Working Paper: NBER ID: w21283
Authors: Barbara M. Fraumeni
Abstract: According to the World Bank and the United Nations, human capital is the largest component of human wealth for most countries in the world. There is no question that human capital is critical to individual and society well-being and both present and future growth. This presentation draws upon an analysis of human capital measures for 18 countries, including the three most populous countries in the world: China, India, and the United States. This paper will focus on two human capital issues, which are considerations in choosing a human capital measure: the size of the educational attainment gap between those younger and older, and differences in rankings using alternative human capital measures. \n \nIn a number of countries, younger individuals (age 25-24) have a significantly higher educational attainment than older individuals (aged 55-64). For these countries, expectations are that economic growth and well-being will improve over the longer term. Lifetime income measures which explicitly include the expected future work history and income of all individuals in a country are preferred over other measures if these gaps matter. \n \nThe answer to the question: “What is the human capital ranking of countries?” depends upon the reference measure. Six types of measures are considered: PISA test scores, PIAAC, Barro-Lee educational attainment, Inclusive Wealth human capital, Jorgenson-Fraumeni lifetime income, and World Bank intangible capital. What explains the significant differences in the rankings? Is it important unmeasured attributes or country specific institutions and labor markets? Is it a failure of standard economic assumptions, such as individuals being paid what they are worth, to predict labor market outcomes? It is critical to answer these questions before choosing a human capital measure to predict economic growth and well-being in general, and notably the impact of younger cohorts being more highly educated than older cohorts.
Keywords: human capital; educational attainment; economic growth; country rankings
JEL Codes: E24; I25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Educational attainment gap between younger individuals (ages 25-34) (I24) | Economic growth potential (O49) |
| Higher educational attainment of younger cohorts (ages 25-34) (I23) | Improved economic growth and well-being (O49) |
| Educational attainment gap between younger individuals (ages 25-34) and older individuals (ages 55-64) (I24) | Future economic outcomes (E66) |
| Choice of human capital measure (J24) | Rankings of countries in terms of human capital (O15) |
| Unmeasured attributes or country-specific institutions (O57) | Differences in rankings across different measures (C52) |