Česen, Tanja

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Human Capital in Human EconomicsTanja CˇesenMinistry of Labour, Family and Social AﬀairsSloveniaHuman capital is a microeconomic term referring by definition tothe knowledge and skills accumulated by people in the process oftheir education and training. The pioneer in the field who pub-lished ‘Human capital’ in  is professor Gary S. Becker, a No-bel Laureate () from the University of Chicago (Becker ).In his opinion, the new economy has increased the value of edu-cation and returns for investment on education. The macroeco-nomic aspect of education and investment in human capital con-tribute to economic growth.       Economically we can measure human capital as ‘stock’ or ‘flow’ typeof indicator, where the first one represents the level of education andknowledge of people and the second reflects the process of education.Highly educated and skilled people have an economic advantage on thelabour market earning more, which is a return on their investment ineducation. The income level is a function of education and experience,highly educated people have a higher price of their skills, thus earninghigher income while entering the labour market and experience a morerapid growth during the working life cycle (Samuelson ).In the macroeconomic theory, human capital is among the four fac-tors of economic development in addition to the natural resources, cap-ital formation and technology. Human capital has become the most im-portant among the factors, as the capital goods can be bought, but canbe eﬀectively used in the economic process only by well – educated andskilled workers.The neoclassical model of economic growth is based only on capitalaccumulation, while other factors such as the quality of labour force,technology and natural resources remain constant. The increase of capi-tal per employee will increase aggregate output per worker and the econ-Tanja Cˇesenomy will move up on the aggregate production function. In the long runneoclassical model leads to a steady state of economy where capital re-turns become constant and incomes stop growing (Samuelson ).Economic development is connected to the absorption capability thatis defined by the quality of the human capital. Growth conflict is a psy-chological process in which people, due to the lack of knowledge, beginto oppose the progress. Therefore investment in machines and equip-ment must be necessarilly accompanied by investment into human cap-ital. From the economic point of view investment into human capitalmeans education and training of employed people. Educated people arean active factor of economic development (Mankiw ).However, competitiveness of modern hi-tech postindustrial economyis closely connected to the quality of human capital. Economic devel-opment is related to the fast technological development accompaniedby  development and the flow of information around the world.Economic development is based on the technological development thatneeds highly qualified and innovative labour force. Technological changeshifts the aggregate production function upwards, showing the advancesin productivity. Simultaneously the technology development is accom-panied by the human capital development that causes second shift of theproduction function upwards and raising output per worker – labourproductivity, together with rising wages and increasing living standards(Samuelson ). Research on economic growth has emphasized thathuman and physical capital are both important in ‘explaining interna-tional diﬀerences in standards of living’ (Mankiw ).The econometric studies ( a) confirm a significant positiveimpact of human capital accumulation on the productivity (output peremployee) and economic growth. Although the human capital theory isclearly defined, some dimensions are more diﬃcult to quantify empiri-cally. The human capital defined as capacity for work has five categories:individual knowledge, experience, skills, capability for work (health),willingness and readiness to work (personality). Some of them can bemeasured, while others have to be estimated.The system of national accounts – , includes estimates of nationalwealth from diﬀerent aspects: production, consumption, income, capi-tal an financial accounts, but no estimates of human capital or labouraccounts. The first attempt has been taken in Australia with experimen-tal measures of the value of the human capital stock with the key no-tion that ‘the economic value of human capital embodied in individualsHuman Capital in Human Economicscan be expressed as the discounted present value of the lifetime incomestreams that they can earn by applying their knowledge and skills’ (b).Human capital stock is most oftenmeasured by the educational attain-ment of people according to the personal characteristics like age, genderetc. Another method of human capital stockmeasurement is observationof labour income paid in a year, assessment of the future income for eachgroup of people according to their educational attainment, to sum theestimated aggregate value of human capital. The static model-based es-timate origins from current level of education, while the dynamic modeltakes into account also the education in process (work-study stage andwork stage). The human capital flow is also measured by the observationof people – youth and adults – in the process of education and training.     