Economic Productivity and
Intellectual Capital
Lawrence O. Picus
September 25, 2013
Lawrence O. Picus
THE KNOWLEDGE ECONOMY
The knowledge economy places a premium on ideas, requiring a
skilled and educated workforce, capable of innovation to spur the
economic growth of nations.
The knowledge economy has placed an increasing importance on
human capital cultivation not only for our students, but for teachers,
administrators, and schools as well.
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WHAT IS HUMAN CAPITAL?
Human capital is the intrinsic productive capacities of humans
which can be increased through investment in education, job
training, health, etc.
Human capital is an asset that generates a flow of services most
often measured as earnings, but more recently measured by other
observable outcomes including
Human capital is a source of wealth and economic progress. In
today’s knowledge economy, human capital is the most critical
driver of economic growth.
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HUMAN CAPITAL RESEARCH
Human capital became a foundational area of research in the
economics of education because we wanted to understand why
economies grow and as more data became available on economic
growth and its associated inputs/outputs research on this question
became possible.
Two major waves of education research on human capital:
1.Measuring the returns to education
2.Education as investment in human capital
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RETURNS TO EDUCATION
There are positive returns to education in terms of lifetime earnings. Those with
more education earn more than those with less education, on average.
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THE COLLEGE PAYOFF (2011)
Rule #1: Degree level matters
•On average those with more education make more than those with less and the gap
is widening.
Rule #2: Occupational choice can trump degree-level
•An engineer with some college/no degree or a postsecondary certificate earns more
on average than a teacher with a BA
Rule #3: While occupation can sometimes trump education, degree level still matters
most within occupations
Rule #4: Race/ethnicity and gender are wild cards that matter more than education or
occupation in determining earnings
•On average, to earn as much as men with a BAs women must have a doctorate
•African-Americans and Latinos with MAs don’t exceed the median lifetime earnings
of Whites with BAs.
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EDUCATION AS INVESTMENT
Human capital and decisions about it are the same as physical
capital. Individuals invest in their education with the expectation of
returns on that investment in the future.
How much an individual “chooses” to invest is modeled from an
optimization process.
Observed outcomes are the result of an equilibrium process where
demand for skills and abilities is balanced with its supply.
What happens when the demand for skills and abilities is not
balanced with its supply?
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EDUCATION AS AN INVESTMENT K-12
“As the United States continues to compete in a global economy
that demands innovation, P21 and its members provide tools and
resources to help the U.S. education system keep up…”
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Economic Implications
•1 in 7 young people between the ages of 16-24 are not in school or working and
it costs taxpayers $93.7 billion in government support and lost tax revenue in
2011 alone.
•Because of changing workforce demands, nearly 40% of all college students
today are over 25 years old and 20% of the adult population is directly involved
in some kind of work-related learning.
•In the next 5 years more than 29 million jobs will need to be filled by workers
with some college or a certificate but not necessarily a 4-year degree.
•It is estimated that shortages of workers with postsecondary-level skills could
grow to 14 million by 2020 as retirement-age populations grow and the workingage population remains flat or declines.
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BUT…IS MORE EDUCATION THE ANSWER?
•Some argue that more education is not the answer for all people
and that the reliance of our society on credentialing is actually
stifling innovation and driving many American’s into massive debt.
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SIGNALING THEORY
Signaling theory argues that individuals’ innate productivity levels
are identified by their years of schooling rather than enhanced by
them. More education leads to higher pay because education
provides a credential, not because it results in acquired skills.
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Questions for Educators
• What should the focus be?
– Job skills
– Intellectual capacity
• Is a college preparation curriculum
appropriate for all students?
– If not, who is selected
– If so, what are implications
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