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Human capital around the globe

How to measure the human input in GDP

What does it take to produce stuff? On a basic level, you need means of production: raw materials, land, some machinery, some structure, and humans. Gross domestic product (GDP) is the measure of all the stuff produced in a country (in each quarter or each year) and depends heavily on the means of production. Today, we look at the human component. How much humans influence GDP depends on essentially two things: how much they work and how good they are at working. The latter is obviously a little difficult to measure, especially if you want to look at the input angle. We can measure output, which is labor productivity—that is, how much each unit of work produces. To measure human efficiency at working, though, economists use the concept of human capital, which is in some ways parallel to physical capital (machinery and structures) in the production process. When working, humans use their education, work experience, and intelligence to try to do more within the same amount of time. Human capital is a measure of all this.

When comparing nations, a good proxy for human capital is the average numbers of years of schooling. Economists have long used the Barro and Lee dataset and its revisions (see here and also here). But just adding up years of school doesn’t seem quite right. Indeed, the impact of 3rd grade in Nepal is likely not the same as 11th grade in Canada or 1st grade in Nigeria. To adjust this measure, economists use the returns (in earnings) to each additional year of education as measured by George Psacharopoulos. Once you apply those returns, which are different for every year of schooling and every country, to the average number of years of schooling in each country, you get the human capital index that is shown in the map above.

How this map was created: The original post referenced an interactive map from our now discontinued GeoFRED site. The revised post provides a replacement map from FRED’s new mapping tool. To create FRED maps, go to the data series page in question and look for the green “VIEW MAP” button at the top right of the graph. See this post for instructions to edit a FRED map. Only series with a green map button can be mapped.

Suggested by Christian Zimmermann.

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