Rethinking Human Capital: View of informal workers

What does human capital mean from the perspective of the informal sector women workers? An interesting question discussed in a Round Table organized by the Self Employed Women’s Association (SEWA), Ahmedabad.  A paper titled ‘Rethinking Human Capital: Perspectives from women working in the informal economy’, by Yogesh Ghore, Brad Long and Derin Derici, was presented based on interviews with informal workers.

The Round Table was moderated by Deborah Greenfield who had this question for to me: “Prof. Unni, you are a close observer of data, so in your view, how do the strengths of an organization like SEWA, working with women in the informal economy “fit” into models that rely on measurement?  Is that something we should be concerned about, and if so, why?”

My response (Rethinking human capital, listen here): Human capital is a deeply entrenched concept, particularly in Economics and in the language of the multi-lateral and bilateral agencies. Human capital is traditionally measured in terms of years of formal education. The Human Capital Index (HCI) includes variables on health and education, similar to the Human Development Index where the additional variable is per capita income.

The paper that we are discussing, ‘Rethinking Human Capital’, suggests that HCI is not a good measure of human capital as it does not capture the reality of informal workers. It particularly does not capture what women informal workers consider as human capital. Further, it does not capture the SEWA approach to enhance human capital through organization and hand holding that helps in increasing productivity.

What aspects of human capital are not captured or measured that is important to informal workers? While the measure of human capital captures years of formal education in my opinion it misses out the following:

  • Acquisition of skills through informal sources. These could be traditional skills handed down in the family, e.g. embroidery, or informal training from non-profit organisations, NGOs or trade unions. Not capturing informal skills in a measure of human capital leads to undervaluation of skills, often traditional skills of women. Traditional skills may also be undervalued by the family and the women themselves till an outside agency helps to market and raise the value of the product.

This has a number of implications, for example in the definition of Minimum Wages. Women skills in say weeding or the less skilled work done in a garment industry is not listed as a trade with Minimum Wages, which has implication for bargaining for better wages.

  • Business training received form NGOs, public or private agencies that provide basic skills in accounting, management, entrepreneurship. Such skills are often not amenable to universal standards and hence are not measured or counted as skills.
  • Negotiation skills are often not developed or nurtured among girls and women due to social and cultural factors. These skills may be taught in informal ways or may be gained with experience in the trades. While on-the-job training of wage and salaried workers may be easily captured in the measure of human capital, negotiation skill of business among self-employed is little understood and is more difficult to capture.
  • As pointed out in the paper, human capital is connected to other forms of capital. It is enhanced by social capital, physical capital, finance capital and natural capital. A better measure of human capital needs to conceive of a way to capture the relations with other forms of capital, which would be different for various trades. For e.g. skills of tribal and forest workers may be enhanced by their knowledge and access to natural capital, which is not accounted for in the traditional measure of human capital based on formal education.
  • Organisation and collective action, solidarity of workers and hand holding over a period of time helps in increasing productivity of workers. This helps in negotiating for better wages and prices of inputs and outputs. This is the main approach of SEWA which is not captured in the measure of human capital.

Inadequate measure of human capital based on the idea of wage employment: The formal technical definition of human capital does not capture the various skills outlined above because this concept is based on the idea of wage employment. For wage and salaried employment the years of formal general and technical education are sufficient to measure the skill level of the worker. But the majority of the informal workers are self-employed. They require the sets of skills that we have enumerated above, which are missed out in the formal measure of human capital.

The main question is: How to measure these new dimensions to be able to include in the concept of human capital or in the development of the Human Capital Index? How do the strengths of an organization like SEWA, working with women in the informal economy ‘fit’ into models that rely on measurement? 

Frankly in the current version of measurement of human capital the SEWA model does not ‘fit’. The new dimensions discussed here are indicators of the asymmetry of gender and informality. The indicators point to the macro-structural constraints in access to markets, credit and much more, faced by informal workers, particularly women.

Should SEWA be concerned about not ‘fitting’ into a traditional model of human capital? While the SEWA model is not a universal model, it is an important strategy or approach of organization and hand holding to improve the agency and empowerment of women. Since a large proportion of workers in South Asia and Africa are self-employed it is important to design a strategy of collective action to help improve productivity and incomes of the enterprises. To that extent, I would think it is important for SEWA to focus on and consider alternative measures of human capital that would include the factors that impact business and help in expansion and growth of enterprises.

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