Labour Input, Human Capital and Management Capital

1. Labour Input, Human Capital and Management Capital Wulong Gu Economic Analysis Division, Statistics Canada Presentation to the First World KLEMS Conference Harvard University August 19-20, 2010

2. Investment in skills and human capital are seen to be important determinant of economic growth. The measurement of human capital have become an important part of investigations into sustainability in Canada and in other countries (UNECE 2009). My presentation will focus on the work done at Statistics Canada on measurement of labour input, worker skills and human capital and its contribution to economic performance. Labour input and importance of investment in human capital Statistics Canada • Statistique Canada

3. Measurement of labour input takes into account the effect of investment in skills Measurement of human capital stock and investment Measurement of investment in training and management capital Outline Statistics Canada • Statistique Canada

4. In the late 1990s, the Canadian Productivity Accounts (CPAs) constructed a measure of labour input that takes into account the changes in labour composition. Labour input is disaggregated by age, educational attainment and class of workers (paid and self-employed workers). The measure is a part of Canadian KLEMS and it allows us to assess the contribution of investment in education and training to output growth and productivity growth in Canada. Measurement of labour input Statistics Canada • Statistique Canada

5. Dramatic changes in the educational qualifications of the worker force. The share of those with some or completed post-secondary education in total hours worked increased from less than 10% in 1961 to over 70% by 2009. The share of those workers with primary and secondary education declined from 90% to 30% over the period. Changes in the age structure of the labour force. The share of younger workers increased in the 1970s and 1980s as the post-war baby boomers entered the workforce. The share of older workers increased more recently as the baby boomers approach the retirement age. Changes in the composition of labour Statistics Canada • Statistique Canada

6. Annual growth in labour services, hours worked and labour composition Statistics Canada • Statistique Canada

7. Sources of labour productivity growth Statistics Canada • Statistique Canada

8. The index of labour input reflects the flow of services from the stock of human capital stock. To integrate human capital in the System of National Accounts and provide a more comprehensive examination of the role of human capital in economic performance, we developed a measure of human capital. Measurement of human capital stock and investment Statistics Canada • Statistique Canada

9. Average annual growth in human capital Statistics Canada • Statistique Canada

10. Contribution of age and education to changes in human capital per capita Statistics Canada • Statistique Canada

11. Investment in human capital and physical capital Statistics Canada • Statistique Canada

12. Composition of Canada’s total wealth Statistics Canada • Statistique Canada

13. Canada has one of the most highly qualified labour forces in the world. But some claim that Canadians lag other OECD countries in training and management talent. Our recent work has focused on the role of investment in training and management capital in Canada’s economic performance. Measurement of investment in training and management capital Statistics Canada • Statistique Canada

14. We followed the methodologies of Corrado, Hulten and Sichel (2005, 2009) to construct a measure of investment in training and management capital, along with other types of intangible capital. Intangible capital includes computerized information (software and computerized database), innovative property (scientific R&D and non-scientific R&D), and economic competencies (brand equity, training and management capital). Using methodologies of Corrado, Hulten and Sichel Statistics Canada • Statistique Canada

15. Intangible investment as % of business sector GDP Statistics Canada • Statistique Canada

16. Contribution of intangibles to growth Statistics Canada • Statistique Canada

17. We find that investment in intangibles was lower in Canada than in the U.S. due to Canada’s lower investment in R&D and computer software, especially in more recent years. The overall contribution of intangibles to labour productivity growth is found to be similar in the two countries from the mid-1970s to 1995. After 1995, the contribution of intangibles was lower in Canada than in the United States, due to Canada’s lower investment in software and R&D capital. A comparison with US results Statistics Canada • Statistique Canada

18. We find that that investment in management capital was similar between Canada and the United States. Investment in management capital made similar contributions to labour productivity growth in the two countries. Investment in management capital Statistics Canada • Statistique Canada

19. To expand the asset boundary of the system of national accounts to include human capital. To integrate human capital in the production account, income and expenditure account, accumulation account and wealth account. Future work Statistics Canada • Statistique Canada