Human Capital in a Developed Economy. Gary S. Becker

Human Capital in a Developed Economy Gary S. Becker 2005 6 9 14 40 16 10

Knowledge, Human Capital, Markets and Economic Growth in Modern Economies June 9, 2005 Kanematsu Auditorium Hitotsubashi Univesity Tokyo, Japan Gary S. Becker University of Chicago

An Investment in Knowledge Pays the Best Interest

Investment in Human Capital as percentage of GDP United States - 2001 9-11% Schooling 17 25+ Percent 4 6% 4 8%??? On the Job Training Health Adult Education Sources: Own calculations based on World Health Organization and, UNESCO, UIS Global Statistics.

Wage Premiums by Education Level United States 1963-2001 Source: Murphy, Erin S. How pervasive are the Gains from Schooling. St. Norbert College, Working Paper, April 2003.

Change in College/High School Wage Gap for European Countries Cohorts Specific Changes Born 1940-1949 Born 1950-1959 Years 80s 90s % Change 80s 90s %Change Austria 0.55 0.50-8.4 % 0.32 0.37 15.6% 85, 97 Denmark 0.18 0.27 54.8% 0.14 0.27 95% 85, 95 Finland 0.38 0.44 15.9% 0.36 0.38 3.8% 87, 93 France 0.32 0.33 4.4% 0.35 0.35 1.1% 90, 98 Germany 0.40 0.48 18.9% 0.38 0.41 9.2% 85, 97 Italy 0.19 0.32 66.1% 0.24 0.28 13% 87, 98 Netherlands 0.27 0.18-33.3% 0.16 0.19 16.4% 86, 96 Portugal 0.18 0.40 123.6% 0.46 0.57 22.6% 85, 93 Switzerland 0.33 0.35 5.4% 0.28 0.32 14.5% 92, 98 UK 0.27 0.28 3% 0.20 0.30 50.2% 85, 95 Source: Brunello, Giorgio, Simona Comi and Claudio Lucifora. The College Wage Gap in 10 European Countries: Evidence from Two Cohorts. IZA Discussion Papers 228, Institute for the Study of Labor (IZA), 2000.

Returns to Education - China 1988, 2002 Year Sample Rate of Return to Education Adjustment for Income Growth in Future 1988 Urban 3.3% 9.3% 2000 Urban 11.1% 17.1% Sources: 1988: Johnson, Emily N., and Chow, Gregory C. (1997). 2000: Heckman and Li (2003).

Returns to Education - Japan 2000 Year 2000 Rate of Return to Education 8% Source: Blondal (2002).

Returns to English and Schooling by Year- Men Aged 30-55 - India 1980-2000 0.25 0.25 English Schooling Schooling 0.20 0.2 0.15 0.15 Adjustment for Income Growth in Future: 10% + 4% = 14% 0.10 0.1 0.05 0.05 0 0 1980 1985 1990 1995 2000 Source: Provided by Mark R. Rosenzweig from his own calculations.

2005 - Q1 2004 - Q4 2004 - Q3 2004 - Q2 2004 - Q1 2003 - Q4 2003 - Q3 2003 - Q2 Labor Productivity Growth United States 1995 2005 10 9 8 7 6 5 % 4 3 2 1 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 - Q1 Source: Bureau of Labor Statistics.

Total Factor Productivity (TFP) in Non-Agriculture United States 1800 1940 TFP non-agricultural sector 2 1.8 1.6 1.4 1.2 1800-1840 0.79 1840-1900 0.73 1900-1929 1.63 1929-1940 1.78 1 0.8 0.6 0.4 0.2 0 1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 Source: Greenwood, J., and Seshadri, A. "The U.S. Demographic Transition". AEA Paper and Proceedings, 2002.

