3 Macro: Human Capital

A third field within the economics of education deals with the impact of human capital on the economy as a whole. Such macroeconomic studies examine the impact of education both on economic growth and the development of countries as well as on social cohesion and inequalities within societies. As already indicated in the introduction of section 1, strong and consistent positive effects of human capital in the form of education on economic prosperity and productivity of countries could be found. This finding is especially remarkable when taking into account that measurement errors in the data on the average length of education of the population in working age are accounted for (comp. Krueger and Lindahl 2001; de la Fuente and Doménech 2001; de la Fuente and Ciccone 2002). Moreover, de la Fuente (2002) found that a convergence of educational levels in Spain could explain a huge part of the reduction of regional disparities between Spanish regions. Besides, the quality of education, measured by knowledge tests, seems to have a much bigger impact on both the economic growth over time (Hanushek und Kimko 2000) as well as on the level of economic development (Woessmann 2003b) of states, than pure quantitative measures of education.

Our network members also contributed to this literature: De la Fuente and Doménech (2006) examined methodical aspects of accounting for human capital in growth regressions. The impact of education on economic growth was confirmed by Hanushek and Woessmann (2009), by finding a causal relationship between the performance of countries and their growth rate when compared internationally. In a historical context, Becker and Woessmann (2009) show that education was the driving force for the economic prosperity of the Protestant regions in former Prussia.

Numerous studies, furthermore, examine the impact of education on the degree of social cohesion in a country. Marin and Psacharopoulos (1976) analyze the impact of education on the distribution of income while Hanushek (2001) looks at the success of policy interventions aiming at reducing the difference in academic achievements between people with black and white color of skin in the US. Woessmann (2003c) estimates how different European school systems manage to achieve the same educational chances for children with different socio-economic background. Redmond and Kattuman (2001) show that features of human capital mainly accounted for increasing inequality in Hungary in the 1990s and von Weizsäcker (1996) analyzes the effects of decisions concerning education on inequality in the lifelong earnings and resulting conflicts in fiscal policy. Psacharopoulos and Hinchliffe (1972) estimate the substitution elasticity between workers with different educational levels which has implications both for the estimation of growth effects of education as well as for the effects of changes in the qualifying composition of the employees on the income distribution.

In more recent work Schütz et al. (2008) show the positive effect of early childhood education on equality in the education system. Hanushek and Woessmann (2006) provide evidence for the cohesive effects that late tracking can have on students' performance. The study of Brunello, Fort and Weber (2009) which analyzes the effects of education on the distribution of earnings is also part of this literature.



3a Human capital and economic growth, productivity
3b Education and social cohesion, distribution, inequality