training and medical care are essentially investment in HC.Following this, using education as a yard stick has been criticized due to its limitations, including other proxies of education in subsequent studies. While other studies on HC have been extended to explain its link to other macroeconomic variables in diversity apart from growth/output/national income, particularly important factors are its expansion by quality of education (Wößmann, 2003;Gundlach, 1997), learning on the job impact (experience) and the role nutrition and health play (Gundlach, 1997). Criticisms have however followed various discussions on quality of education, life-long job, higher related earning, and unemployment, among other formal procedures (Livingstone, 1997) which explain HC theory. In recent times, complexity in the dimensions of HC is becoming noticeable. With reference to Natoli (2008), it is highlighted that HC is non-tradable (except in slavery conditions), possesses both quantitative and qualitative aspects, can be either general or specific, and equally possesses external effect with social environment and the institutional context where it exists.
The intensity of HC in a locality might influence the local employment rate through production related or consumption related mechanisms, or even both. Focusing on the consumption related mechanism in the first instance, some high-income educated individuals increase spending patterns in absolute terms and the share of their income on services that are not necessities, such as leisure activities and personal services,areconsidered to be income and education elastic, However, not all fall into this category; most of these services are characterised by being nontraded, nonsubstitutable (human labour) by technology in their availability, possession of low skills. Jobs belonging to this category are cleaning and security services together with services requiring personal contact like sales assistants and care workers.
The prediction of the above view is premised on the idea that continuity of high income and aneducated population in a local area tends to boost the demand for low-skilled consumer service jobs. Hence,an upward sloping surply curve emanating from this implies rising wages and employment in these service jobs. Spatially differentiated growth of high skilled individuals in different areas of the economy could be explained by theattraction of cities tohighly-skilled workers (those valuing them) due to the urban amenities and productivity gains being offered. From another perspective, operation of agglomeration economies in the local labour market of cities could enhance the productivity of highly skilled workers compared to those in diffusion areas. This essentially increases demand in agglomeration economies. Consequently, there would be an increasing inflow of highly-skilled individuals into these areas based on increasing returns to HC and rising employment opportunities which they offer. Apart from this, spatial differentiation can result from local youth cohorts characterised by a higher educational level and moving into highly-skilled, highly paid occupations. For instance, as individual returns to HC in a certain area increases, local youth might be encouraged to receive higher training and skills. Even though skill requirements are low for highly-skilled jobs they have not become obsolete yeteven in the presence of great advances in technology in recent times. For more than a decade now technology itself has not totally managed to replace labour for some services requiring personal contact.
There have been submissions from various contributors to urban literature. Glaeser et al. (2001) provides an important theorisation of the rise of the city as centre of consumption. They argue that cities as consumption centres amidst areas of rising incomes have remained crucial for the cities and urban resurgence. This is because urban centres provide a large variety of services and consumer goods that are non-traded, hence attracting increasingly rich workers. The attraction of richer and highly educated workers gives rise to high productive capacity and hence contributes positively to employment growth. Glaeser and Gottlieb (2006) and Shapiro (2006) offer some empirical evidence in support of this.
On empirical grounds, Morreti(2004) makes a distinction between spillovers in productivity and complementarities in production with the findings that the wage premium in cities characterized by large shares of college graduates declines as new knowledge is acquired. By implication, low-skilled individuals benefit most fromthe existence of a larger number of graduates. Mete and Schultz (2002), using the OLS method, examine labour force participation rate based on change in the quality of health. The study finds that labourforce participation rate increases health quality and vice-versa.

THEORETICAL MODEL
Theoretically, an individual's investment in human capital is increased when the gains from this exceeds the losses, orput differently, when the revenues from such investment exceed the cost, and this applies to any other investment. In this context, investment in human capital is explained in terms of investment in education. A simple model based on Ashton and Green (1996) is therefore developed and is applicable to any form of investment. This model is concerned with maximization of life time earnings and wealth. In its simple form, while investment in compulsory education is fixed, the model leaves out all non-monetary revenues thatare indirect revenues.
Consider the lifetime wealth accumulated by an individual defined by whereWiis future lifetime wealth accumulated in period i being the current period,ca is current age, Rt represents the retirement age(age at which economic activities diminish), yi (hi) is the income in period i and hiis human capital level, mis unit cost of education, Si equals the amountof education obtained in the same period, r is the rate of discount and t represents tax.
Funds can be a major constraint, as the possibility of investment taking place is a function of cumulated amount of funds that can sustain an individual. The constraint in mathematical term then becomes where c is minimum expenditure required for survival in eachperiod.
However, human capital in eachperiod is a function of its previous and present level of investments, such that whereAc is age attained after compulsory education, hcis total human capital attained during compulsory education and δ represents the rate of depreciation of skills.
Given that an individual maximized his total lifetime earnings investment in human capital in every period, this can therefore be determined by a number of factors expressed in the following form: The simplicity of this model leads to certain imperfections such as the inability to predict consequences of changes in any of the variables, the assumption of constancy in most parameters throughout the life span, and neglecting varying costs involved in human capital investment,among others. On this basis, the model is extended to a general approach to investment in human capital. Therefore the extended model is: The foregoing provides a guide to the baseline models as follows:  (6), (7), (8) and (9)

