Barbara M. Fraumeni Muskie School of Public Service, USM, Portland, ME, USA & the National Bureau of Economic Research, USA World KLEMS, Methodology, Session.

Barbara M. FraumeniMuskie School of Public Service, USM, Portland, ME, USA

& the National Bureau of Economic Research, USA

World KLEMS, Methodology, Session 1: Labor InputHarvard University, Cambridge, MA, August 19, 2010

International Implementation ofJorgenson-Fraumeni Human Capital Accounts

Muskie School of Public Service Ph.D. Program in Public Policy

• J-F: the Model

• International efforts– OECD human capital consortium– China

• Extensions & improvements

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Human Capital as Capital

• Seminal: Becker (1964), Mincer (1974), Schultz (1961)

• More recent– Economic sustainability and well-being

• “Stiglitz” Commission: Commission on Economic Performance and Social Progress

– World Bank Wealth Report

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Theoretical BasisJorgenson-Fraumeni

• Neoclassical theory of investment (Jorgenson)

• Investment amount as the price you would pay for a business machine that would help you earn future income

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Jorgenson-Fraumeni

• Lifetime income projections

• Depend upon education, age, and survival as well as income earned

• Present discounted values adjusted for future expected income changes with contemporaneous information

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OECD Human Capital ConsortiumJorgenson-Fraumeni

Australia, Canada, Denmark, France, Italy, Japan, Korea, Mexico, Netherlands,

Norway, New Zealand, Poland, Romania, Russia, Spain, UK, US, EC (Eurostat), International Labour Organization,

• Other countries who have already done J-F

China, Sweden

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OECD Consortium IARIW Progress Report by Liu

• Market only• Ages 15-64

– Ages 15-40 study & work– Ages 41-64 work only

• Data on employment for 5-year age groups• Data on school enrollment by single year of

age through age 29, 5-year age groups there-after

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OECD Consortium IARIW Progress Report by Liu

• Discount rate of 4.58% and a real income rate growth rate of 1.32% following J-F (1992, Griliches volume)

• Simplified methodology as suggested by Fraumeni (2008)

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IARIW OECD Report by LiuNominal Ratio of Human Capital to GDP,

2006

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IARIW OECD Report by LiuHuman Capital per Capita (Thous. of US$s)

2006

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IARIW Human Capital in China PaperLi, Liang, Fraumeni, Liu, and Wang

• Ages – Males 16-60– Females 16-55

• For comparison purposes same real income growth rate and discount rate

• Base case income growth rates– Urban 6.00%– Rural 4.11%

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IARIW Human Capital in China Paper

• Mincer equation to estimate income

• Modification of contemporaneous enrollment information

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IARIW Human Capital in China Paper Educational Attainment by Gender

1982 vs. 2007, Millions

Muskie School of Public Service Ph.D. Program in Public Policy

0

100

200

300

400

500

no school i ng pri maryschool

j uni or mi ddl eschool

seni or mi ddl eschool

col l ege andover

millions

mal e f emal e total

0

100

200

300

400

500

no schooling primary school junior middleschool

senior middleschool

college and over

mil

lio

ns

male female total

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IARIW Human Capital in China Paper Real Human Capital (trillions of 1985 RMB)

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IARIW Human Capital in China Paper Nominal Human Capital (trillions of RMB)

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IARIW Human Capital in China Paper2006 Comparison

Nominal ratio of human capital to GDP

is 5.1

below the OECD consortium country range

of

6.9 to 11.7

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IARIW Human Capital in China Paper

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% Rate of Growth of

Real Measures

Total Human Capital

Human Capital per

CapitaPopulation

1985-2007 2.35 .78 1.57

1985-1995 2.42 .49 1.93

1995-2007 2.28 1.02 1.27

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Next Release: Provincial Human Capital Center for Human Capital and Labor Market Research

of theCentral University for Finance and Economics,

Beijing, China & Hunan University students

• Beijing• Gansu• Guangdong• Hunan• Jiangsu• Liaoning

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What Next for the OECD project?

• Divisia quantity indexes

• Will the nonmarket sector be added?

• Will other countries become involved at a later date?

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Importance of Nonmarket Activities

• 60-70% of the value of all activities comes from nonmarket activities (J-F)

• Given the hours worked for pay of all hours available in a week, this is not too surprising

• How could we survive without nonmarket activities?

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Jorgenson-Fraumeni Mark 2

No decisions, but we’ll be back!

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