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MOVING EUROPE’S PRODUCTIVITY FRONTIER: The Role of Human Capital

“Quality of Tertiary Education and the Economic Policy Agenda” Ljubljana, Slovenia, April 2, 2008. MOVING EUROPE’S PRODUCTIVITY FRONTIER: The Role of Human Capital. Karl PICHELMANN. Starting with a short advertisement. Moving Europe‘s productivity frontier. THE BACKGROUND

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MOVING EUROPE’S PRODUCTIVITY FRONTIER: The Role of Human Capital

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  1. “Quality of Tertiary Education and the Economic Policy Agenda” Ljubljana, Slovenia, April 2, 2008 MOVING EUROPE’S PRODUCTIVITY FRONTIER: The Role of Human Capital Karl PICHELMANN

  2. Starting with a short advertisement

  3. Moving Europe‘s productivity frontier THE BACKGROUND • Slowdown in productivity growth since mid-90s • Pick-up since 2005 indicating a trend reversal? THE ANALYSIS IN THE REPORT • Reflection of employment-productivity trade-off? • Impact of productivity-enhancing policies? THE ROLE OF HUMAN CAPITAL FORMATION • Private and social returns to education and training • The importance of „frontier effects“ • Implementation of the renewed Lisbon strategy

  4. Growth accountingEU vs. US

  5. Growth accountingEU vs. US

  6. Trend growth in output per employee

  7. Employment & ProductivityAn eventual trade-off?

  8. Employment & ProductivityAn eventual trade-off? THE IMPACT OF LABOUR MARKET REFORMS • Macro-simulation analysis – aggregate level • Significant reduction of the NAIRU • Elasticity of productivity ~ -1/3 • Difference-analysis: lower attachment groups • Robust positive impact on employment rates • Negative effect on productivity growth • Favourable employment effect at little cost

  9. Trend growth in total factor productivity

  10. The pursuit of higher productivity ANOTHER LOOK AT POLICIES • Investing in knowledge and innovation

  11. The determinants ofTFP growth AN ANALYSIS OF „FRONTIER“ EFFECTS • A „Schumpeterian“ approach

  12. The determinants ofTFP growth AN ANALYSIS OF „FRONTIER“ EFFECTS • Regression analysis using EU KLEMS database • TFP growth at the frontier • Technological gap • R & D • Human capital • Regulation indicators • „Frontier“ effects increasingly important • Interaction with R&D and human capital • Industry-specific regulatory reform approach

  13. The pursuit of higher productivity ANOTHER LOOK AT POLICIES • Investing in knowledge and innovation • Efficiency of public spending • Link between competition and innovation • Barriers to the reallocation of resources • „Flexicurity“ in labour markets • Entry and exit regulations, SME‘s policies • Reduction of administrative burdens • A fully functioning single market • Analysis reconfirms Lisbon strategy priorities

  14. The Macroeconomics of Higher Education

  15. The private internal rates of return to tertiary education These rates of return include wage, employability, unemployment benefit and pension premia associated with tertiary education and are adjusted for taxation. They also include the opportunity and direct costs of education. They are calculated assuming that labour productivity grows at 1.75% per year in all countries. Source: OECD

  16. The private internal rates of return to tertiary education These rates of return include wage, employability, unemployment benefit and pension premia associated with tertiary education and are adjusted for taxation. They also include the opportunity and direct costs of education. They are calculated assuming that labour productivity grows at 1.75% per year in all countries. Source: OECD

  17. Signalling or „true“ productivity effects

  18. The Macroeconomics of „Schooling“ THE SOCIAL RETURNS TO EDUCATION • Impact of human capital in growth regressions • Coefficient of average years of schooling • Elasticity almost certainly above 0.6 • Current best estimate around 0.9, i.e. • somewhat higher than private returns • Some important caveats • Relative or absolute change in human capital? • Quantity vs quality of education? • Diminishing returns?

  19. Human capital formation:A glimpse of the future Source: The EU Economy 2003 Review, Chapter 3.

  20. Moving Europe‘s productivity frontier THE CONCLUSIONS • Trend productivity slowdown has come to a halt, • but scant evidence for a structural turn-around. • Job-friendly reforms can and did have an impact, • yet productivity is not the enemy of employment. • Considerable scope to boost productivity growth • Promoting innovation and knowledge building • Fostering human capital formation at all levels • The 5th freedom: free movement of knowledge • Remove barriers to high-skilled migration

  21. “Quality of Tertiary Education and the Economic Policy Agenda” Ljubljana, Slovenia, April 2, 2008 Thank you very much for your attention

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