ESTIMATION
First, the unit root test is conducted to understand the stationarity condition of the process. With a nonstationary process, law of large numbers and central limit theorem are violated, therefore familiar test statistics become inapplicable. Any attempt to apply this renders results to be spurious. The Augmented Unit root test is employed here because it is usually valid in large samples. Therefore, the sample observations employed in this paper fit into the ADF unit root test method. The test for stationarity inTable 1shows that only government expenditure on education, government effectiveness, life expectancy and secondary school enrollment and employment rate variables are stationary in their levels, although the latter fulfills this at the 10% level. Gross capital formation and primary school enrolment variables are stationary in their first differences.   The same goes for primary and secondary school enrollment models. The test results show normal distribution of residuals, no serial correlation and absence of heteroscadasticity (Table 2).
Starting the discussion of results with the government expenditure on education, initial government spending on education is positive (0.659) with significant effect on the current spending. This demonstrates that past efforts on human capital development trend into the present. In contrary, the lag value of government expenditure on health is significantly negatively (-0.617) related to current spending on health. Hence past health expenditure patterns seem not to favour the present. Age dependency ratio (8.895), employment rate (1.229) and life expectancy (5.953) largely impact positively on government expenditure on education. Most importantly, increasing population within the age range of compulsory education can stimulate government preparedness to spend more on attaining quality education.
Similarly, for the government expenditure on health,an increasing employment rate encourages knowledge attainment through education and subsequently more spending on education. Longevity sustains more expertise and thus encourages more spending on education, as a longer life expectancy complemented by a long period of wealth accumulation gives rise to more investment in human capital.The employment rate (0.910) facilitates government expenditure on health and has a lower impact compared to its impact on expenditure on education.
Government effectiveness and gross capital formation impact negatively on both education and health expenditures. The negative coefficient of government effectivess is a measure of low quality of governance in the system. In the same way, concentration on accumulating unproductive investments retards spending on both education and health.
For the other category of human capital measure, initial primary school enrolment relates positively (0.567) with current levels of enrollment. Hence, past education tend to encourage more education, particularly as more people are willing to accept new training.The same is true forthe initial level of secondary enrollment (0.324) but with lower impact on the current level. Age dependency ratio influences both primary and secondary school enrollment positively. An increasing dependency ratio increases the desire for both levels of education, but more so for primary education. Interestingly, employment rate is positive (7.936) and significantly related to secondary enrollment but negatively related to primaryschoolenrollment (-0.564). Thus, a greater level of employment encourages secondary education compared to primary school education. Quality of governance lowers primary school enrolment, as indicated by the negative value(-0.147), but improves secondary education (0.113). Life expectancy is significantly and positively related to secondary education while its effect on primary enrollment is on the reverse.
The models appear adequate as confirmed by the probability F-statistics (0.000),especially for government expenditure on education, primary and secondary school enrollment models.

CONCLUSION AND POLICY IMPLICATIONS
The paper examined the relationship between human capital investment and employment growth during the period 1980-2019. A weak structural adjustment programme together with ineffective stabilisation policies have not changed the trend in unemployment rate in Nigeria. Undoutedly, the government is making aneffort toensure alow level of unemployment but this has not yet been achieved as expecte. In most cases, the low level of output resulting from a low level of industrialization and human capital investment has been a fundamental issue. Due to frustration from the unemployment crisis, the few cases of human capital development are accompanied by brain drains as opportunities arise abroad. This is indeed a major withdrawal from the domestic economy and injection to foreign ones; moreso that individuals are trained again to acquire further skills. There are many ways out of this persistent problem.The major one is focusing on massive investment creation in education infrastructure, particularly technology that can ensure a better quality education. This will encourage the skilled, semi-skilled and unskilled workers in Nigeria through demonstrating hidden positive talents.Nigerians are creative if they can be encouraged. Health infrastructure should be available and well equipped to keep productive labour in good health conditions.Resarch and development should be stronglyencouraged, as this will usually inceasethe extent of collaboration of ideas, particularly on the need to improve human capital. Electricity and road infrastructures for national and international routes should be put in good shape to further stimulate more trade integration and investment opportunities. In the long runthese measureshould improve employment opportunities and subsequently investment in human capital.