Lawrence O. Picus

Economic Productivity and Intellectual Capital

Lawrence O. PicusSeptember 25, 2013

Lawrence O. Picus

THE KNOWLEDGE ECONOMY

The knowledge economy places a premium on ideas, requiring a skilled and educated workforce, capable of innovation to spur the economic growth of nations.

The knowledge economy has placed an increasing importance on human capital cultivation not only for our students, but for teachers, administrators, and schools as well.

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WHAT IS HUMAN CAPITAL?

Human capital is the intrinsic productive capacities of humans which can be increased through investment in education, job training, health, etc.

Human capital is an asset that generates a flow of services most often measured as earnings, but more recently measured by other observable outcomes including

Human capital is a source of wealth and economic progress. In today’s knowledge economy, human capital is the most critical driver of economic growth.

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HUMAN CAPITAL RESEARCH

Human capital became a foundational area of research in the economics of education because we wanted to understand why economies grow and as more data became available on economic growth and its associated inputs/outputs research on this question became possible.

Two major waves of education research on human capital: 1.Measuring the returns to education2.Education as investment in human capital

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RETURNS TO EDUCATIONThere are positive returns to education in terms of lifetime earnings. Those with more education earn more than those with less education, on average.

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THE COLLEGE PAYOFF (2011)

Rule #1: Degree level matters• On average those with more education make more than those with less and the gap

is widening.

Rule #2: Occupational choice can trump degree-level• An engineer with some college/no degree or a postsecondary certificate earns more

on average than a teacher with a BA

Rule #3: While occupation can sometimes trump education, degree level still matters most within occupations

Rule #4: Race/ethnicity and gender are wild cards that matter more than education or occupation in determining earnings

• On average, to earn as much as men with a BAs women must have a doctorate• African-Americans and Latinos with MAs don’t exceed the median lifetime earnings

of Whites with BAs.

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EDUCATION AS INVESTMENT

Human capital and decisions about it are the same as physical capital. Individuals invest in their education with the expectation of returns on that investment in the future.

How much an individual “chooses” to invest is modeled from an optimization process.

Observed outcomes are the result of an equilibrium process where demand for skills and abilities is balanced with its supply.

What happens when the demand for skills and abilities is not balanced with its supply?

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“As the United States continues to compete in a global economy that demands innovation, P21 and its members provide tools and resources to help the U.S. education system keep up…”

EDUCATION AS AN INVESTMENT K-12

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Economic Implications

•1 in 7 young people between the ages of 16-24 are not in school or working and it costs taxpayers $93.7 billion in government support and lost tax revenue in 2011 alone.

•Because of changing workforce demands, nearly 40% of all college students today are over 25 years old and 20% of the adult population is directly involved in some kind of work-related learning.

•In the next 5 years more than 29 million jobs will need to be filled by workers with some college or a certificate but not necessarily a 4-year degree.

•It is estimated that shortages of workers with postsecondary-level skills could grow to 14 million by 2020 as retirement-age populations grow and the working-age population remains flat or declines.

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BUT…IS MORE EDUCATION THE ANSWER?

•Some argue that more education is not the answer for all people and that the reliance of our society on credentialing is actually stifling innovation and driving many American’s into massive debt.

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SIGNALING THEORY

Signaling theory argues that individuals’ innate productivity levels are identified by their years of schooling rather than enhanced by them. More education leads to higher pay because education provides a credential, not because it results in acquired skills.

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Questions for Educators

• What should the focus be?– Job skills – Intellectual capacity

• Is a college preparation curriculum appropriate for all students? – If not, who is selected – If so, what are implications