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Chapter 2: Investing in human capital and responding to long-term societal challenges
Attributes are implicitly included in the EQF via competences. They refer to an individual’s innate abilities, such as genetics, motivation,
12
personality or physical, emotional and mental health ( ). The division between skills and attributes is blurred and some authors consider
attributes as skills to emphasise that, as with knowledge and skills, they can be influenced and changed over the life-cycle by the external
13
environment, including learning ( ).
Human capital is formed and maintained, throughout one’s lifetime, by different investments (ways) which must be of good quality and
sufficient quantity. More usual forms of human capital investment are education and training that, at younger ages, tend to be formal,
compulsory and initial, while more non-formal, voluntary and continuing in the later ages. This can be privately or publicly financed and
provided by private or public market actors. Investments in education and training are complemented by the impact of families, informal
14
learning, workplaces and investments in health ( ). Finally, country level human capital can be formed and maintained by attracting
qualified and skilled foreign workers.
As for forming human capital, there is a growing consensus about the crucial role of human capital investment at very early ages on a
child’s and later adult’s capacity for skill development ( ). Several long-term studies have highlighted that the impact of quality childcare
15
on child performance can be felt many years after exposure, including during adulthood ( ).
16
The workplace contribution to (investment in) human capital formation and maintenance goes beyond training provided by employers. It
encompasses job content and work tasks, as well as the broader work environment determined by career prospects, working conditions
(benefits), affiliation and the learning culture of the employment contract ( ). A wider range of tasks and greater complexity offer more
17
chances to acquire knowledge and skills. Motivation for personal and professional growth is higher if work offers promotion prospects, a
18
sense of belonging to a company, and salary improvements linked to responsibility and jobs’ skill requirements rather than seniority ( ).
Measuring human capital stock and returns on investment is challenging. Existing approaches are based on indicators or monetary
measures ( 19 ). The first uses a single proxy for human capital, such as educational attainment, years of schooling, school enrolment ratios
or indicators based on assessing cognitive skills of students or adults (e.g. PISA ( ), PIAAC) ( 21 ). Monetary measures, which have recently
20
become more popular, translate various dimensions of human capital into a single unit (money) using indirect/residual, cost-based or
income-based approaches. Indicators are simple to use, but are less able to capture various dimensions of human capital. Monetary
measures facilitate the comparison of human capital with physical capital and across countries, but they might hide some information.
Hence the best approach is generally seen to be to use both.
Investments in human capital generate various economic and non-economic benefits for individuals, companies and/or societies. The
most widespread and developed are estimations of the benefits for investments in education and training (early childhood, initial and
continuing, i.e. lifelong learning) ( ). At the individual level, research shows a positive impact on wages ( ), employment and career pros-
23
22
pects, and health ( ). For firms, investment in continuous vocational training and education improve performance (increased customer
24
satisfaction, employees’ performance or innovation) ( ). At the society or macro levels, research shows the positive economic benefits
25
of education and training (e.g. growth) ( ). For non-economic benefits at society level, research shows a reduction in crime, development
26
of civic competences and better functioning of democracies ( ).
27
12
( ) OECD (2001); Mincer (1997); Heckmann and Kautz (2013), Mumford et al. (2000).
( ) Heckmann and Kautz (2013) recently introduced the concept of ‘character skill’ that captures personality traits, goals, motivations, and preferences. See also
13
explanation of ‘interactive skills’ in Green (2013).
( ) The Commission Staff Working Document on Investing in Health (European Commission 2013f) presents how smart investments in health can lead to
14
better health outcomes, productivity, employability, social inclusion and the cost-efficient use of public resources.
( ) This is mainly due to ‘self-productivity’ and ‘complementarity’ of skills. ‘Self-productivity’ means that prior skills are augmented by skills learnt at later stages,
15
while later investments are necessary to fully enable people’s potential (‘complementarity’ of skills). See Cunha et al. (2006); Currie and Almond (2011);
European Commission (2013a).
16
( ) See European Commission (2013a).
17
( ) European Commission (2013b); CEDEFOP (2011a); Autor and Handel (2009); Gathmann and Schönberg (2010); Green (2013); Tamilina (2012).
18
( ) See Chapters 3 ‘Workplace learning’ and 4 ‘Management and training processes that generate innovation’ in European Commission, ‘Adult and continuing
education in Europe, Using public policy to secure a growth in skills’, Publications Office of the European Union, Luxembourg, 2013c.
http://ec.europa.eu/research/social-sciences/pdf/policy_reviews/kina25943enc.pdf#view=fit&pagemode=none
( ) See Boarini et al. (2012) for a detailed review of methodologies, challenges in implementing them, possibilities for improving the quality of monetary
19
measures and overview of national initiatives in measuring the stock of human capital. Authors suggest developing experimental satellite accounts for
education to better understand how human capital is produced and the linkages between education and its non-monetary outcomes.
