Estimating the monetary value of the stock of human capital for New Zealand

Abstract

Human capital is increasingly believed to play an indispensable role in the growth process; however, adequately measuring its stock remains controversial. Because the estimated impact that human capital has on economic growth is sensitive to the measure of human capital, accurate and consistent measures are desirable. While many measures have been developed, most rely on some proxy of educational experience and are thus plagued with limitations. In this study, I adopt a lifetime earnings approach to estimate the monetary value of the human capital stock for New Zealand. I find that the country's working human capital increased by half between 1981 and 2001, mainly due to rising employment level. This stock was well over double that of physical capital. I also model human capital as a latent variable using a Partial Least Squares approach. Exploratory analyses on a number of countries show that age, gender and education combined can capture 65-97 percent of the explained variation in human capital. JEL Classifications: J24, O47.