Human Capital Estimates in - PowerPoint Presentation

Slide1

Human Capital Estimates in

China:

New Panel Data on China by Provinces 1985-2010

Haizheng LiSchool of EconomicsGeorgia Institute of TechnologyEmail: haizheng.li@econ.gatech.eduQinyi LiuSchool of Economics and Trade Hunan UniversityBo LiChina Center for Human Capital and Labor Market ResearchCentral University of Finance and EconomicsBarbara FraumeniMuskie School of Public ServiceUniversity of Southern MaineXiaobei ZhangSchool of EconomicsZhejiang University of Finance and Economics

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide2

Human capital

“The knowledge, skills, competencies and attributes embodied in

individuals that facilitate the creation of personal, social and economic well-being” --OECD, 2001Importance of Human CapitalA central determinant of economic growthSignificant contributions to 30 years’ economic growth in China

Enhances the ability in Developing technological innovations Adapting and implementing technologies developedReduce poverty and inequality2中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide3

Human capital

Importance of Human Capital Measurement

Trace the distribution and dynamics of human capital Aid empirical studies and policy analysis Promote the creation of human capital satellite account

3中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide4

Human capital measurement

ChallengesThe unique characteristics make it difficult to estimate its value 

Partial measurements like education are commonly used Lack of data existing method cannot be applied to China

Arduous work for data collection, processing and calculation, especially at provincial level Empirical researches desire panel data of human capital Panel data of comprehensive measures of human capital at a state or province level are lacking for most countries including China4中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide5

Research team and sponsors

Research Team (starting in 2008)China Center for Human Capital and Labor Market Research (CHLR) special-term faculty, full-time faculty, doctoral and Master’s student, and staff

SponsorsNational Natural Science Foundation of ChinaCentral University of Finance and Economics5中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide6

Methodology

Jorgenson-Fraumeni Lifetime

Income-based Approach Include all aspects of human capital services measured by market value Widely used in measuring a nation’s total human capital stockArgentina (

Coremberg, 2010), Australia (Wei, 2007, 2008), Canada (Gu and Wong, 2009), India (Gundimeda et al., 2007), New Zealand (Le, Gibson, and Oxley, 2005), Norway (Liu and Greaker, 2009), Sweden (Ahlroth, Bjorkland, and Forslund, 1997), United Kingdom (O’Mahony and Stevens, 2004 and Jones and Chirpanhura, 2010), and the United States (Christian, 2010)The OECD human capital consortium OECD, 2010; Mira and Liu, 2010; Liu, 2011China’s national level human capitalLi et al., 2010; Li, Liang et al., 20136中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide7

Methodology

Jorgenson-Fraumeni lifetime income-based approachCalculate human capital stock for each individual as the estimated present value of expected future lifetime earnings

Backward recursive estimation beginning with the oldest covered ageDivide life cycle into five stagesRetirement, Work-only, Work-school, School-only, Pre-schoolModifications Incorporate the Mincer model (National level)Expand Mincer model to include macro-variables (Provincial level)Derive total human capital stock separated by urban and rural in estimationAdjustment for cross-province comparison with a living cost adjustment index

7中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide8

Augmented

Mincer model Lack of data in China use the Mincer model to estimate earningsExtended model for earnings in provinces

ln(inc)= β0 + β1 · ln(Avwage)+ β2 · Sch+ β

3 · Sch · Avgdp+ β4 · Sch · Ratio+ β5 · Exp+ β6 · Exp2 +uln⁡(inc): the logarithm of earningsSch: years of schoolingExp: years of work experienceAvwage: average wage of a provinceAvgdp: provincial GDP per capitaRatio: provincial primary industry employment proportion of the total labor forceu: random error8中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide9

Augmented

Mincer model Extended modelAvwage reflects the income gap among provinces Reflect provincial differences in earnings of those with no schooling and no labor-market experience

Avgdp and Ratio capture the provincial economic development stage and labor market structureReturn to schooling is affected by the development stage and labor market structure (Li 2003, Zhang et al., 2005, and Yang, 2005)9

中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide10

Data

Imputing population by cohortPopulation data into 4-dimensionsNational Censuses (1982, 1990, 2000 and 2010)1% sample of national population survey (1987, 1995 and 2005)

Provincial Statistical Yearbooks (1982-2010)Age distribution & Enrollment ratesThe China Health and Nutrition Survey (CHNS 1989, 1991, 1993, 1997 and 2000) The Chinese Household Income Project (CHIP 1995)The China Education Statistical Yearbook (2003-2010)10

中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide11

Data

Estimating Mincer parametersMicro:Annual Urban Household Survey (UHS 1986-1997)China Health and Nutrition Survey (CHNS 1989, 1991, 1993, 1997, 2000, 2004, 2006 and 2009)Chinese Household Income Project (CHIP 1988, 1995, 1999, 2002 and 2007)

Chinese Family Panel Studies (CFPS 2009) China Household Finance Survey (CHFS 2010)Macro: provincial statistical yearbooks (1982-2010)Growth rate & Employment rateProvincial statistical yearbooks (1982-2010)Discount rate4.58% --used by Jorgenson and Fraumeni (1992a) and the OECD consortium (OECD 2010)

