Productivity, human capital and educational policies

Productivity, human capital and educational policies oe.cd/human-capital

WKP no 1 @OECDeconomy @OECD

Outline

1. What is human capital?

2. Why is it important?

3. How do we measure human capital at the

macro level?

4. Which policies matter?

2

1. What is human capital? • Stock of knowledge, skills and other personal characteristics embodied in people that helps them to be more productive.

• Investment in human capital includes formal education (pre-primary, formal school system, adult training programmes) but also informal and on-the-job learning and work experience. • No comparable and consistent measure reflecting all these elements is available across countries and time.

3

2. Why is it important? • Improving human capital considered as one of the most effective ways of promoting long-run growth and tackling inequality. • When accounting for differences in economic outcomes the link between growth and human capital is weak, missing, or counterintuitive.

4

Frequent OECD recommendation Share of reform priorities in 2019 Going for Growth publication by policy area (OECD countries)

Source: Reform priorities as outlined in 2019 Going for Growth publication.

5

3. HOW TO MEASURE HUMAN CAPITAL AT THE MACROECONOMIC LEVEL?

6

Human capital in OECD countries Log of human capital calculated as mean years of schooling multiplied by the rate of return to education (2015)

Linear rates of return, differing across groups of countries and averaged for three periods: 1979-1989, 1990-2000 and 2001-2012.

Source: OECD.

7

Measurement issues • Microeconomic evidence shows wage earnings as a function of the time spent in education (years of schooling) and work experience.

• At the macroeconomic level, economists use mean years of schooling, adjusted for rates of return to education (linear, decreasing or increasing).

• Increasing recognition that quality of education matters, but using international tests scores did not yield satisfactory results, probably due to lack of good time series; further work planned on this front.

8

Sources and assumptions

Mean years of schooling: An updated data by Goujon et al (2016) selected due to assumptions on mortality and high country coverage.

Rates or return: • Previous measures imposed same returns worldwide and over time, linear or decreasing.

• New measure allows for country heterogeneity (5 country groups) and variation in time, using linear returns.

9

Marginal rates of return to education • Recent evidence shows that rates of return tend to vary/increase across countries and over time

Source: OECD calculations based on Psacharopoulos and Patrinos (2004) and Montenegro and Patrinos (2014) 10

4. WHICH POLICIES MATTER? • • • • •

Pre-primary education attendance School autonomy Postponement of streaming Teaching resources Other

11

Full impact of educational reforms takes time Illustrative impact on an average country; bringing a policy in line with the average of the top 3 OECD performers.

The impact of educational reforms Over time, in % of per capita income Reform area

Increasing attendance of pre-primary education Increasing school autonomy Decreasing student-teacher ratio

Increasing the age of streaming Increasing the share of fully qualified teachers 0.0

0.5

1.0

1.5

2.0

2.5

GDP per capita (%)

After 5 years

After 10 years

In the long term

Conditional on one standard deviation increase in education spending, that represents about 5% of the average spending level in OECD countries.

12

SIZE OF THE IMPACT DEPENDS ON SCOPE FOR REFORM

13

Attendance of pre-primary education • Quality pre-primary education and care linked to educational and other outcomes later in life.

• Attendance of preprimary education improves human capital.

• Children with disadvantaged socioeconomic background have the most to gain.

14

Impact of increasing attendance of preprimary education Turkey Chile Ireland Poland Canada Australia Finland Portugal Greece United Kingdom Sweden New Zealand Mexico Slovenia Switzerland United States Latvia Denmark Slovak Republic Israel Luxembourg Korea Estonia Germany Norway Spain Italy Czech Republic Austria France Belgium Japan Hungary Netherlands Iceland 0.0

1.0

2.0

3.0

4.0

Long term increase in GDP per capita (%)

5.0

6.0

15

School autonomy

• Greater school autonomy can lead to better resource allocation, particularly when coupled with external accountability (e.g. via centralised exams) • Autonomy in terms of resource allocation improves human capital; effect greater in countries with external accountability.

16

Impact of increasing school autonomy and external accountability Turkey Greece Italy Germany Austria France Portugal Korea Ireland Spain Canada Poland Mexico Belgium Finland Japan Israel Luxembourg Norway Switzerland Slovenia Iceland Australia United States New Zealand Estonia Denmark Hungary Chile Latvia Sweden Slovak Republic Netherlands Czech Republic United Kingdom 0

0.5

1

1.5

2

Long term increase in GDP per capita (%)

2.5

3

17

Age of first streaming • Pupils are sometimes streamed into specific learning tracks based on their ability or achievement at a young age. • Such separation of pupils has a negative impact on human capital.

18

Impact of increasing the age of first streaming Germany Austria Turkey Slovak Republic Hungary Czech Republic Netherlands Mexico Belgium Luxembourg Chile Korea Italy Slovenia Portugal Poland Japan Israel Ireland Greece France Switzerland United States Sweden New Zealand Estonia Norway Latvia Iceland United Kingdom Finland Spain Denmark Canada Australia 0.00

No impact for these countries because they already have the highest age of first streaming

0.20

0.40

0.60

0.80

1.00

Long term increase in GDP per capita (%)

1.20

1.40

1.60

19

Teaching resources •

Teaching quality important factor but difficult to measure.

•

In the analysis, measures of teaching resources and teacher qualification used.

•

Fewer students per teacher and more fully qualified teachers improve human capital.

20

Impact of improving teaching resources Turkey Mexico Chile Slovenia Slovak Republic Switzerland Norway Poland Czech Republic Sweden Greece Latvia Germany Iceland Netherlands Finland Denmark Estonia Israel Ireland Austria Hungary Japan France Canada Spain Belgium Korea United Kingdom Australia New Zealand Italy United States Portugal Luxembourg 0.00

0.10

0.20

0.30

0.40

0.50

Long term increase in GDP per capita (%)

0.60

0.70

0.80

21

Other policies tested • Greater university autonomy improves human capital

• Availability of individual financing for higher education studies improves human capital

For impact of reforming educational policies in your country see https://oe.cd/cyc-humancapital 22

For more information oe.cd/human-capital Download the working papers: Botev, J., et al. (2019), "A new macroeconomic measure of human capital with strong empirical links to productivity" Égert, B., J. Botev and D. Turner (2019), "Policy drivers of human capital in the OECD’s quantification of structural reforms" Smidova, Z. (2019), "Educational outcomes: A literature review of policy drivers from a macroeconomic perspective”

Download the data: https://oe.cd/SPIDER

Listen to podcast: https://soundcloud.com/oecd/human-capital-and-policies 23