1. Accumulation of Human and Nonhuman Capital, Revisited Barbara M. Fraumeni Central University of Finance and Economics, Beijing, China; Hunan University, Changsha, China; NBER, Cambridge, MA USA; University of Southern Maine, Portland, USA. Michael S. Christian University of Wisconsin, Madison, WI, USA Jon D. Samuels Bureau of Economic Analysis, US Department of Commerce, Washington, DC.

2. What has changed in the 26 years since the original Jorgenson-Fraumeni “accumulation” paper was published? Viewpoint from an integrated set of market and nonmarket national accounts for the US Original paper 1948-1984 This paper adds 1998-2009 2

3. “Beyond GDP” catchword popularized by the Stiglitz-Sen-Fitoussi Commission Increasing attention paid to human capital The U.S. National Income and Product Accounts (NIPAs) have been substantially revised 3

4. Educational Attainment Trends 4

5. Female Labor Force Trends Jan. 1 of 1948-2010 5

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7. Five Accounts 1. Production 2. Full Private National Labor & Gross National Property Income 3. Full Gross Private National Receipts & Expenditures 4. Full Gross Private National Capital Accumulation 5. Full Private National Wealth 7

8. New Architecture – K service flows included - (Jorgenson & Landefeld) Consumer durables and real estate held by institutions Producer durable equipment held by institutions Real estate held by households undercounted in NIPA GDP 8

9. New Architecture - Taxes (Jorgenson & Landefeld) Property-type taxes included Some other types of taxes, primarily sales taxes, are not included New architecture changes minor in size compared to human capital additions 9

10. Jorgenson-Fraumeni The J-F lifetime income approach applies the neoclassical theory of investment (Jorgenson, 1967) to human capital. According to this theory, the price of capital goods depends upon the discounted value of all future capital services derived from the investments. On a per capita basis, this means that the value of the human capital of an individual can be determined from that person’s discounted lifetime income. 10

11. Jorgenson-Fraumeni The following sets of data by gender 1) Population by single year of age, by 18 educational levels, for ages 0 through 74 and 75+, 2) survival rates by single year of age, for ages 0 through 74 and 75+, 3) school enrollment rates by single year of school level, for ages 5 through 34, 4) educational attainment, for ages 0 through 74 and 75+, and 5) annual earnings by single year of age and single year of education, by 18 (19) educational levels, for ages 14 (15) through 74, 11

12. Jorgenson-Fraumeni 5 life stages, with variables mi: Expected lifetime market income per capita, discounted to the present R: The adjustment factor applied to lifetime income = (1 + real rate of growth on labor income)/(1 + real discount rate) sr: Survival rate senr: Formal school enrolment rate and ymi: Yearly market income per capita. For subscripts: a: Age e: Highest level of education completed enr: Formal education enrollment level older: Equal to a + 1 s: Gender, and school: Equal to e +1. 12

13. Jorgenson-Fraumeni All equations which follow are in per capita terms Stage 1: Neither work or school, ages 0 through 4 mi(s,a,e) = sr(s,older)*mi(s,older,e)*R, where e = 0 (no school). 13

14. Jorgenson-Fraumeni Stage 2: School only, ages 5 through 13 (14), when an individual could be enrolled in school mi(s,a,e)= [senr(s,a,enr)*sr(s,older)*mi(s,older,school) +(1-senr(s,a,enr))*sr(s,older)*mi(s,older,e)]*R 14

15. Jorgenson-Fraumeni Stage 3: Work and school, ages 14 (15) through 34, when an individual could be enrolled in school mi(s,a,e)=ymi(s,a,e)+ [senr(s,a,enr)*sr(s,older)*mi(s,older,school) +(1-senr(s,a,enr))*sr(s,older)*mi(s,older,e)]*R 15

16. Jorgenson-Fraumeni Stage 4: Work only, ages 35 through 74 when it is assumed that an individual is not enrolled in school mi(s,a,e)=ymi(s,a,e)+sr(s,older)*mi(s,older,e)*R Stage 5: Retirement, age 75 and over mi(s,a,e)=0 16

17. Jorgenson-Fraumeni Recursive backwards calculations Assumed that the relative wage rates by educational attainment levels are determined by the contemporaneous relative wage rates, survival rates, and enrollment rates 17

18. Investment in Human Capital Investment in education si(s,a,e)= senr(s,a,enr)*[mi(s,a,school) -mi(s,a,e)] Investment in births mi(s,a,e) where a and e are equal to 0 (infant and no school). 18

19. Time in Household Production & Consumption Nonmarket time spent in activities other than market work, schooling, or personal maintenance Valued using an opportunity cost equal to a tax- adjusted market wage Time in school is assumed to be 1300 hours per year Personal maintenance (sleep, eating, personal hygiene) time is assumed to be 10 hours per day 19

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21. Human Capital Aggregates 1. Investment in human capital 1a. Education 1b. Births 1c. Residual 2. Time in household production & consumption Nonmarket labor income = 1 + 2 Consumption of nonmarket goods & services = 2 Human capital saving = 1 = Gross private national nonhuman capital accumulation 21

22. Human Capital Aggregates (cont.) 3. Human capital wealth Human capital saving = 1 above - Human capital depreciation* + Human capital revaluation* = Change in human capital wealth* * Split between human and nonhuman not available for the 1948-84 period 22

23. Contributions With Thornqvist indices, contributions are a weighted rate of growth, Weights are an average of the nominal dollar share in the previous period and this period, The rates of growth are logarithmic growth rates of the quantities from the previous period to this period. 23

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26. Tokyo Paper Compares With and Without Human Capital Fukao, Jorgenson, and Timmer “The World Economy: Growth or Stagnation?” forthcoming 26

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29. Growth in the Level of Living Definition The level of living contribution shown in the next figure is the difference the sum of the contributions of consumption and savings and the sum of the contributions of labor and property income 29

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32. Much Else in the Paper 11 main text tables 12 figures 23 appendix tables Price growth is typically larger than quantity growth Nonhuman rates of growth tend to be larger than human capital growth rates 32

33. Conclusion – Bottom Line Without looking at a set of national accounts with integrated human capital components, researchers, analysts, and policy-makers will have an incomplete picture of economic growth 33

34. Conclusions – Major Trends Major economic trends are very much evident: Slowdown in the sub period 1974- 1984 Rebound in 1999-2000 at the end of the “New Economy” period Slowdown in the sub period 2001-2005 Weak economy in the sub period 2006-2009. BUT 34

35. Conclusions – What Is Missing Without Human Capital Included The impact of an end to: Gains in average educational attainment Increases in female labor force participation Contribution of net saving being negative in all sub periods beginning on or after 1974 Depreciation more than doubling as a share of gross saving between 1949 and 2009 Greying of America? 35

36. Questions What does it mean in a world economy to have price growth to be larger than quantity growth? How will the decrease in the contribution of human capital play out in the future? Will the economies of many other countries, particularly emerging countries, continue to catch up, and if so, at what pace? Does this mean that the United States government should be encouraging policies to increase investment in human capital? 36

37. Full Paper Available NBER Working Paper #21284 June 2015 Also posted at http://iariw.org/c2015oecd.php, under session 7http://iariw.org/c2015oecd.php 37