Implications of Human Capital Formation on Output and Employment: Evidence from Nigeria

Many studies have documented that human capital formation is important to boost output both empirically and theoretically. However, studies on the implications of human capital on employment are still scanty, especially for developing countries. Against this background, the study investigates the shock and long-run implications of government financing on education and health on output and employment in Nigeria using a vector error correction model (VECM). The results show that the forecasting error shocks from government expenditure on health and education affect output more than employment along the 10-horizon period. Evidence from the long-run output model showed that government expenditure on education and human capital index is statistically significant, while government expenditure on health is not statistically significant. Government expenditure on education and the human capital index has a positive relationship with output. For the long-run employment model, government expenditure on health and education is statistically significant; while investment in human capital is not significant with employment. Government expenditure on education has a negative relationship with employment, while a positive relationship exists between government expenditure on health and employment. The result implies that human capital indicators in terms of quantity and quality do not contribute positively and significantly to employment growth in Nigeria. The study recommends the need to encourage self-reliance through entrepreneurship training to bolster employment opportunities in the long run.