( ) The Programme for International Student Assessment (PISA) aims to evaluate education systems worldwide by testing the skills and knowledge of 15-year-old students in
20
reading, mathematics and science. It is carried out every three years and involves more than 70 economies. The latest wave was carried out in 2012. http://www.oecd.org/pisa/
( ) The OECD’s Programme for the International Assessment of Adult Competencies (PIAAC), also known as the Survey of Adult Skills, measures the key cognitive
21
and various generic skills and competencies needed for individuals to participate in society and to contribute to economic prosperity. Skill proficiency in
literacy, numeracy and problem solving in technology-rich environments has been tested with the Survey. The first wave of the Survey assessed the skills of
about 166 000 adults aged 16–65 in 24 countries, of which 17 are EU Member States. http://www.oecd.org/site/piaac/
22
( ) Detailed presentation and discussion of the benefits by various types of education and training and related methodological problems (like causality,
reverse causation, problem of omitted and/or unobservable variables, heterogeneity, the long-term nature of benefits) is beyond the scope of this section.
We refer interested readers to several recent publications of CEDEFOP (CEDEFOP 2013, 2011b, 2011c, 2011d, 2011e, 2011f); Card (1999); Bassanini et
al. (2005); EC-OECD seminar on Human Capital and Labour Market Performance, that was held in Brussels on 8 December 2004, available at ec.europa.
eu/social/BlobServlet?docId=1946&langId=en, Hanushek et al. (2013).
( ) See overview in CEDEFOP (2013); Harmon and Walker (2001); Leuven (2006); Bassanini et al. (2005).
23
( ) See overview in CEDEFOP (2013).
24
( ) See overview in CEDEFOP (2013); CEDEFOP (2011c, 2011d). Investments in formal job training can yield comparable returns on investments in physical
25
capital or schooling according to Almeida and Carneiro (2009).
( ) See overview in CEDEFOP (2013); Sianesi and Van Reenen (2000); Gennaioli et al. (2013). Woesman (2003) even argues that existing research severely
26
underestimates the development effect of human capital. This is because indicators used are poor proxies of human capital (e.g. adult literacy rates, school
enrolment ratios, and average years of schooling of the working-age population). The FP7 research project (LLLIGHT in EUROPE) is investigating how
successful enterprises actively employ Lifelong Learning for their competitive advantage. The project uses Complex Problem Solving (CPS)
skills as a measure of human capital. http://www.lllightineurope.com/
( ) See overview in CEDEFOP (2013).
27
105
Attributes are implicitly included in the EQF via competences. They refer to an individual’s innate abilities, such as genetics, motivation,
12
personality or physical, emotional and mental health ( ). The division between skills and attributes is blurred and some authors consider
attributes as skills to emphasise that, as with knowledge and skills, they can be influenced and changed over the life-cycle by the external
13
environment, including learning ( ).
Human capital is formed and maintained, throughout one’s lifetime, by different investments (ways) which must be of good quality and
sufficient quantity. More usual forms of human capital investment are education and training that, at younger ages, tend to be formal,
compulsory and initial, while more non-formal, voluntary and continuing in the later ages. This can be privately or publicly financed and
provided by private or public market actors. Investments in education and training are complemented by the impact of families, informal
14
learning, workplaces and investments in health ( ). Finally, country level human capital can be formed and maintained by attracting
qualified and skilled foreign workers.
As for forming human capital, there is a growing consensus about the crucial role of human capital investment at very early ages on a
child’s and later adult’s capacity for skill development ( ). Several long-term studies have highlighted that the impact of quality childcare
15
on child performance can be felt many years after exposure, including during adulthood ( ).
16
The workplace contribution to (investment in) human capital formation and maintenance goes beyond training provided by employers. It
encompasses job content and work tasks, as well as the broader work environment determined by career prospects, working conditions
(benefits), affiliation and the learning culture of the employment contract ( ). A wider range of tasks and greater complexity offer more
17
chances to acquire knowledge and skills. Motivation for personal and professional growth is higher if work offers promotion prospects, a
18
sense of belonging to a company, and salary improvements linked to responsibility and jobs’ skill requirements rather than seniority ( ).
Measuring human capital stock and returns on investment is challenging. Existing approaches are based on indicators or monetary
measures ( 19 ). The first uses a single proxy for human capital, such as educational attainment, years of schooling, school enrolment ratios
or indicators based on assessing cognitive skills of students or adults (e.g. PISA ( ), PIAAC) ( 21 ). Monetary measures, which have recently
20
become more popular, translate various dimensions of human capital into a single unit (money) using indirect/residual, cost-based or
income-based approaches. Indicators are simple to use, but are less able to capture various dimensions of human capital. Monetary
measures facilitate the comparison of human capital with physical capital and across countries, but they might hide some information.
Hence the best approach is generally seen to be to use both.
