Investing in Human Capital

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THE
Measuring
Human
Capital
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Greece
No.
193
April/May
1995
770029M705002

Contents
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(77777)7/77773
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Editor
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lia
Ranhall-Rcyners
Associate
Editor
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Assistants
Françoise
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Carol
Thornton
Design
Codicom
/'Bonté
Divine!
Layout
Frédérique
liidaux
Photo
Research
Silvia
Thompson
April/May
199S
Tlte
intangible
nature
of
lite
investment
embodied
in
every
worker's
know-how
means
llttil
ils
palm-
is
often
overlooked,
and
ils
upgrading
lints
neglected.
A
similar
problem
affects
lite
measurement
iiinl
recognition
of
academic
tiiul
professional
achievements.
New
ways
if
identifying
iiinl
assessing
this
'human
capital'
are
ever
more
urgently
required
in
a
knowkdge-
tiinl
information-intensive
global
economy.
Editorial
Education
Making
Life-long
Learning
a
Reality
for
All
Jean-Claude
Paye
Analysis
Education
Comparing
Educational
Output
Norberto
Bottani
6
Recognising
Skills
and
Qualifications
Danielle
Colardyn
and
Marianne
D
jrand-Drouhin
12
Investing
in
Human
Capital
Riel
Miller
and
Gregory
Wurzburg
16
Education
and
Training
in
Hungary
John
Lowe
20
Agriculture
Agricultural
Reform
in
Sweden
Sture
Âstrôm
23
Regional
Policy
New
Goals
for
Regional
Policy
Rémy
Prud'homme
26
Economies
in
Transition
Tax,
Transition
and
Investment
David
Holland
and
Jeffrey
Owens
29
Foreign
Investment
in
Russia
Barbara
Peitsch
32
Industrial
Evolution
in
Hungary
Helgard
Wienert
35
Spotlight
Economy
Greece:
Reforming
Financial
Markets
George
Soumelis
Observer
Exclusive
Economy
Indicators
40
42
Booksto
re
Just
Published
New
OECD
Publications
44
Addresses
Where
to
Obtain
OECD
Publications
SO
The
OECD
OBSERVER
No.
193
April/May
1995

Investing
in
Human
Capital
Kiel
Miller
and
Gregory
Wurzburg
TJie
contribution
of
'human
capital'-
workers'
know-how-
to
productivity
goes
largely
unreflected
in
statements
of
companies'
income
and
in
their
balance-sheets.
The
reason
is
simple:
no
one
knows
how
to
define
and
evaluate
it.
How,
then,
can
the
costs
and
benefits
of
further
education
and
training
for
upgrading
it
be
measured?'
M
any
of
the
terms
used
to
describe
the
economy
today
no
longer
reflect
reality.
Everybody
knows
that
the
lights
would
go
out,
the
airplanes
would
stop
flying,
and
the
banks
and
many
of
the
factories
would
shut
down
if
the
computer
software
that
runs
their
systems
suddenly
vanished.
Yet
these
crucial
'intellectual'
assets
do
not
appear
in
any
sub¬
stantial
way
on
the
world's
balance-sheets.
Instead,
they
are
full
of
'tangible'
assets
-
build¬
ings
and
machinery,
stocks
and
financial
reserves.
But
important
structural
changes
are
occur¬
ring
in
the
nature
of
economic
activity,
in
the
role
of
human
resources
as
agents
for
such
change,
and
in
the
role
of
public
policy
in
facili-
Riel
Miller
works
in
the
OF.CD's
Advisory
Unit
to
the
Secretary-General
on
Mullidisciplinary
Issues
unci
Gregory
Wurzburg
in
the
Education
and
'['raining
Division
of
the
OECD
Directorate
for
Education.
Employment,
Labour
and
Social
Affairs.
The
OECD
OBSERVER
No.
1
93
April/May
1995
taring
the
transition.
And
with
increasing
'knowledge-intensity',
growth
in
employment
must
be
sought
through
improved
productivity
in
firms
with
a
solid
capacity
to
innovate
and
use
technology
effectively.2
The
initial
qualifica¬
tions
of
workers,
and
the
incentives
for
invest¬
ing
in
further
acquisition
of
knowledge
show
every
sign
of
assuming
more
importance
as
determinants
of
performance,
not
only
of
indi¬
viduals
in
labour
markets,
but
of
enterprises
and
national
economies.3
So
how
does
a
government
measure
capital
formation,
when
much
new
capital
is
intellect¬
ual?
