1 / 43

Investments in Human Capital: The People Based Economy

Investments in Human Capital: The People Based Economy. Kevin M. Murphy The University of Chicago September 3 , 2012. Background. U.S. Real Per Capita GDP 1889-2010. Where Does Growth Come From?. There are three primary sources of growth Investment in physical capital

Download Presentation

Investments in Human Capital: The People Based Economy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Investments in Human Capital: The People Based Economy Kevin M. Murphy The University of Chicago September 3, 2012

  2. Background

  3. U.S. Real Per Capita GDP 1889-2010

  4. Where Does Growth Come From? • There are three primary sources of growth • Investment in physical capital • Investment in human capital • Improvements in technology (knowledge) • Primary goals of policy should be to • Maintain the incentive for physical investment • Provide an environment that fosters the growth of human capital • Provide rewards for innovation

  5. How do People Fit into the Economic Picture? • People are important as both inputs and outputs • Human capital is our most important input • Accounts for roughly 65 percent of our productive capacity • With increasingly mobile capital and technology, countries will be increasingly defined by their human capital • The production and maintenance of human capital is our most important output • Education • Healthcare • On the job training

  6. People Have Been at the Center of Some of the Most Important Economic Developments of Our Lifetimes • Increases in the return to education and skills have revolutionized labor markets and society • Improvements in health and longevity have added as much value to peoples lives as have increases in material wealth • Technological changes have increased the value of education outside of the workplace as well

  7. The Rising Importance of Education(Based on Becker & Murphy 2007)

  8. Education Wage Premiums

  9. Education Premiums by Gender

  10. Education Premiums by Race

  11. Overall Rise in Wage Inequality for Men

  12. Wage Growth by Percentile 1968-2004

  13. Explaining Changes In Education Returns Using Supply & Demand • Growth in the college premium can be explained by a very simple model • Model based on Katz-Murphy 1992 • The model: • Demand grows steadily over time • Fluctuations in supply cause education premiums to fluctuate • Supply grows faster than demand  premium falls • Demand grows faster than supply  premium rises

  14. Supply Growth & Relative Wages

  15. The Supply Response • Growth in the college premium has generated a predictable response – more people have gone on to college

  16. Wage Ratios & College Enrollment

  17. Education & Gender(Becker Hubbard & Murphy 2010) • While the fraction of individuals going on to college has increased over time the fraction graduating has not kept pace • The most likely reason is that many students are not well prepared • This is particularly true for young men • As a result of this and other factors college graduation rates for men are falling behind those for women

  18. College Graduation by Gender

  19. Mean GPA of High School Graduates, High School Transcript Studies

  20. DISTRIBUTION OF FIRST-YEAR UNDERGRADUATE GPA, BEGINNING POSTSECONDARY STUDENTS LONGITUDINAL STUDY

  21. Education & the Household(Becker & Murphy 2008) • Over time education has become more important in the household as well • Education based differences in health and longevity have increased in recent decades • More home based and out-patient care • Increases in drug therapies and patient monitoring • Education plays and important role in many other household activities • Financial decision making • Care and education of children

  22. Improvements in Health(Based on Murphy & Topel 2007)

  23. Basic Results • Historical improvements in life expectancy have been very significant – improvements in longevity from 1970 to 2000 were worth roughly $95 trillion (or about $3.2 trillion per year) to U.S. citizens • Improvements in life expectancy have contributed about as much to overall welfare as have improvements in material wealth

  24. Basic Results (cont.) • Potential future gains are also very large: • A 10% reduction in cancer death rates is worth roughly $4.7 trillion to the U.S. alone • Reducing cardiovascular disease deaths by 10% is worth roughly $5.7 trillion U.S. alone • Worldwide benefits would be several multiples of that • Even modest progress has great value: • A 10% reduction in cancer deaths worth over $4.5 trillion • Historical reduction in heart disease from 1970 to 2000 was worth about $35 trillion • A 10% reduction in accident related deaths is worth about $1.4 trillion

  25. The Value of Increased Longevity

  26. Figure 3: Values of 1/10,000 Reduction in Death Rates $800 $700 $600 Value of a 1/10,000 Reduction In Death Rates $500 $400 $300 $200 $100 $0 0 10 20 30 40 50 60 70 80 90 100 110 Age

  27. Extending the Model to Improvements in Health

  28. Lifecycle Pattern of Health Implied by Consumption Data

  29. Gains at The Individual Level

  30. Aggregate Gains

  31. Aggregate Gains from Increased Longevity 1970-2000

  32. Caveats to the Net Gains Analysis • Gains include improvements from many margins not just health care • Health care costs include many expenditures other than those directed at longevity • However, the comparison allows us to compare the size of two important trends

  33. Longer Term Changes • Recent improvements are reflective of longer term gains in longevity • Gains were actually somewhat greater in earlier decades using a fixed valuation profile (like fixed basis GNP accounting) • Gains have become increasingly concentrated at older ages in recent decades

  34. Prospective Gains

  35. Gain from a Permanent 10% Reduction in Death Rates by Category of Disease(Billions of $2004) Females Males Total ALL CAUSES $10,651 $7,885 $18,536 MAJOR CARDIOVASCULAR DISEASES $3,254 $2,471 $5,725 DISEASES OF HEART $2,676 $1,852 $4,529 CEREBROVASCULAR DISEASES $393 $460 $852 MALIGNANT NEOPLASMS $2,415 $2,261 $4,675 RESPIRATORY AND RELATED ORGANS $847 $557 $1,404 BREAST $3 $444 $447 REPRODUCTIVE AND URINARY ORGANS $301 $302 $603 DIGESTIVE ORGANS $575 $431 $1,006 INFECTIOUS DISEASES (Including AIDS) $500 $148 $649

  36. Gain from a Permanent 10% Reduction in Death Rates by Category of Disease(Billions of $2004) (Continued) Males Females Total

  37. Important Policy Questions • How do we take advantage of growing demand for education and skills? • Increasing investment in higher education • Improving education at lower levels • How do we take advantage of potential gains from medical advance? • Balancing the costs and benefits • Improving insurance • Talking advantage of scalable technologies and the world-wide growth in incomes

More Related