WELFARE EFFECTS AND IMPORTANCE OF SKILLS AND HUMAN CAPITAL DEVELOPMENT POLICIES IN A DCGE MODEL OF GHANA

Abstract

Based on a 2012 Ghanaian social accounting matrix, it was determined how different leisure levels and labour endowments affect household welfare and sectoral output. The findings of the leisure experiments point to a pattern in which the wellbeing of wealthiest households are negatively impacted. On the other hand, all other households see an increase in their welfare with rural farmer head savannah (hh01) always seeing the highest each time. Clearly there are redistribution impacts of leisure labour choice through income and substitution effects. When leisure is reduced in an effort to increase productivity, these rich households see a decrease in their consumption levels and the relatively poorer households see an increase in their welfare. So the question then is how can policy makers make such rich households contribute more to national development through income distributional effects by enhancement in their efficiency. Similar effects are noted when endowments change. Outputs in sectors increases. Some household save, spend more on health and education whiles others spend more consumption, specially on imported goods. The income gap between affluent and poor households is reduced when leisure is reduced (productivity is increased), but the income gap is increased when endowments are increased. The question is, “How might policymakers encourage measures that will boost economic happiness and satisfaction for both wealthy and disadvantaged households?” Rawalsian versus Benthamite notions of utility should be considered while setting policy options to achieve the aim of the MDGs.