How
does
it
gauge
the
productivity
of
the
knowledge
of
workers
whose
product
cannot
be
counted?
And
how
then
can
it
track
product¬
ivity
growth?
And
if
it
cannot
do
any
of
these
things
with
the
relative
precision
of
simpler
times,
what
becomes
of
the
long-hallowed
mission
of
government:
guiding
national
economies?
But
even
if
some
of
these
problems
of
measurement
16
are
solved,
the
phenomena
they
assess
will
be
far
more
difficult
to
control
than
in
the
industrial
economies
of
old.
National
accounts
and
economic
analysis
fre¬
quently
treat
labour
as
a
more
or
less
homo¬
geneous
input
to
economic
activity.
But
the
'simplifying
assumptions'
about
how
'human
capital'
is
measured
and
evaluated
-
the
differ¬
entiated
skills,
knowledge
and
expertise
of
workers
-
are
less
readily
tenable
than
ever
because
of
shifts
in
economic
output
in
the
OECD
countries
away
from
goods
towards
services
and
other
knowledge-
and
information-intensive
forms
of
output.
Because
of
these
shifts,
and
the
more
competitive
climate
in
which
economic-
activity
takes
place,
the
economic
survival
of
enterprises,
and
the
employability
and
earning
power
of
individuals,
depend
more
and
more
on
learning
as
the
basis
for
agile
adaptation.
But
the
tools
available
to
measure
and
attach
eco¬
nomic
value
to
human
capital,
and
the
'invest¬
ment
in
upgrading
it,
have
not
kept
up
with
these
changes.
The
changes
in
the
composition
of
output
and
employment
have
been
dramatic.
Between
1972
and
1992,
the
share
of
civilian
employment
in
services
increased
from
half
to
nearly
two-thirds,
as
output
in
the
OECD
countries
tilted
increasingly
towards
them.
Employment
shares
in
knowledge-
and
information-intensive
serv¬
ice
sectors
grew
especially
quickly.
In
the
United
States,
for
example,
employment
in
financing,
insurance,
real
estate
and
business
services
grew
nearly
four
times
faster
than
overall
employment,
and
more
than
twice
as
fast
as
employment
in
community,
social
and
personal
services.
In
France,
employment
in
financing,
insurance,
real
estate
and
business
services
grew
twice
as
fast
as
overall
employment.
Simultaneously,
manu¬
facturing
employment
fell
from
36%
to
29%,
and
agriculture
employment
fell
by
nearly
half
to
less
than
7%.
/.
Riel
Miller.
Investment
Knowledge
and
Knowledge
Investment:
Tlie
Need
to
Rethink
Human
Capital
Information
and
Decision
Making
Systems.
OECD
Publications,
Pahs,
forthcoming
1995.
J.
The
OECD
Jobs
Study:
Facts,
Analysis,
Strategies
OHCn
Publications.
Paris.
1994.
,',.
The
OECDJobs
Study:
Evidence
and
Explanations
OECD
Publications.
Paris.
1994.

Education
Analysis
low
can
one
measure
indirect
costs
-
for
example
production
lost
when
workers
go
on
training
courses
or
begin
to
apply
what
they
have
learned?
But
the
changes
in
output
tell
only
part
of
the
story,
because
the
requirements
of
qualifica¬
tions
within
sectors
-
manufacturing
included
-
were
also
rising.
As
these
changes
occurred,
the
occupational
composition
of
employment
was
also
changing.
Between
1981
and
1991,
the
blue-collar
share
of
employment
declined
by
an
average
of
3
percentage
points,
while
the
white-
collar
share
rose
by
more
than
6
points.
The
fastest-growing
of
the
occupations
were
those
in
professional,
technical,
administrative
and
managerial
activities.
These
occupations
are
ex¬
pected
to
continue
to
be
the
fastest-growing,
if
one
judges
from
the
countries
for
which
occu¬
pational
forecasts
are
available.
In
the
United
Kingdom,
for
example,
they
are
the
only
jobs
in
which
significant
growth
is
expected
by
the
year
2000.
In
Japan,
employment
in
professional
and
technical
occupations
is
expected
to
grow
by
more
than
40%
before
the
end
of
the
century.
nearly
four
times
faster
than
the
next
fastest-grow¬
ing
group,
clerical
and
related
occupations.
