Conceptual Aspects of Human Capital Measurement

Abstract

The hyper-competitive global economy of the twenty-first century has become an era of innovation, technology, productivity, new knowledge and skills and focused on sustainable and inclusive growth. Human capital is one of the fundamental factors for ensuring sustainable and inclusive growth. The process of human capital formation is long and is influenced by many factors. Its measurement is one of the actual issues. The article discusses the analysis of both theoretical concepts of human capital measurement, as well as measurement problems. We consider three approaches for human capital measurement: The Cost-Based Approach - measures human capital by looking at the stream of past investments undertaken by individuals, households, employers and governments. The Income-Based Approach - measures human capital by looking at the stream of future earnings that human capital investment generates over the lifetime of a person. The approach elaborated by Jacob Mincer is empirically implemented by explaining the logarithm of the wage of a worker from her/his educational attainment and labour market experience (which is another source of human capital formation), while controlling for a set of background characteristics such as gender, type of labour contract (e.g. full-time or part-time, fixed term or tenure). The Indicators-based Approach - recently are widely used for measurement of human capital. 1. The UN Human Development Index (HDI), which combines measures of average achievements in a country in three basic dimensions of human development, i.e. health, education and knowledge, and standards of living. The Human Development Index (HDI) provides a single index measure which aims to capture three key dimensions of human development: an access to knowledge, long and healthy life and a sufficient standard of living; 2. World Bank Human Capital Index (HCI); 3. The PISA, which tests 15-16 year olds students for their cognitive skills in terms of reading, mathematics, science and problem solving; 4. The PIAAC, which tests adults for their competencies in terms of literacy, numeracy and ability to solve problems in technology-rich environments. The PISA and the PIAAC are new measures and express cognitive skills and abilities of students. A new approaches of human capital measurement clarifies what indicators can be considered to precisely measure more accurate human capital. The paper presents an empirical analysis of the dynamics of human capital of the Eastern Partnership (EaP) countries and draws relevant conclusions. For this purposes we consider several measurements of human capital: Human Capital Index (http://databank.worldbank.org/data); Human Development Index (http://hdr.undp.org/en/content/human-development-index-hdi), Public Expenditure on education (http://databank.worldbank.org/data) and (http://data.uis.unesco.org). Based on the analysis of the values ​​of the indicators and characteristics discussed above the following can be clearly identified: The higher government spending on education, the higher value of PISA (conclusion are similar regarding HCI and HDI). Georgia's favorable positions allows us to draw certain conclusions: the country requires active support from the government to improve problematic situation in terms of both healthcare and education. It is necessary to have an effective educational system that contributes to raising the level of education in the country (especially at the general education level), attracting qualified personnel to schools, supporting science, introducing scientific and technological achievements, analyzing and evaluating global technological trends. The high level of education of the population is a prerequisite for the development of demand for high-tech products and stimulates the creation of innovative products and processes. The current picture shows the impact of the pandemic on human capital through increasing mortality (which is related to the spread of infection), increasing government spending (related to manage the spread of the virus); It is clear that there is a transmission of the pandemic on the economic equilibrium (through the impact on demand and supply). At the same time, however there is the effect that we can consider as a positive result - acceleration of digitization. Since the process of formation and accumulation of human capital is not short-term, quantitative assessment of the impact will be possible after a certain period of time (the time lag should be taken into account); Keywords: Human Capital; Human Capital Index; Human Development Index; Government Expenditure on Education; PISA. JEL Codes: E24, J24, J41