1504.0 - Methodological News, Jun 2007  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 06/07/2007   
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Human Capital Research in ABS

The Analysis Services Branch recently completed a human capital research project on measuring the economic benefits of completing secondary education in Australia for the period 1981-2001. This work was presented at the 2006 November Methodology Advisory Committee meeting and released as an ABS research paper in May 2007.

The purpose of focusing on secondary school education is to highlight the importance of base level education in the production of human capital over life cycles of young men and young women. The distinctive feature of this study is that it attempts to calculate the option values generated by completing secondary education which are the opportunities for obtaining more advanced human capital skills through undertaking tertiary study programs.

This study uses a lifetime labour income approach, which measures economic benefits of completing secondary education by additions to lifetime labour incomes due to additional schooling activities. Option values are calculated as differences between alternative lifetime labour incomes associated with the corresponding schooling choices upon completing secondary education. The human capital skills produced by one schooling level are important inputs in the production of additional human capital. In this sense, option values are the economic benefits of probabilities of higher qualifications for individuals who complete base level education qualifications. In accounting for economic benefits arising from additional schooling, the potential benefits from the probabilities of obtaining higher education qualifications should be included as an important element.

The empirical results show that option values make up significant proportions of total returns to secondary education, ranging from 20% to 30% for men, and from 28% to 44% for women over the period 1986–2001. In particular, option values become increasingly prominent in recent years which have witnessed strong demand for more educated workers.

If you have any further enquiries about this research work, please contact Hui Wei on (02) 6252 5754.