1 1 Session II, Alternative approaches to measuring human capital. ECE- CES, Seminar Olav Ljones June Statistics Norway.

2 Introduction Session I: Why it is important to work with human capital Still an advanced research topic When can we see human capital as an integrated part of official statistics ?

3 Invited papers ABS, Australia: Using the Jorgenson-Fraumeni approach to ddevelop measures of human capital: the experience of the Australian Bureau of Statistics. US, Bureau of Economic Analysis: Measurement in formal education: Estimates from the United States ( Ana Aizcorbe and Sara Pack)

4 Supporting papers Belarus: Health expenditure: investment in human capital and measuring human capital from the health status perspective (Alena Kukharevich) Italy: Towards human capital satellite accounting Poland: Human capital surveys and research in the Polish official statistics- current state and the future work Ukraine: Ukraines experience in measuring the human capital OECD: Monetary measures of human capital for comparative analysis: the OECD experience

5 ABS: Using the Jorgenson-Fraumeni approach to develop measures of human capital Research activities in ABS Supporting work with data Estimate life incomes for all cohorts and then to aggregate across all cohorts. to use expenditure (Investments in education etc) to generate the capital. Depreciation is a result of ageing of population

6 Results The results of ABS efforts are four major works: 1. Measuring the stock of human capital 2. Measuring human capital formation 3. Measuring economic benefits of completing secondary education 4 Measuring rates of return to post school education

7 Questions to Australia Does using educational credentials as a measure of education give substantially different answers and how does it affect the results? You write in your paper that you have been developing human capital measures at the industry level. What are the main insights from this, compared to the more traditional approach of just using differences in education levels across industries?

8 US BEA Measurement in formal education : Estimates from the US. This paper gives an overview of both cost based and income based measures of human capital. The income based approach gives a significantly higher estimate of human capital. In the US paper there is an important chapter “Critiques of Jörgensen-Fraumeni. Key words from this chapter are: Wages as a proxy for productivity Synthetic cohort data Discount rate Treatment of aggregate productivity growth Individual with higher education would have had higher income even without higher education Returns from other aducation than formal are mixed with formal education Use of market wage as valuation of non market time

9 US Recent work by Michael Christian are referred to. His paper and the methods that are recommended seems to be valuable.

10 Questions to US BEA Questions to the paper from USA/ Bureau of Economic Analysis: In your paper, you highlight the huge differences between the cost-based method and the income-based method in estimates of human capital stocks. As pointed out by Abraham (2010), the two measures may not give the same answers even in principle, but neveretheless the huge discrepancy may be somewhat worrying, since the reasons for the discrepancy may not be fully be clear. From a NA perspective, what is your view on this? Is the discrepancy something that we should attempt to reduce. What would be your advice ? Will the solution be to use more and better data and improved methodology? Within the realms of potentially available data, what would the ideal database for human capital accounting look like? Should the content of this database be a part of official statistics? How far from this ideal are you today? The Jorgenson-Fraumeni and other frameworks aims at estimating the stock of human capital across space and time. In your view, how useful is this concept for analysing policy questions in the field of education and growth? Are there other/additional ways that NSIs could better contribute in this field?

11 Supporting: Belarus Health expenditure: investment in human capital and measuring human capital from the health status perspective. This paper brings in an important aspect- health. “Human capital is formed first of all by investment in improving living standards and quality of life, including health. Population helath determines in many respects the ability to form, develop and use human capital. Health investments: a) determines the capabilities and functioning of human capital b) reducing morbidity and mortality reduces the depreciation of human capital Health investments may be direct (Therapy) or indirect ( change life style) Researchers define the return on health investments as the difference in life income that could have been lost due to illness – missed income.

12 Italy Towards human capital satellite accounting This paper discusses the strategy – and satellite accounts are an important element in this strategy. This paper identifies the differences between the two main methods. There are some common problems as: The measures fails to adequately assess the key elements of human capital The data used for the measurement are of poor quality

13 Italy (2) The future strategy includes –International harmonization –Construction of a HC satellite account –The life time labour income approach ( J-F) –Further extensions to non market household production Some challenges in data Need for long time series of primary data Income data of sufficient quality Insufficient data on input costs Another topic is the integration of human capital and social capital

14 Supporting: Poland Human capital surveys and research in the polish official statistics – current state and the future work. The work with HC is based in 3 approaches: Revenues and incomes / Expenses / Qualitative characteristics. An interesting chapter on Future work. This chapter mentions: Unification of terms and concepts. Urgent needs for data on human capital, is planned to be fulfilled by the use of surveys as LFS. Then it is not necessary to create new surveys. The OECD surveys as PISA and PIAC are mentioned as examples of possible supplementary surveys.

15 Supporting: Ukraine The theory has been transformed into a practical conceptual framework. A comprehensive listing “system of indicators for measuring human capital”. The methods and principles of satellite accounts are discussed and it is argued in a convincing way that these principles fit well also for human capital. The paper use the wording – social accounts.

16 Supporting OECD Monetary measures of human capital for comparative analysis: The OECD experience. OECD has a long interest in education and other related statistics. Literature surveys have pointed at the income based approach as the preferred methodology. The current scope of the OECD human capital project has been restricted to measuring the personal economic benefits generated through market activities, where such economic benefits are measured by the market lifetime labour that accrue to individuals. The population is limited to working age (15 – 64 years). The database that is constructed – shows the need for data.

17 Content database The content is individuals cross classified by Age Gender Education Number of people Earnings School enrolment rates Employment rates Survival rates. Lifetime income estimated

18 OECD Results The database is constructed for each country. This gives the possibility to estimate the aggregate value of human capital for each country. The empirical results are in line with national studies. One observation is that men account for more that 60 percent of total human capital. There are some differences between countries on the return from educational attainment on income. There is for all countries an increase in HC but for some countries the growth rate has went down in recent years. The contribution to HC from education is positive and from population is is observed to be negative due to the ageing of population.

19 OECD - future possible to enhance the quality of estimates ( Improved data?), and to better identify links to other elements as physical capital.

20 Conclusions The work with Human Capital is important and need support both from the research community, improved international recommendations (Standards in SNA) improved data both primary data and data put together in special designed databases. The work should be linked to National accounts – e.g as satellite accounts, Inclusion in future SNA revision should be the goal. The differences in results dependent on method – should be approached with the aim to balance out the differences.