1
Conference of European Statisticans
55th plenary session
Geneva 11-13 June 2007
Measurement of Human
Capital and Official Statistics
Øystein Olsen
Statistics Norway
Measurement of human capital: 3 papers
1.
Measuring Australias Human Capital Development:
The Role of Post-school Education and the Impact of
Population Ageing (ABS)
2.
Measuring the Education Output of Government Using
a Human Capital Approach: What might Estimates
Show? (Fraumeni and NBER)
3.
The Measurement of Human Capital Development,
also with Reference to Elderly Population (ISTAT)
Why measure human capital?
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Key concept in analysing central issues, such as
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OK – but do we need the capital approach?
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Productivity and growth
Impacts of an ageing population
Sustainable development
The returns to education
Estimates of human capital may be compared to other assets
Enables analyses of policy measures in important areas
Even so – what should be the role for NSOs?
Human capital is an intangible asset!
• Human capital definitions
– Wide: Productive capacity of individuals
– More narrow: Productive capacity related to knowledge and skills
• Improvements in labour quality may take many forms
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Healthcare
Learning in families and neigbourhoods
Formal schooling
On-the-job training
• Empirical studies typically focus on formal education
– But stock figures include social capital as well?
Human capital theory in a nutshell
• Education is regarded as an investment
• Investment entails costs – direct costs and opportunity
costs of forgone earnings
• To be willing to undertake the investments, individuals must
be compensated with higher wages ex post
• For employers to be willing to pay higher wages, individuals
with higher education must have higher productivity
Individuals make optimal choices based on net present
value of investment – in income or utility terms
Approaches to human capital estimation
• Direct volume measures in NA
– Volume indicators for types of education weighted together by unit
costs
• The National Wealth Approach
– Implies a ”wide” definition of human capital
• The Jorgenson-Fraumeni approach to measuring output of
the education sector (the Australian and the US papers)
– More ”narrow”: Analysing the contribution to national wealth from
education
• The ”indicator approach” (the Italian paper)
– Human capital as a multidimensional phenomenon
– A broad set of human capital-related indicators (OECD: ”Education
at a Glance”)
The National Wealth Approach: Calculating
human capital residually
Three steps:
1.Calculate resource rents from all natural resources
(renewable and non-renewable)
2.Decompose Net National Income (NNI) into the returns
from the inputs i.e. physical capital, natural resources etc.
Human capital is calculated as the residual
3.Capitalize the income stream from the human capital
component
Estimates of National Wealth - a Norwegian
example
Financial wealth
50000
Value human capital
Value physical capital
45000
Value Oil and gas
40000
Value renewable resources
35000
25000
20000
15000
10000
5000
Year
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
-5000
1986
0
1985
Billion NOK
30000
The NW Approach: Strengths and weaknesses
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Making the “intangible”
comparable to other
(measurable) assets
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Based on (mostly) existing
national account figures
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Based on rather simple
methods and calculations
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The methods are not
(necessarily) forward looking
– In particular: demographic
trends are not taken into
account
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The human capital estimate is a
residual!
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There is (usually) no attempt to
isolate the contribution to human
capital from education
The Jorgenson-Fraumeni Approach
• Based on human capital theory
• Output of the education sector in a year is the increment in
human capital stock of the population, i.e. the increase in
productive capacity over the lifetime
• The distribution of individual productivity is measured by
the corresponding wage differentials
• Relies upon the assumption that market wages reflect the
productivity gains attributable to education
• The measure does not capture possible externalities from
investments in education
The JF Approach: Strengths and some critical
questions
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May uncover underlying
structural changes, like
– Demographic: if cohorts entering
the labor market are smaller than
cohorts leaving, human capital
measured by the JF approach
will ceteris paribus decline.
– Educational attainment: if
cohorts entering the labor market
have chosen types of education
with on average lower market
value than cohorts leaving,
human capital measured by the
JF approach will ceteris paribus
decline.
•
Do relative wages reflect the
output of the education sector?
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Can we neglect the value of
leisure time? (the Australian
paper vs. Fraumeni)
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How to deal with the value of
basic education?
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Can the complicated calculations
be implemented on a regular
basis – ie. as official statistics?
Human capital measuring: What should be
the role and ambitions of NSOs?
Three possible strategies:
1.
Developing databases on human capital for research and
analyses
2.
Developing methods for output measures in the
Government sector (NA)
3.
Full integration of capital measures in the National
Accounts