11中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide12

Results--Human Capital panel data

Provide provincial human capital panel data22 provinces/cities Guangdong, Jiangsu

, Shandong, Henan, Hubei, Hunan, Anhui, Shanghai, Liaoning, Beijing, Guizhou, Gansu, Tianjin, Heilongjiang,

Zhejiang, Guangxi, Shaanxi, Hainan, Jiangxi, Jilin, Chongqing, Sichuan1985-2010cover most of the reform eraTotal human capital(HC), Per capita HC, Labor force human capital(LFHC), Average LFHCUrban/rural, Education, Age, Gender 12中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide13

Total human

capital(HC)Human capital reservepopulation aged 0-15 (have not entered the labor market)full-time

students aged 16+ (not in the labor force)Human capital in usenon-retired population aged 16+ and in the labor forceThe average annual growth rate

 lower than the growth rate of the Chinese economy much faster in the latter periodSimilar change happens at urban/rural, education, age, gender131985-20101985-19941995-20106.4%1.2%9.3%中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide14

Table 1 Descriptive Statistics for Human Capital

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Sample MeanVariable 1985199520052010

Total human capital

(Billion RMB)

1,602

1,722

4,723

8,177

Of: Urban

626

765

3,127

5,954

Rural

1,023

1,003

1,673

2,328

Male

987

1,085

3,040

5,354

Female

615

638

1,683

2,822

Age 0-15 (human capital reserve)

860

876

2,160

3,273

Age 16-59 (labor force human capital including students)

742

846

2,563

4,903

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide15

Total human capital(HC)

Urban-rural Urban increase by 8.5 times; rural 1.3 times from 1985 to 2010 Urban/rural 60-76% in 1985-1995

 2.6 times in 2010 Fast urbanization in China  Increasing educational attainment gapGender Annual growth: male 6.6% ; female 6.1%Male/total: 61.6% in 1985

 65.5% in 2010Rising gender ratio of male for China’s one-child policyRising gender inequality in educational attainment15中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide16

Total human

capital(HC)Age (Figure 1)Human

capital reserve (aged 0-15) : Its ratio in total: 54% in 198540% in 2010Its population share in total: 39% in 198523% in 2010Labor force age human capital(aged 16-59, including students): Its

ratio in total: 46% in 198560% in 2010Its population share in total: 61% in 1985 77% in 201016中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide17

Figure 1

Human Capital for Different Cohorts-Provincial Average17

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide18

Total human

capital(HC)Age (Figure 2)Labor force human capital(16-59, excluding students)

The share in total declined since 2000, increase starts at 2005Full-time students(aged 16-59) in school increaseIts share in labor force: grows from 2.9% in 1985 to 6.9% in 2010Due to expanded

education opportunities since 199918中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide19

Figure 2

Population & Human Capital Share-Provincial Average19

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide20

Labor force human capital(LFHC)

Trend:Average annual growth in 1985-2010LFHC grows faster than

total HC (fewer young people)20

%HCLFHCLabor forceTotal6.46.81.6Urban8.8

9.2

4.3

Rural

3.4

4.3

0.0

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide21

Labor force human capital(LFHC)

Education(Figure 4)

Human capital share in education:Illiterate and primary: declined rapidly Junior school remains the largest, and started to decline since 2006Senior: flat

College or aboveThe highest increase (close to 20% annual growth) Increased from 1.7% in 1985 to 26.3% in 2010much higher than its population share, 12.3% in 2010 A rising return to college education documented by Zhang et al. (2005)21中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide22

Figure 4 Education

Share in Labor Force Human Capital (LFHC)22

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide23

Per capita human capital (PCHC)

Measure of the intensity of human capitalCompare the annual average growth rates Since 1995 they grew at a similar annual growth rate

Average annual growth rates of population 1.2% in 1985-1994; 0.6% in 1995-2010 much slower than the growth of HC HC growth is not driven solely by population growth

23中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide24

Table 2 Descriptive Statistics for

Per Capita Human Capital24

Sample MeanVariable 1985199520052010

Per capita human capital

(Thousand RMB)

49

46

121

202

Of: Urban

73

65

165

267

Rural

40

36

77

116

Male

58

55

148

247

Female

40

36

90

150

Age 0-15 (human capital reserve)

69

71

221

382

Age 0 (Average lifelong income for new-born)

76

78

247

407

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide25

Per capita human capital (PCHC

) (Table 2)Urban/ruralGap enlarged

Rural/Urban: 54% in 198543% in 2010Education (Figure 3)Average years of schooling 5.5 years in 1985 8.8 years in 2010

Gender Female/male: 69% in 1985 61% in 2010 Age 0-15Average annual growth PCHC: 6.6%; Population: -1.5% 25中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide26

Figure 3

Average Years of Schooling (Avsch) and Per Capita Human Capital (PCHC)

26

中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide27

Top 5 Provinces for Human Capital in 2010

27

Total human capital (Billion RMB)

