Download Counting heads - University of Ottawa

Human capital, education skills and growth
•Counting heads, Economics focus Aug 26th 2004, from
The Economist print edition): A breakthrough in measuring
the knowledge economy
•Serge Coulombe and Jean-François Tremblay (2005)
Public Investment in Skills: Are Canadian Governments
Doing Enough? Commentary No 217, C.D.Howe Institute,
Toronto
The Economist approach to the problem: Counting heads
• TO WHAT extent is economic growth driven by the acquisition of
“human capital”?
• Many economists have pursued the answer over the past 20 years,
but without great success.
• Recently, Canadian team made a breakthrough. It found that, if you
measure actual skills rather than educational qualifications, human
capital becomes a strong predictor of economic growth.
• Microeconomic (Individual) return clear: those with higher
qualifications (education) earn, on average, far more over a lifetime
than the less qualified.
• But macroeconomic effect on growth not clear to. Broad set of
countries versus developed countries
Two possible answers to the micro vs macro results
1) Human-capital theories are flawed - signalling or sorting device,
Spence, 1973, education simply permit to allocating better-qualified
individuals to better jobs.
Consequently, individual gains from education need not add up to
collective gains.
2) Economists might be measuring the wrong thing: Human capital,
being the invention of economists rather than engineers, is a very
difficult concept to measure (Coulombe and Tremblay 2005).
H=f(S, Q, …), input versus output measures, micro versus crosscountry studies.
Main Results form Coulombe Tremblay and Marchand (2004)
• 14 OECD countries, 1960-1995 period, synthetic cohorts
• Direct measures of human capital based on literacy scores
outperform measures based on years of schooling in growth
regressions.
• Overall, human capital indicators based on literacy scores have a
positive and significant effect on the transitory growth path, and on
the long run levels of GDP per capita and labor productivity.
• The key economic policy implication: in contrast to most previous
findings, human capital accumulation matters for the long run
wellbeing of developed nations.
• Quantitative effect: long-run elasticities of per capita GDP to H
(literacy) around 1.5 (Macro-Mincer effect of 5.5% per year of extra
schooling)
• Larger effect for labor productivity: long-run elasticity around d 2,
and Macro-mincer effect around 7.6%
• Share of human capital in national income around 0.46
Other results
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Female versus male
Level 4 and 5 versus mean literacy level
Policy considerations (why should government invest in public education
Taken from a Simon Fraser University Exam, October 2005
Consider the following quote:
“As a university professor, Jean-François Tremblay is pleased to see Ottawa and the
provinces investing in post-secondary education after a 10-year hiatus.
But as an economist, he is not convinced that pouring more public money into universities
and colleges is the best way to boost Canada’s economic growth.
Tremblay and his colleague, Serge Coulombe, who teach economics at the University of
Ottawa, have just completed a study for the C.D. Howe Institute, which shows that improving
literacy among lower-income citizens would have a greater impact on Canada’s
standard of living than producing more highly educated graduates.
“While increasing resources in the education system would undoubtedly improve outcomes
to some extent, it is not clear that it would be the most cost-effective strategy
to generate more skills,” the authors conclude. “Our research — novel because it is
based on direct measures of skills rather than the usual crude proxies of educational
attainment — strongly suggests that there are potentially large payoffs from investment
in less glamorous sectors.”
Explain this argument using economic principles.
Taken from Economist prefers ABC to PhD by Carol Goar, The Toronto Sun, 17 October 2005.