Human Capital Accounts: Choice of Rates and Construction of Volume Indices

Both human capital and nonhuman capital play an important role in economic growth. Estimates of nonhuman (physical) capital exist for many more countries than for human capital. Recently there has been a significant increase in the number of countries for which estimates of human capital exist, primarily because of the OECD human capital project, which has constructed nominal Jorgenson-Fraumeni human capital stocks for eleven countries.

As the OECD project continues, it is important to reflect on the rates used in this project and in other efforts. Although two real rates need to be chosen: a discount rate and a rate of growth of labor income, what really matters is the size of the adjustment factor which incorporates both rates.

In order to best understand the role of human capital in economic growth, volume (quantity) indices need to be constructed. This paper outlines how total and partial indices can be constructed, which along which companion contributions, will allow for more informative and detailed cross-country and individual country analyses.