In
the
United
States,
employment
in
professional
and
technical
occupations
is
expected
to
grow
S
by
36%
by
the
year
2005,
nearly
three
I
times
faster
than
craft
and
skilled
manual
I"
occupations.
Yet,
for
all
the
importance
of
the
^
knowledge
and
skills
of
the
workers
as
I
factors
in
performance,
not
only
are
the
|
means
for
measuring
them
remarkably
crude;
they
are
also
rigidly
determined
by
certifying
institutions.'1
The
challenge
for
policy-makers
is
to
consider
ways
to
improve
the
signals
used
to
indicate
the
constantly
changing
productive
capabili¬
ties
of
the
labour
force.
Three
Barriers
Three
substantial
barriers
stand
in
the
way
of
more
efficient
approaches
to
measuring
and
valuing
human
resources
in
more
knowledge-
and
skill-intensive
economic
activities.
One
is
a
lack
of
transparency
in
the
costs
of
labour,
and
particularly
of
upgrading
the
qualifications
of
experienced
workers.
As
continuous
upgrading
becomes
a
routine
part
of
human-resource
management,
labour
costs
expand
beyond
the
usual
wage
and
non-wage
expenses
(social
charges,
pension
and
health
costs),
to
include
the
direct
costs
of
train¬
ing
(course
fees,
training
material)
as
well
as
in¬
direct
costs
(such
as
the
value
of
production
for¬
gone
while
workers
are
off
the
job,
and that
lost
as
workers
practise
and
perfect
what
they
have
learned).
Yet
the
definition
and
measurement
of
these
attendant
costs,
and
the
extent
to
which
they
are
reported
for
statistical
or
tax-reporting
pur¬
poses,
are
highly
variable.
Sometimes
the
salary
costs
of
people
participating
in
training
are
not
counted.
The
costs
of
production
forgone
when
people
leave
the
workplace
to
participate
in
train¬
ing
are
difficult
to
measure
and
rarely
captured
except
in
detailed
case-study
analysis.
It
is
even
more
difficult
to
evaluate
the
costs
of
the
initial
lower
productivity
of
workers
when
they
return
from
training,
and
start
applying
the
content
of
their
training.
17
Remedies
to
this
problem
take
a
number
of
forms.
The
Australian
authorities,
for
instance,
in
co-operation
with
the
OECD
and
with
sup¬
port
from
a
number
of
other
OECD
countries,
are
engaged
in
the
preparation
of
a
manual
intended
to
improve
the
consistency
of
defini¬
tions
and
measures
used
in
the
collection
of
train¬
ing
statistics.
In
another
vein,
Finland
and
Sweden
considered
introducing
changes
to
fin¬
ancial
accounting
and
reporting
practices
by
re¬
quiring
enterprises
to
provide
details
of
training
costs
on
their
statements
of
income
and
loss.
A
second
problem
is
the
difficulty
of
measur¬
ing
the
productive
capacity
-
the
knowledge,
skills
and
abilities
-
that
workers
acquire
through
further
training
and/or
experience
on
the
job.
Methods
and
institutions
for
undertaking
this
type
of
in-progress
assessment'
remain
underdevel¬
oped,
although
advances
are
being
made
in
a
number
of
countries.
Some,
such
as
the
Bilan
des
Compétences,
established
through
co-oper¬
ation
between
education
and
labour-market
authorities
in
France,
aim
at
evaluating
what
knowledge
and
skills
individuals
have
acquired,
as
an
aid
in
job-search
and
placement.
Others,
such
as
the
Assessment
of
Prior
Learning,
in
Canada,
are
carried
out
by
institutions
of
higher
education
to
assess
what
individuals
have
learned
for
the
purpose
of
placing
them
at
an
appropri¬
ate
point
in
institutions
of
formal
education,
Still
others,
such
as
the
National
Qualifications
Frame-
.
work
in
New
Zealand
and
the
National
Council
of
Vocational
Qualification
in
the
United
King¬
dom,
are
intended
to
relate
formal
education
and
training
achievement
to
a
national
structure
of
vocational
qualifications
that
correspond
to
pract¬
ical
requirements
of
qualifications
in
the
labour
market.
