Investing in education and human capital is an important component of growth … and here’s how

Classroom in Lyon, October 15, 2021.

Classroom in Lyon, October 15, 2021.

©PHILIP DESMAZES / AFP

The key factor

OECD economist Balash Egert proposes a new dimension of human capital. This indicator, which is determined by the sum of knowledge, skills and personal characteristics of individuals, is a determining factor in growth

Atlantico: How do you define human capital and why do you think it is important to study and re-evaluate its measurement? What is the purpose of this new event?

Balash Egert: Human capital is widely defined as the knowledge, skills, and other personal characteristics that make people productive. It is acquired at school, as well as throughout life. Human capital is a determinant of growth, but it is difficult to measure. It is often close to the average number of years of schooling. However, the average years of schooling represent the quantity of education, not its quality. Equal duration of schooling does not mean the same amount of knowledge and skills, if the quality of education differs in different countries. In the latest empirical literature, quantity (for example, the average number of years of study) and quality (test results of students) are combined into a single indicator of human capital. However, the calculation often imposes an arbitrary and equal weight for both components. Another disadvantage of many studies is that they are based on current indicators, most often for students who were tested at the age of 15, which is unlikely to be representative of the skills of the working age population as a whole. The goal of our new event is to solve these problems.

Using OECD PISA data, you have developed a new aggregate human capital ratio. How did you proceed? What’s new in your approach and what are the potential differences?

To link the economic growth of the economy with its human capital, we need an indicator that represents the skills of the entire workforce. The results of adult tests (OECD PIAAC survey), which measure the skills of the entire working age population, would be a good indicator of the quality of human capital. However, the PIAAC survey does not have time series and its national coverage is limited. On the contrary, the OECD PISA, which measures the level of knowledge of students at the age of 15, has a much longer time series and national coverage, but only for high school students. Thus, we establish a strong link between the results of the PIAAC test for adults, on the one hand, and the results of the PISA test for those who took the test at the age of 15 (and the average number of years of study), on the other hand. We then calculate the new indicator as a cohort-weighted average of past PISA scores (reflecting the quality of education) of the working age population and the corresponding average years of schooling (representing the amount of education). The novelty of our approach is that, unlike the existing literature, we empirically estimate the relative weights of the components of quality and quantity.

What is the situation in France in your new dimension of human capital?

France’s new human capital ratio is broadly equivalent to the OECD average, but lower than in Germany, Canada, Japan, Korea and the Nordic countries (see chart below). France’s rating on our new indicator corresponds to the PIAAC and PISA rankings. Our human capital grew by 2.4% between 1987 and 2020.

What are your observations on the link between recently measured human capital and economic growth?

The new human capital indicator shows a strong positive link with productivity and per capita income for OECD countries, indicating that improving human capital is accompanied by increased macroeconomic productivity and production. In addition, our analysis shows that the potential for long-term productivity gains is much greater by improving the qualitative than the quantitative component of human capital. However, the time lags with which these achievements materialize are very long, in part because it takes almost five decades for the sustained improvement of students’ skills to be fully transformed into the improvement of life skills. .

How can your work help you better understand the impact of education policy reforms on productivity and per capita income? Is preschool education just a starting point for further learning?

An interesting feature of our new measure of human capital is that it allows us to assess the impact of education policy reforms on productivity and per capita income. Any educational policy that can be quantified by an indicator and linked to changes in student test scores can then be linked to a new measure of human capital and, consequently, to productivity. Indeed, our current work uses preschool education to demonstrate the impact of education policy reforms, but in our future work we will explore a large number of educational policies, including, inter alia, accountability and accountability. school autonomy, monitoring of students and teachers qualifications. We will also analyze how adult education and development policies affect macroeconomic performance through human capital.

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