  Total population1Guangdong

21,974

Guangdong

2

Jiangsu

21,029

Henan

3

Shandong

18,386

Shandong

4

Zhejiang

15,335

Sichuan

5

Henan

13,888

Jiangsu

Per capita human capital

(

Thousand RMB)

Per

capita GDP

1

Shanghai

378

Shanghai

2

Beijing

345

Beijing

3

Zhejiang

337

Tianjin

4

Tianjin

332

Liaoning

5

Jiangsu

329

Heilongjiang

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide28

Average labor force human capital(ALFHC)

Urban/rural:Urban: RMB 167 thousand; Rural: RMB 90 thousand in 2010Average annual growth

Since 1995, urban ALFHC has grown much faster than rural Education gap between urban and rural areas Higher labor quality and thus higher productivity in urban areas, if the age structure in urban and rural areas were identical  urban/rural gap will continue to rise.

28%1985-20101985-19941995-2010Urban4.9-1.08.2Rural4.3-0.26.8中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide29

Top 5 Provinces for

Labor Force Human Capital in 201029

Labor force human capital (Billion RMB)

  1Guangdong12,2202

Jiangsu

8,552

3

Zhejiang

7,122

4

Shandong

6,498

5

Henan

5,796

Average labor force human

capita

l

(

Thousand RMB)

1

Shanghai

263

2

Beijing

255

3

Tianjin

222

4

Zhejiang

206

5

Jiangsu

184

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide30

Human capital

as a measure of social development--beyond GDP measures“…beyond Gross Domestic Product…” 

measure of economic and social progress --Stiglitz Commission reportExpected average lifetime income for newborns rises rapidly It Annual growth rate of 6.7% faster than PCHC (5.6%)

Provincial difference:30中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide31

Figure 5

Ratios of Labor Force Human Capital (LFHC), Physical Capital (PC), and GDP31

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide32

Human capital and physical capital

LFHC/physical capitalDecreases rapidly across time12 times in 1985 

5 times in 2010Possible reason:High physical capital investment in ChinaIncreased at an average annual growth of 18.9% during 1992-1997 32

中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide33

Human capital and GDP

GDP/LFHCMeasure of labor use efficiency Provincial ratio

is between 6-11% on averageShows a slow and stable growthCompared with GDP/physical capital: In the range of 49-66%Decline since 1995Human capital rises faster than physical capital

in efficiency 33中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide34

Illustration

of Data ApplicationsHuman capital as an input in a production functionTraditional production function

Augmented

production function  34中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide35

Table 4 Production

function estimation35

Var.

DefinitionPooled OLSFELaborHuman capital

Labor

Human capital

lnK

log(physical capital)

0.647***

0.449***

0.603***

0.533***

(0.007)

(0.012)

(0.015)

(0.037)

lnL

log(labor)

0.366***

0.185

(0.021)

(0.183)

lnH

log(labor force human capital)

0.551***

0.221***

(0.023)

(0.063)

Cons

-5.376***

-13.224***

-2.058

-4.623***

(0.348)

(0.583)

(3.056)

(1.532)

Obs.

546

546

546

546

R

2

0.954

0.966

0.981

0.986

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide36

Illustration of Data Applications

Pooled OLS (Table 4)LFHC has much higher output elasticity than laborWhen human capital is includedSmaller elasticity of physical

capital, even smaller than that for human capitalConstant returns to scaleFixed EffectsLFHC still has higher elasticity than that of laborElasticity of labor and LHFC become much smaller than OLSDecreasing returns to scale36

中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide37

Illustration

of Data ApplicationGrowth accounting based on human capital measureTFP growth/the Solow residual

S

hares of physical capital, = 0.33, =0.67 37中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide38

Table 5

Sources of China’s Economic Growth using Solow Growth Accounting38

1986-20101986-2010Growth rate (% per year)  Output

10.29

10.29

Physical capital

16.48

16.48

Labor

1.64

TFP (with labor)

3.76

Labor force human capital

7.03

TFP (with labor force human capital)

0.14

Contribution to GDP growth (%)

Physical capital

53.32

53.32

Labor

10.69

TFP (with labor)

35.99

Labor force human capital

45.87

TFP (with labor force human capital)

0.81

中国人力资本与劳动经济研究中心

China Center for Human Capital and Labor Market ResearchSlide39

Illustration of Data Application

Contributions to economic growth (Table 5)

With traditional labor input Physical capital accounts for 53.3% of growthEconomic growth in China has been mainly driven by physical capital Labor input: 10.7% TFP: 36%

With human capital inputLFHC: 45.9% TFP: 0.8%Consistent with studies that use two-step procedure to estimate how human capital affect TFP growth39中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide40

Summary

The data provide very rich information in studying China’s human capital A

comprehensive picture of China’s human capital distribution and dynamicsDemonstrations of applications of the new data Estimating a production functionConducting the growth decomposition exercise using the dataCompared the results with the traditional estimation based on labor inputs

The new panel data on China’s provincial human capital are quite reliable; and should be a valuable new resource for related studies and policy analysis40中国人力资本与劳动经济研究中心China Center for Human Capital and Labor Market ResearchSlide41

Questions?41