Although
some
of
these
approaches,
such
as
those
found
in
France,
New
Zealand
and the
United
Kingdom,
are
better
adapted
to
meeting
the
immediate
demand
for
precise
information
on
qualifications
that
are
required
in
the
workplace,
all
of
them
move
towards
fulfilling
basic
requirements
for
individualised
assessment
of
qualifications
acquired
outside
the
context
of
formal
education
and
training
institutions.
4.
See
pp.
12-15.
The
OECD
OBSERVER
No.
193
April/May
1995

Investing
in
Human
Capital
Tlic
machinery
and
inventory
will
be
counted
on
the
balance-sheet:
what
about
the
workers
and
the
creative
skills
they
bring
to
the
job?
Even
when
qualifications
can
be
measured,
there
is
a
third
problem
in
reflecting
a
realistic
economic
value
for
them.
The
barriers
here
are
found
in
a
number
of
forms.
Enterprises
cannot
capitalise
training
costs
or
the
stream
of
benefits
from
upgraded
qualifications
of
workers,
to
cany
them
on
the
balance
sheet
of
their
financial
reports,
and
to
allow
them
to
be
depreciated
over
the
useful
life
of
the
skills
involved.
The
reasons
are
derived
from
the
fact
that
workers
-
and
their
qualifications
-
are
not
owned
by
enterprises,
and
from
the
absence
of
institutional
arrangements,
such
as
bonding
arrangements
or
insurance,
that
would
allow
firms
to
exercise
a
claim
on
their
value.
This
prevents
them
from
spreading
the
costs
of
train¬
ing
over
the
period
of
time
during
which
they
enjoy
the
benefits
of
the
qualifications
acquired
by
it.
This,
in
turn,
distorts
the
rate-of-return
analysis
by
which
investment
choices
(tangible
v.
intangible)
might
be
evaluated.
It
under-esti-
mates
the
apparent
rate
of
return
to
training
by
counting
all
of
the
costs,
but
only
those
benefits
which
are
expected
in
the
year
in
which
train¬
ing
expenditure
is
made.
Nor
can
individuals
count
on
a
predictable
return
to
improved
qualifications
because
wage-
and
salary-setting
does
not
usually
take
system¬
atic
account
of
upgraded
qualifications,
even
where
they
are
reliably
measured.
'Payment
for
ability'
-
wages
fixed
on
the
basis
of
what
workers
know
and
can
do
-
is
still
rare;
instead,
wages
are
typically
linked
to
the
jobs
for
which
they
are
hired.
The
absence
of
more
sophisticated
means
for
measuring
and
valuing
human
resources,
par¬
ticularly
the
qualifications
acquired
through
ex¬
perience
and
training,
can
heighten
the
risk
of
mis-allocation
of
resources.
In
the
firm,
the
lack
of
data
can
reduce
the
importance
of
rate
of
return
as
a
criterion
in
management
decisions
on
training
and
human
resources.
As
a
result,
criteria
for
investments
in
employées'
skills
get
crowded
oui
by
other
considerations,
such
as
government-imposed
training
levies
or
even
'training
targets'
established
by
corporate
head¬
quarters,
but
which
do not
necessarily
have
any
bearing
on
the
strategic
and
tactical
requirements
of
an
enterprise,
For
workers
the
already
risky
and
expensive
decision
to
invest
in
the
acquisition
of
skills
be¬
comes
even
more
difficult
without
transparent
and
reliable
evaluation
and
recognition
of
their
current
capacity.
In
general,
in
circumstances
in
which
information
about
qualifications
is
so
incomplete,
where
the
likelihood
of
benefiting
from
upgraded
qualifications
is
so
uncertain,
and
where
insurance
is
not
possible,
it
is
probable
that
the
qualifications
acquired
in
training
will
The
OECD
OBSERVER
No.
193
April
May
1995
18

Education
Analysis
be
under-valued,
yet
another
reason
that
resources
will
be
allocated
inefficiently.
Innovations
in
Assessment
The
OECD
Jobs
Study,
in
urging
national
authorities
to
address
factors
that
interfere
with
more
effective
practices
for
developing
human
resources,
suggested
that
they
consider
innova¬
tions
in
financial
accounting
and
reporting
pract¬
ices
(such
as
reporting
the
costs
of
developing
human
resources
and
workforce
qualifications)
and
in
systems
for
the
measurement
and
recog¬
nition
of
skills
and
abilities
(like
those
found
in
Canada,
France,
New
Zealand
and
the
United
Kingdom).
Such
changes
are
consistent
with
develop¬
ments
in
business
thinking.