Human economics signifies the modern economy focused on the in-creasing role of human capital in the knowledge-based society. Thismeans an observation of economics from a human perspective as animportant production factor and is also humane, reflecting a concernfor improving working conditions, investment in education and healthat work. The human resources development is an important part of alldevelopment strategies and has recently been embodied in the policyand reports of most important international institutions: the EuropeanCommission, , , the  etc. Education is a foundation of eco-nomic and social development, thus nowdays human capital is inten-sively discussed not only among researchers but also among politicians. – International Labour Organization () – prepared and dis-cussed on its  conference a report on ‘Learning and trainig for workin the knowledge society’ and the report on ‘Human resources develop-ment and training’ is on agenda for the  conference ( ).Following the Lisbon strategic goal for the next decade: ‘to become themost competitive and dynamic knowledge-based economy in the world, ca-pable of sustainable economic growth with more and better jobs and greatersocial cohesion’, the new European employment strategy sets three em-ployment policy objectives (Commission of the European Communities):. full employment,. improving quality and productivity at work, andTanja Cˇesen. social inclusion.The new European employment strategy sets also ten policy priorities(Commission of the European Communities ):. active and preventative measures for the unemployed and inactive,. job creation and entrepreneurship,. adaptability and mobility,. promotion of the development of human capital and life-longlearning,. increased labour supply and active ageing,. gender equality,. combating discrimination,. making work pay,. transformation of undeclared work,. addressing regional employment disparities.The concept of lifelong learning is an objective of the European em-ployment policy within the fourth policy priority: ‘Promote develop-ment of human capital and lifelong learning,’ that states: ‘Member stateswill implement lifelong learning strategies, including the quality and eﬃ-ciency of education and training systems, in order to equip all individualswith the skills required for amodern workforce in a knowledge-based so-ciety, to permit their career development and to reduce skills mismatchand bottlenecks in the labour market.’ (Commission of the EuropeanCommunities ).A recently adopted  document ‘Education and training ’ (Com-mission of the European Communities ) is focused on quality, accessand openness of education and training systems.   Employment‘Study on human capital in a global and knowledge based society’ (Dela Fuente and Ciccone ) claims that average level of education byone year represents a % increase in economic growth in the short-termand another .% in the long-term. In addition, the positive impact ofeducation on employment, health, and social inclusion has been shown.Several factors – economic, social and technological – account for thegrowing emphasis on the human capital (Commission of the EuropeanCommunities ):• Firstly, in any modern economy today, the production of goods andservices increasingly relies on human, rather than physical, capital,Human Capital in Human Economicsi. e. on its workers’ individual and collective endowment of knowl-edge and skills. For example, Germany’s endowment of human cap-ital is today more than twice the value of its physical capital.• Secondly, in the knowledge and information society the quality ofeducation is increasing and directed towards more active and ino-vative gaining of knowledge and skills.• Thirdly, growth of the ‘new economy’ is also seen as a reason for theexpansion of knowledge-based jobs. The idea of a ‘new economy’focuses attention on the role of  and its impact on technologicalprogress.   The available data from the employment register that we have analysedfor Slovenia include people employed by enterprises, small businessesand institutions. The analysis of the data on employed people by the ed-ucational attainment show that % of them have upper secondary edu-cation, % secondary education and % are skilled or unskilled work-ers. A closer observation by gender reflects better education of women,as % have a university degree, % secondary education and % haveless than secondary education (see Table ). The employment growth ofpeople with a university degree has been growing steadily, with the sec-ondary education showing a moderate growth, while the number of theemployed people with less than a secondary education has a negativetrend (see Table ).Employment of people with terciary education is growing steadily.Table  presents the structure and growth pattern of the selected threegroups by educational attainment divided by gender. The fastest employ-ment growth is seen in the group of women with a university degree, fol-lowed by the fast employment growth of man with a university degree,moderate employment growth of men with completed secondary edu-cation and zero growth of women with completed secondary education,while a negative employment trend with the lower education can be seenin females.A similar employment pattern by educational attainment is presentalso in the other industrialised countries and signifies a transition to-wards knowledge intensive human economics.In the new economy – the information society accompanied by theglobalization process – education and training are important not only forTanja Cˇesenindividuals, who due to their knowledge and skills becomemore success-ful and competitive on a more and more open labour market, but alsofor enterprises, for which human capital has become an important factorof