Academic journal article Asian Social Science

Approaches for Human Capital Measurement with an Empirical Application for Growth Policy

Academic journal article Asian Social Science

Approaches for Human Capital Measurement with an Empirical Application for Growth Policy

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. Introduction

For centuries, human capability is deemed valuable and indispensable to the wealth of nations as pointed out by classical economists, Adam Smith, Marshall, and Say. Smith (1776) stated in "The Wealth of Nations" the importance of human capital in that one's educational expenses can be comparable to the value of expensive machinery. The role of human capabilities on economic growth has received much scholar's attention to further peruse. Schultz (1961) originated the term "human capital" and referred it to the value of human capabilities. He asserted that human capital is not dissimilar to other types of capital, at least since it could be invested in various ways such as education and training. That is, the more education and training, the higher the accumulated human capital stock is. As a result, such investment will generate higher productivity, thus raising one's earnings and resulting in higher aggregate level of production, and so does the national income. His belief influenced a great deal of successive research on human capital. Becker (1964), Arrow (1962), Mincer (1962), Uzawa (1965), and Romer (1986) among others conceptualized and emphasized its impact on one's well-being and economy in diverse analytical framework. This challenges scholars to come up with various techniques and models to transform such concepts and afterwards relate it to observable within-and-cross country data. Consequently, numerous studies center on defining and measuring human capital. Its scope and measurements, nevertheless, are subject to controversies. In part, it is because the society nowadays is much more complex than ever. Globalization, knowledge-based economy, skilled-bias technology, innovations, advances in software and cyberspace industries, better quality and longer data sets as well as newer econometric techniques make it even harder to arrive at inclusive meaning of human capital. Other than these complications, human capital is something pertaining to qualitative per se, so that previous attempts to provide its range and quantitatively measure it were not successful. Why does it so hard to come up with one agreeable meaning? Perhaps because it is diversified, dynamic by nature and it has spill-over effects on economy and society. This implies that human capital as pertaining to "social capital" should be taken into consideration when defining it comprehensively. Regardless of such difficulties, aiming to provide the definition of human capital in a practical manner by taking advantage of its evolving notions and theoretical developments is beneficial. In so doing, we may define and underpin practical approaches for human capital measurement. As such, in this paper, one of the main focuses is to identify approaches for human capital measurement as well as pros and cons of each approach. This is significant since the researchers are able to adopt the most suitable method for their work or even develop their own measurement of human capital based on the results. That is to say the frontier of human capital research involves identifying human capital measures as well as quantifying the human capital stock. Further, utilizing the well-measured human capital to test its validity is also crucial. One possible way is through the creation of human capital accounts, and then tries adding it into the National Accounts. Another interesting way is through investigating causal relationships between human capital and economic growth. The former should be considered the "ultimate goal" because it takes a considerable amount of time and deep understanding of human capital issues through thoroughly synthesized learning processes. The latter can be validated at once. However, at least a few complications arise. That is, what should be used as a proxy or proxies for human capital and how appropriate? Having responded to such queries is somewhat challenging and painstaking. Even so, those carefully chosen are subject to the validity check by the real data and sensible causal explanations. …

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