Companies
like
Dow
Chemical,
the
Canadian
Imperial
Bank
of
Com¬
merce
and
Hughes
Aircraft
are
introducing
new
methods
for
evaluating
and
recording
the
know¬
ledge
assets
of
their
workforces."
These
pract¬
ices
fit
well
with
the
shift
to
quality
and
team¬
work
where
sharing
ideas
and
generating
new
knowledge
are
essential
for
success.
Firm-based
financial
accounting
and
reporting
practices,
although
rooted
mostly
in
an
era
in
which
know¬
ledge
was
easier
to
manage,
are
making
progress.
For
instance,
there
is
experimental
use
of
human-resource
satellite
accounts
-
which
provide
detailed
information
on
the
development
costs
of
human
resources
in
income
statements,
and
breakdowns
of
qualified
staff
on
balance
sheets
-
to
accompany
audited
financial
state¬
ments,
and
a
growing
interest
in
requiring
fuller
disclosure
of
information
on
human-resource
development
and
workforce
qualifications.
Yet
the
durability
of
these
innovations
remains
un¬
certain
without
agreed
rules
or
a
broader
base
upon
which
to
spread
risk
and
collect
relevant
experiences.
The
increased
emphasis
on
life-long
learning
has
brought
forward
a
number
of
policy
responses.
The
Canadian
government,
for
in-
5.
Thomas
A.
Stewart.
Your
Company's
Most
Valuable
Asset:
Intellectual
Capital'.
Fortune
Magazine,
3
October
1994.
When
people
own
their
expertise,
it
can
mean
that
their
employers
stance,
is
organising
a
National
Conference
on
Prior
Learning
Assessment
for
the
autumn
to
ac¬
celerate
the
implementation
of
initiatives
already
underway
in
most
provinces.
The
New
Zealand
Qualifications
Authority
has
reached
agreement
with
higher-education
institutions
under
which
the
qualifications
they
award
are
now
accom¬
modated
within
the
national
framework
for
quali¬
fications.
These
innovative
initiatives
to
assess
learning
beyond
the
traditional
certifying
estab¬
lishments
point
towards
a
growing
demand
for
more
detailed
information
for
human-resource
management.
For
policy-makers
the
goal
is
clear.
More
trans¬
parent
information
about
workers'
productive
abilities
(their
investments
in
knowledge)
is
required
in
order
to
improve
hiring
and
training
practices
and,
ultimately,
increase
economic
growth.
Policies
that
facilitate
efforts
to
reconceptualise
the
management
of
human
capi¬
tal
is
one
way
of
improving
decisions
both
on
the
uses
of
the
asset
(stock)
and
the
incremental
investments
that
either
maintain
or
add
to
it
(flow).
New
systems
of
information
about
human
capital
and
decision-making
are
required
to
address
a
number
of
pressing
questions.
What
form
of
human
capital
should
attract
investment?
How
does
one
set
the
proper
incentives?
Is
there
a
way
to
determine
the
extent
of
over-
or
under-investment?
Is
the
existing
stock
of
know¬
ledge
embodied
in
people
being
properly
and
efficiently
used?
Providing
the
information
that
can
answer
these
questions
more
accurately
and
at
a
lower
cost
for
individuals,
firms
and
governments
will
go
a
long
way
towards
encouraging
the
growth
of
knowledge
and
learn¬
ing
-
and
the
vital
innovation
that
will
flow
from
them.
OECD
Bibliography
Rid
Miller,
Investment
Knowledge
and
Knowledge
Investment
The
Need
to
Rethink
Human
Capital
Information
and
Decision
Making
Systems,
forthcoming
1995
Employment
Outlook,
1994
The
OECD
Jobs
Study:
Facts,
Analysis,
Strategies,
1994
The
OECD
Jobs
Study:
Evidence
and
Explanations,
1994
Industry
Training
in
Australia,
Sweden,
and
the
United
States,
1993
New
Directions
in
Work
Organisation:
The
Industrial
Relations
Response,
1992
Graham
Vickery
and
Gregory
Wurzburg,
'Intangible
Investment
Missing
Pieces
in
the
Productivity
Puzzle',
The
OECD
Observer,
No.
178,
October/November
1992
Managing
Manpower
for
Advanced
Manufacturing
Technology,
1991.
19
The
OECD
OBSERVER
No.
193
April
May
1995