Age-Earnings profile for Males United States - 2005 8.4 8.2 8 Ln Monthly Earnings 7.8 7.6 7.4 7.2 7 6.8 6.6 16-19 20-24 25-34 35-44 45-54 55-64 65 + Source: Bureau of Labor Statistics. Age

Age-Earnings profile for Males Japan - 2002 13.5 13.0 Ln Monthly Earnings 12.5 12.0 11.5 11.0 17 18-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65 age + Age Source: Statistics and Information Department Minister's Secretariat. Ministry of Health, Labour and Welfare, Japan.

Economic Gains from Reductions in Mortality United States 1970-1998 Aggregate Gains (billions of $1996) 1970-80 1980-90 1990-98 1970-98 Males 21,215 12,139 13,223 46,577 Females 15,863 6,979 3,461 26,303 Total 37,078 19,117 16,685 72,880 Source: Murphy, K.M., and Topel, R. H. The Economic Value of Medical Research. In Measuring the Gains from Medical Research: An Economic Approach, edited by K.M. Murphy and R. H. Topel. Chicago: The University of Chicago Press. 2003.

The Economic Value of Reducing Cancer and Heart Diseases Mortality by 10% for the Total Population in United States Disease Category Increase in Value of Life (Billions of Dollars) Total Population Cancer $4,359 Heart Diseases $4,085 Source: Murphy, K.M., and Topel, R. H. 2003. The Economic Value of Medical Research. In Measuring the Gains from Medical Research: An Economic Approach, edited by K. M. Murphy and R.H. Topel, The University of Chicago Press, 2003.

Cross-Country Regression to the Mean in Income per Capita 1960-2000 2.5 y = 2.1-0.13 * x 2 ln(inc 2000) - ln(inc 1960) 1.5 1 0.5 0-0.5 6 7 8 9 10-1 ln(income 1960) weighted regression Source: Becker, G. S., Philipson, T., and Soares, R. The Quantity and Quality of Life and the Evolution of World Inequality. American Economic Review, forthcoming.

Cross-Country Regression to the Mean in Full-Income 1960-2000 2.5 y = 3.4-0.26 * x 2 ln(full Inc 2000) - ln(inc1960 1.5 1 0.5 0-0.5 6 7 8 9 10-1 ln(income 1960) weighted regression Source: Becker, G. S., Philipson, T., and Soares, R. The Quantity and Quality of Life and the Evolution of World Inequality. American Economic Review, forthcoming.

The Heritage Foundation/Wall Street Journal Index of Economic Freedom 2005 Rank - Economic Freedom (Out of 155 countries) 1 2 3 4 5 6 7 8 9 10 Country Hong Kong Singapore Luxembourg Estonia Ireland New Zealand United Kingdom Denmark Iceland Australia 39 112 118 Japan China India

Basically China ranks low in the following items: Trade Policy (but 1 point better than in 2004) Fiscal Burden (0.3 points better than in 2004) Foreign investment Banking and Finance: Four state-owned banks, which have a combined market share of nearly 70 percent, dominate the banking sector. Property Rights: China's judicial system is weak. The Economist Intelligence Unit reports that "many [foreign firms] prefer arbitration because of concerns about the speed and impartiality of the courts. Regulation

Japan ranks low in the following items: Fiscal Burden: In 2003, government expenditures as a share of GDP decreased 0.4 percentage point to 38.3 percent, compared to a 0.6 percentage point increase in 2002. Banking and Finance: Japan s banking system, although competitive, suffers from a large number of non-performing loans. Banks often make loans on criteria other than creditworthiness. Regulation: According to the U.S. Department of Commerce, Japan s reputation for protectionism and red tape is well deserved. [T]he Japanese economy remains over-regulated and those regulations can be used to hinder foreign firms attempts to gain access to the market.

Conclusions Human Capital has become increasingly important. Showed growth in returns to schooling, health. On the job training also important Perhaps in midst of technological revolution that will last for decades. Human capital investment requires flexible economic system to be most productive: Capital markets, labor and product markets.