Human capital in an ageing society: a multidimensional measurement approach

Paris - June 26-28, 2012

Alessandra Righi and Monica Montella

e-Frame “European Framework for Measuring Progress”European Conference on Measuring Well-Being and Fostering the Progress of Societies

2Contents

1. Ageing tends to depress HC 2. But there are countervailing effects 3. HC stock measurement in Italy4. Demographic and education effects on the HC stock measurement in Italy5. HC: a multidimensional measurement approach6. HC and SNA: toward a satellite account?

European Conference on Measuring Well-Being and Fostering the Progress of Societies

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1. Ageing tends to depress HC

In last decades developed countries are facing an ageing process and the stock of HC (in real terms) is still slightly rising in many countries

But Ageing can have negative effects on general HC endowment as: according to the income-based approach, an aged workforce has a

shorter expected working period, while younger people have longer periods of lifetime income

HC stock is dependent on the rate of return to education, but:1. higher levels of education in the workforce can cause a reduction of

the rates of return for highly educated (supply effect), and this effect can be reinforced if youngsters decide to allocate less time to education, as the schooling rates of return tend to decline

2. the rise in the HC stock associated to experience may flatten the lifecycle earnings profile, and hence reduce the net return to education

3. Also the increasing heterogeneity of the returns to education for younger workers (depending on who/where a worker is employed) can reduce the attractiveness of investing in education

European Conference on Measuring Well-Being and Fostering the Progress of Societies

42. But there are countervailing effects

In the short run, this effect can be balanced by increasing employment rates, typically by growing e.r. of the mid-lifers in the workforce (especially women), or with smaller increases of the youngsters (with a stronger impact on the HC endowment)

The negative effects of ageing can be mitigated also by retaining experienced mid-lifers in the workforce (postponing the retirement age) and through a culture of continuous learning and re-skilling of mature workers

Similar results can be obtained also by increasing the HC contribution of aged workforce to non-market activities, with possible positive effects on public expenditures for welfare

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53. HC stock measurement in Italy

Estimations for Italy 2008 of the HC stock, according to the income-based approach (in the OECD HC Project), show that the value of the HC stock (considering working age population and only market activities) is around 8.6 times the GDP and if we also consider non market activities we have another 10 times the GDP The table shows the differences by sex and age classes of the percentage distribution of total HC stocks (market and non-market)

For women and older workers non-market HC grows significantly

   

HC Total HC Total StockStock

HC HC StockStockMaleMale

HC StockHC StockFemaleFemale

HC StockHC Stock15-3415-34

HC HC StockStock35-5435-54

HC StockHC Stock55-6455-64

Market activitiesMarket activities 46% 54% 35% 50% 43% 25%

Non-market Non-market household household productionproduction 21% 12% 32% 18% 24% 32%

Non-market Non-market leisure timeleisure time 34% 34% 33% 33% 34% 43%

TotalTotal 100% 100% 100% 100% 100% 100%

European Conference on Measuring Well-Being and Fostering the Progress of Societies

6 4. Demographic and education effects on the HC stock measurement in Italy

HC Temporal volume indices for Italy Source: OECD and Istat

Year HC Volume PopulationHC per capita Diff. 1-2

1998 100,0 100,0 100,0 0,0

2002 100,3 98,9 101,3 1,3

2006 104,6 100,7 103,8 3,8

2008 105,2 102,0 103,2 3,2

1) 2008 - Istat Pop. Projections 2020 and Educ. rates 2008 100,9 103,3 97,7 -2,4

Only ageing effect

2) 2008 - Pop. 2008 and Educ. Rates 2020 (Iiasa GET scenario) 107,1 102,0 105,1 5,1

Only education

effect

European Conference on Measuring Well-Being and Fostering the Progress of Societies

The impact of ageing on the HC stock can be evidenced by the changes of the HC temporal volume indices (1998 = 100) for 2008, determining whether the observed growth of HC stock is due to the growth of HC per capita or of the population

For the future, by using (coeteris paribus) :1) the 2020 Istat projected population instead of the 2008 population, and the education rates

2008 strong reduction of HC per capita2) the 2008 population and 2020 projected education rates provided by Iiasa (GET Scenario)

increase of HC per capita

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5. HC: a multidimensional measurement approach

The complexity of the described effects call for a move on different sides to face the problem of HC measurement: to produce appropriate estimates of the HC stock, i.e. according to the income-based approach of J-F (considering market and non-market activities) but problems of consensus on methods to propose a detailed set of indicators referring to education and the labour market to better understand the meaning of monetary measures and to account for the multidimensionality of the concept to go further in the direction of satellite accounts for Human Capital, for Education and for Household production but extension of the SNA production boundaries

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6. HC and SNA: toward a satellite account?

The System of Accounts (SNA 2008) does not consider the HC as an economic resource because only economic assets subject to property rights are considered as economic resources

The SNA recognizes that the acquisition of knowledge, skills and qualifications determines growth of the productive potential of individuals and, consequently, their potential income, but these can not be treated as fixed investment

On the other hand, a necessary condition for sustainable growth in the long run is that the stock of total capital (physical, natural and human) per capita of a country does not diminish over time (UNECE, 2009)

To fully enable the actual measurement of such a condition we need: 1) considerable methodological developments, given the current

limitations of the SNA and a deepening on the concept of stocks 3) a human capital satellite account should extend the boundaries of

production to include the household production and extend the concept of fixed assets to human capital

European Conference on Measuring Well-Being and Fostering the Progress of Societies