The impact of human capital on labour productivity in manufacturing sectors of the European Union

Abstract

The effects of human capital on both the level and growth of labour productivity in manufacturing sectors in seven member states of the European Union are analysed, distinguishing between four effects of human capital: worker, allocative, diffusion and research. Human capital is represented by the shares of intermediate and highly-skilled workers in the workforce of a sector. It is shown that the manufacturing sectors can be divided into three classes of sectors with different intensities of highly-skilled workers: low-, medium- and high-skill sectors. The estimation results show that both intermediate and highly-skilled labour have a positive effect on the labour productivity of a sector, although the effect is only significant for highly-skilled labour. Moreover, there are indications of underinvestment of human capital in some manufacturing sectors. These sectors could improve their competitive position by raising the employment shares of intermediate and highly-skilled labour. Finally, intermediate-skilled labour has a significantly positive effect on the growth in sectoral labour productivity.