Investments in human capital generate various economic and non-economic benefits for individuals, companies and/or societies. The
most widespread and developed are estimations of the benefits for investments in education and training (early childhood, initial and
continuing, i.e. lifelong learning) ( ). At the individual level, research shows a positive impact on wages ( ), employment and career pros-
23
22
pects, and health ( ). For firms, investment in continuous vocational training and education improve performance (increased customer
24
satisfaction, employees’ performance or innovation) ( ). At the society or macro levels, research shows the positive economic benefits
25
of education and training (e.g. growth) ( ). For non-economic benefits at society level, research shows a reduction in crime, development
26
of civic competences and better functioning of democracies ( ).
27
12
( ) OECD (2001); Mincer (1997); Heckmann and Kautz (2013), Mumford et al. (2000).
( ) Heckmann and Kautz (2013) recently introduced the concept of ‘character skill’ that captures personality traits, goals, motivations, and preferences. See also
13
explanation of ‘interactive skills’ in Green (2013).
( ) The Commission Staff Working Document on Investing in Health (European Commission 2013f) presents how smart investments in health can lead to
14
better health outcomes, productivity, employability, social inclusion and the cost-efficient use of public resources.
( ) This is mainly due to ‘self-productivity’ and ‘complementarity’ of skills. ‘Self-productivity’ means that prior skills are augmented by skills learnt at later stages,
15
while later investments are necessary to fully enable people’s potential (‘complementarity’ of skills). See Cunha et al. (2006); Currie and Almond (2011);
European Commission (2013a).
16
( ) See European Commission (2013a).
17
( ) European Commission (2013b); CEDEFOP (2011a); Autor and Handel (2009); Gathmann and Schönberg (2010); Green (2013); Tamilina (2012).
18
( ) See Chapters 3 ‘Workplace learning’ and 4 ‘Management and training processes that generate innovation’ in European Commission, ‘Adult and continuing
education in Europe, Using public policy to secure a growth in skills’, Publications Office of the European Union, Luxembourg, 2013c.
http://ec.europa.eu/research/social-sciences/pdf/policy_reviews/kina25943enc.pdf#view=fit&pagemode=none
( ) See Boarini et al. (2012) for a detailed review of methodologies, challenges in implementing them, possibilities for improving the quality of monetary
19
measures and overview of national initiatives in measuring the stock of human capital. Authors suggest developing experimental satellite accounts for
education to better understand how human capital is produced and the linkages between education and its non-monetary outcomes.
( ) The Programme for International Student Assessment (PISA) aims to evaluate education systems worldwide by testing the skills and knowledge of 15-year-old students in
20
reading, mathematics and science. It is carried out every three years and involves more than 70 economies. The latest wave was carried out in 2012. http://www.oecd.org/pisa/
( ) The OECD’s Programme for the International Assessment of Adult Competencies (PIAAC), also known as the Survey of Adult Skills, measures the key cognitive
21
and various generic skills and competencies needed for individuals to participate in society and to contribute to economic prosperity. Skill proficiency in
literacy, numeracy and problem solving in technology-rich environments has been tested with the Survey. The first wave of the Survey assessed the skills of
about 166 000 adults aged 16–65 in 24 countries, of which 17 are EU Member States. http://www.oecd.org/site/piaac/
22
( ) Detailed presentation and discussion of the benefits by various types of education and training and related methodological problems (like causality,
reverse causation, problem of omitted and/or unobservable variables, heterogeneity, the long-term nature of benefits) is beyond the scope of this section.
We refer interested readers to several recent publications of CEDEFOP (CEDEFOP 2013, 2011b, 2011c, 2011d, 2011e, 2011f); Card (1999); Bassanini et
al. (2005); EC-OECD seminar on Human Capital and Labour Market Performance, that was held in Brussels on 8 December 2004, available at ec.europa.
eu/social/BlobServlet?docId=1946&langId=en, Hanushek et al. (2013).
( ) See overview in CEDEFOP (2013); Harmon and Walker (2001); Leuven (2006); Bassanini et al. (2005).
23
( ) See overview in CEDEFOP (2013).
24
( ) See overview in CEDEFOP (2013); CEDEFOP (2011c, 2011d). Investments in formal job training can yield comparable returns on investments in physical
25
capital or schooling according to Almeida and Carneiro (2009).
( ) See overview in CEDEFOP (2013); Sianesi and Van Reenen (2000); Gennaioli et al. (2013). Woesman (2003) even argues that existing research severely
26
underestimates the development effect of human capital. This is because indicators used are poor proxies of human capital (e.g. adult literacy rates, school
enrolment ratios, and average years of schooling of the working-age population). The FP7 research project (LLLIGHT in EUROPE) is investigating how
successful enterprises actively employ Lifelong Learning for their competitive advantage. The project uses Complex Problem Solving (CPS)
skills as a measure of human capital. http://www.lllightineurope.com/
( ) See overview in CEDEFOP (2013).
27
105
