Developing US Human Capital Maj Ryan Messer NS 3041.

Developing US Human Capital

Maj Ryan MesserNS 3041

Overview

• Defining Human Capital• The Importance of Human Capital• Rates of Return for Various Education Levels• The Effects of Human Capital on the Economy• Measuring Human Capital• Policies for Enhancing Human Capital• Implications for US policy

Defining Human Capital (HC)

• Human Capital = the sum total of skills within an individual

• Not just natural skills, but those acquired through specialized training and education

The Importance of Developing Human Capital

• Productivity is the efficiency with which we convert inputs into outputs – technology, skills

• Globalization and Structural Changes have increased pressure on low-skilled workers

• Options are:– Ignore globalization– Cut wages– Accept higher unemployment– Invest in Human Capital

Rates of Return for Various Education Levels

• Poverty rate is twelve times higher for high school dropouts than for college graduates

• In 1980’s, college grad made 40% more than a high school grad, today its 80% more

• For every additional year of education beyond HS, income increases by ~10%

The Effects of HC on the Economy

• Increase the rate of growth of Human Capital– Increased GDP

The Effects of HC on the Economy

• Increase the rate of growth of Human Capital– Increased GDP– Increased Freedom

The Effects of HC on the Economy

• Increase the rate of growth of Human Capital– Increased GDP– Increased Freedom– Increased Research

and Development = Increased Innovation

How do you Measure HC Development?

Measuring Human Capital

• Years of Education– Avg. years of education; 25-64– Assumes same quality in each

country– Treats all degrees the same

• 10% increase in HC = 9% increase in GDP per capita

• In US, 9% increase in GDP per 1.3 years

Measuring Human Capital

• Attainment Rates– Compares the Present with the Past

Measuring Human Capital

• Enrolment Rates– A View of Future Human

Capital

• Quality of Investment• High Quality and High

Enrolment Requires a Significant Investment

Policies for Enhancing HC• Developing Human Capital starts at the youngest

age possible– Spending should focus on Kindergarten – HS

• Improve aid, grants and tax codes to make higher education affordable

• Adam Smith saw two roles for the government– Support institutions facilitating commerce– Support educational institutions

• Equal educational opportunities is more sustainable than transferring money from the rich to the poor

Implications for US Policy

• This a long term investment, beyond two terms in office

• In times like these, it is an expense America can get behind

Final Thoughts

“Investment in education pays the best interest”- Benjamin Franklin

“The most valuable of all capital is that invested in human beings”

– Alfred Marshall

Summary

• Defining Human Capital• The Importance of Human Capital• Rates of Return for Various Education Levels• The Effects of Human Capital on the Economy• Measuring Human Capital• Policies for Enhancing Human Capital• Implications for US policy

Questions?

References

Bergheim, Stefen (2005). Human Capital is the Key to Growth, Deutsche Bank Research

Bergheim, Stefen (2005). Global Growth Centres 2020, Deutsche Bank Research

OECD (2004). Education at a Glance, ParisSmith, Adam (1776). The Wealth of NationsWheelan, Charles (2002). Naked Economics:

Undressing the Dismal Science, New York