The importance of human capital for economic outcomes

Human capital is widely regarded as a fundamental input in growth theory. Furthermore, recommendations to boost human capital feature prominently among structural policy priorities identified by the OECD for a number of countries. However, the empirical evidence linking human capital with macroeconomic outcomes has been problematic. This chapter first provides an overview of the role of human capital in determining economic outcomes and reviews existing evidence on this topic. It then presents a new measure of human capital based on OECD education data surveys, which better incorporates both quality and quantity dimensions. Drawing on the proposed measure of human capital, this chapter suggests a substantial scope for long‑run productivity gains from human capital, with a larger effect from quality as compared to quantity improvements, although the lags are typically much longer than for other policies that boost productivity.