1. Barbara M. Fraumeni Muskie School of Public Service, University of Southern Maine & the National Bureau of Economic Research, USA Measurement of Non-market Output and Health OECD/ONS/Government of Norway Workshop, Session 5 London, England, UK October 4, 2006 A Human Capital Approach to Measuring Government Education Output

2. Muskie School of Public Service Ph.D. Program in Public Policy BOTTOM LINE  A human capital approach could significantly increase the measured ROG of government education output  It looks beyond a body count to the impact of education on lifetime income

3. Muskie School of Public Service Ph.D. Program in Public Policy J-F-C Project Goal  As a first step, draws upon Jorgenson- Fraumeni (1992a, 1992b) methodology  The current Jorgenson-Fraumeni-Christian (JFC) project aims to:  Develop estimates from 1960-2004  Experiment with a smaller set of data  Modify and refine the J-F methodology for various purposes

4. Muskie School of Public Service Ph.D. Program in Public Policy Context  The Atkinson Report: Consideration of “an adjustment to reflect the value of education for future earnings”  Simplistic view: Looking at the real rate of growth in wages  J-F-C view: Directly measure the impact of education on lifetime earnings

5. Muskie School of Public Service Ph.D. Program in Public Policy Output Targets  All formal education – (J-F)  Government-provided (public) formal education only  Output from school inputs

6. Muskie School of Public Service Ph.D. Program in Public Policy Variations of J-F  Literature on relative earnings of publicly vs. privately educated individuals?  Output from school inputs only requires adjusting for  Children’s time  Parent’s time helping  Compositional effects such as non- native speakers

7. Muskie School of Public Service Ph.D. Program in Public Policy Additional Refinements  Graduate school issues  Dealing with investment in education for elementary school enrollees with a more aggregated data set  Rose-colored glasses?  Time spent in school  Years to complete a level (college)  Hours spent in school (or doing homework)

8. Muskie School of Public Service Ph.D. Program in Public Policy Methodology  Construction of expected future lifetime income (market plus nonmarket) for all individuals in the US  Determined from the cohort alive in a particular year  Investment in education (education output) is = the difference between expected lifetime income of an individual enrolled in school and someone of same sex and age who has one year less of education

9. Muskie School of Public Service Ph.D. Program in Public Policy Stages of Life Lifetime incomes are calculated by a backwards recursion, starting with age 75  Stage 5: Age 75+, retirement  Stage 4: Age 35-74, work only  Stage 3: Age 16-34, work and school  Stage 2: Age 5-15, school only  Stage 1: Age 0-4, no work or school

10. Muskie School of Public Service Ph.D. Program in Public Policy So What? Growth Rates EnrollmentsInvestment in Education (constant$) 1960-1986 (J-F).6%2.7% 1986-2004 (J-F-C) 1.2%?

11. Muskie School of Public Service Ph.D. Program in Public Policy 1960-1986 vs. 1986-2004 College: The Critical Factor Growth Rates Enrollment Growth Rates Wage Gap College to Other Levels 1960-1986 J-F 4.6% (.6%) Decreases often, but also increases 1986-2004 J-F-C 1.8% (1.2%) Increases substantially

12. Muskie School of Public Service Ph.D. Program in Public Policy 1960-1986 vs. 1986-2004 College: The Critical Factor 1960-1986: Enrollments are the driver 1986-2004: The wage gap as reflected in lifetime income will be the driver Actual Estimates: J-F-C Project