The following findings are summarised from an ABS working paper Measuring the Stock of Human Capital ABS cat. no. 1351.0.55.001), released in May 2004.
In the Australian System of National Accounts measures of capital stock are currently confined to physical capital. Although human capital is an important concept in modern economics and in economic policy discourse, direct measures of human capital stocks are available for very few countries. In order to fill this gap, the ABS has recently produced experimental measures of the stock of human capital for Australia.
Human capital can be simply viewed as productive capacity embodied in working-age individuals. The dynamics of this capacity critically depends on investment in education and training. Human capital growth is a key driver for productivity growth and in sustaining higher standards of living for Australians. Given that the Australian population is ageing, there are significant implications for Government expenditures on health and social welfare payments: human capital is particularly pertinent to policy makers and economic/social analysts.
This article will show some results from this study, highlighting the impact of changes in the population's age structure on human capital stocks over the past twenty years.
The method chosen to measure the stock of human capital is the lifetime labour income method as used by two American national account economists Dale Jorgenson and Barbara Fraumeni. This measures someone's human capital as the total income they could generate in the labour market over their lifetime. In order to use this method, inferences about future income streams are made using cross-sectional information on current earnings. These projections are made separately according to people's sex, age and educational attainment. The information on differences in income streams from alternative educational attainment could be useful for analysing returns to investment in education.
The data used for this analysis is from the Australian Census of Population and Housing in 1981, 1986, 1991, 1996 and 2001. Age-earnings profiles are constructed for four categories of educational attainment for both men and women over this twenty year period. Based on these age-earnings profiles, per capita measures of lifetime labour market incomes are derived for each age/sex/education cohort using appropriate growth and discount rates, and they are then applied to the number of people in the corresponding group. We then aggregate across all groups to estimate the human capital stock for Australia, which is presented in the following table.
TABLE 1: MEASURES OF HUMAN CAPITAL STOCK IN AUSTRALIA (BILLIONS OF CURRENT DOLLARS)
The two fastest growing categories for human capital stock are women with higher and bachelor degrees. The fastest category for both men and women was the higher degree, however the stock has grown faster for women than men over the twenty year period. The growth in human capital stock in the 1980's was mainly due to an increase in the total population rather than an increased rate of growth in a particular area. The growth in the human capital stock in the 1990's however, was driven by an increased rate of growth in a specific area, higher and bachelor degree holders. The growth rate for skilled labour and unqualified people has been slowing over the past twenty years, where both men and women have slowed at the same rate. This suggests that while the Australian population has been ageing, we are also becoming more educated.
The average age of educational attainment by Australians increased between 1981 and 2001. Table 2 illustrates changes in average age of men and women holding different levels of educational attainment.
TABLE 2: AVERAGE AGES BY EDUCATIONAL ATTAINMENT, YEARS
Table 3 shows the contribution to growth in human capital stock from people with different levels of educational attainment. Growth in human capital stock has been driven by increases in the human capital embodied in the skilled labour and bachelor degree groups.
As people age, their human capital changes. All other things being equal, someone's remaining lifetime labour income will tend to decrease (because their time left in the labour force has shortened). However, as people spend longer in the work force they gain skills and experience, which increases their productive capacity and, therefore, their income. The rate at which they gain skills and experience can change over time. Table 3 suggests that any reduction in human capital from a "reduction in working life" effect, has been more than outweighed by the "increasing skills and experience" effect combined with an increase in the number of people classed as 'skilled labour' or with higher educational attainment.
TABLE 3: DECOMPOSITION ANALYSIS OF GROWTH IN REAL HUMAN CAPITAL STOCK (%)
Australian human capital has increased significantly over the past 20 years, despite an ageing population. The more educated stock of human capital has increased most rapidly, especially among women, while the average ages of people with tertiary qualifications has also increased, in particular for higher degree and bachelor degree holders. Any reduction in human capital from an ageing work force effect, has been offset by increases in the quality of human capital in the workforce.
In the future, the ABS hopes to use these estimates of human capital stock alongside physical capital to establish a more complete understanding of national 'capital'.
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