The Net Human Capital of Nations

Pieter Vanhuysse , University of Southern Denmark
Robert Gal, Corvinus University
Csaba G. Tóth, ELTE Centre for Economic and Regional Studies

We live in the age of human capital. Postwar accounts of growth and prosperity consider human capital to be the key driver of the economic welfare of persons and nations. But unlike for physical capital, standard estimates of human capital employ a ‘gross’ definition that does not take into account how humans, too, require maintenance costs to be productive. We employ National Transfer Accounts to calculate the net human capital of nations. We estimate present values of labour income over the remaining lifetime, minus four novel, lifecycle-based, definitions of human maintenance costs. Two definitions can be estimated on a global dataset for 81 countries around 2010; all four definitions for 25 EU countries. Our results for net human capital are lower than standard gross estimates by respectively 51 and 79 per cent globally, and by 56, 102, 41 and 69 per cent in Europe. Our approach relates to a prewar macroeconomic tradition that was abandoned by the Kendrick-Jorgenson-Fraumeni program to revise the System of National Accounts and reconceptualise education as investment, not consumption. We applaud the aims of that program. However, we caution that current estimates of the value of human capital – and, incidentally, of macroeconomic value-added (GDP) – are exaggerated, since human maintenance costs are ignored.

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 Presented in Session 56. Economy, Human Capital and Labor Markets