production. The basic principle is intellectual flexibility and life-longlearning of adults. The main reasons for life-long learning can be sum-marized by the following interrelated functions:• individual function – individual development and career opportu-nities,• economic function – productivity and competitiveness of enter-prises,• social function – higher living standard, social inclusion, decreasingunemployment, cultural progress,• nacional function – competitiveness of the national economy.Individual benefits from education and training through better em-ployability, higher productivity, increased earnings, increased mobilityin the labour market and by widening their career opportunities. Byinvesting in the human resources enterprises improve their productiv-ity and competiveness not only on local markets but also on the globalmarkets. ‘The economic performance of  world-wide car assemblyplants around , measured in terms of labour productivity and prod-uct quality (assembly-related defects per vehicle), proved to be closelyassociated with the presence of three dimensions of business strategy:lean production, team working and innovative human resources man-agement () practices. Economic growth and social development ofcountries are invariably associated with large and sustained investmentsin education and training; countries with the highest incomes are alsothose where workers are most educated’ ( ).Human capital development is important for a successful admissionto the European market and competitiveness of the Slovenian economy.Lower educational level of Slovenes is an obstacle becoming  memberstate. Because of that education of youth and adults needs to be stimu-lated by increased investment into human capital. In Slovenia, there are. students enrolled, which is % of the population for – agegroup. The number of student has been increasing steadily and has beendoubled in the last seven years. % of students are women and %men.The more educated young generation with highly qualified humancapital flow to the labour market will be intensive and will change theHuman Capital in Human EconomicsTable : Human capital structure in Slovenia, –Year University degree Secondary Less than secondary      .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .% .%Source:  Employment Register.Table : Human capital growth in Slovenia, –Year University degree Secondary Less than secondary      .% .% .% .% .% –.% .% .% .% .% –.% –.% .% .% .% .% –.% –.%Source:  Employment Register.employment pattern. Fast growth in the number of students is expectedto increase economic growth but will also be reflected in an increase ofpublic expenditures and the introduction of life-long learning. Educa-tion of adults in Slovenia is not following the trend of youth education,partly because the  concept has not been adopted yet, partly becauseof the prevailing cultural pattern that adults do not suit to schools bench.However, nowadays once attained knowledge can easily become out-of-date.Following the  education priorities, the most important issue is to in-crease investment into education. Thus it is particularly important toincrease investment in human capital from public funds, the businesssector and individuals.The second priority is the introduction of life-long strategies, that isthe education and training of adults. In the next few years, the educationexpenditure for adults will increase and account for % of labour costs.The Slovenian strategic goal is to double the number of participants to to reach % of the working population. Education of adults is notTanja Cˇesenonly an investment mode by the individuals, but also by enterprises witha view to promote productivity, competitiveness and a more active age-ing. The management in progressive companies who is aware that com-petitiveness can be only achieved with well educated people, will strive toencourage employees to continue education and training – by enteringlife-long learning.Human capital development – the increase in the educational leveland flow of highly educated youth on the labour market – does not onlylead to welfare and better living standard of individuals, but also leadsgrowth in productivity that accelerates economic development. Invest-ment in human capital represents opportunity for individuals and com-panies and becomes necessity in the knowledge-based society. Hi-techintellectual industries need highly educated people. Human (intellec-tual) capital is the a key factor of productivity. Thus human capital hasbecome in the new economy the only real ‘wealth of nation’.Becker, G. .Human capital: A theoretic and empirical analysis. rd ed.Chicago and London: Tniversity of Chicago Press.Commission of the European Communities. . Education and train-inig : The success of the Lisbon strategy hinges on urgent re-forms.  ()  final.De la Fuente, A., and A. Ciccone. . Human capital in a global andknowledge-based economy.  and  Working Paper .. (International Labour Oﬃce). . Learning and training for workin the knowledge society. Report discussed on the InternationalLabour Conference, June .Mankiw, G. .Macroeconomics. nd ed. New York: Worth.. a. The new economy: Beyond the hype; Final Report on the Growth Project. http://www.oecd.org/dataoecd///.pdf.. b. Experimental estimates of human capital for Australia./ () . http://www.oecd.org/dataoecd///.doc.Samuelson, P. A. . Economics. th ed. Columbus, : McGraw-Hill.

Human capital in human economics

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Human capital in human economics

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