Revisiting human capital and aggregate income differences

Abstract

We revisit human capital and development accounting. In quantifying human capital, we split it into three components; schooling (years of education), cognitive skills (as proxied by test score results), and a health indicator (for which adult survival rates are used). Our calculations are reported for a substantive cross-section of countries for the year 2000. According to our most conservative estimates, the most complete measure of human capital accounts for 19–28% of differences in output per worker across countries, but when excluding the health component this value falls to 17–22%, and further to 13–14% when only considering schooling. We present group comparisons, finding for some regions values as large as 40–50%.