The Contribution of Human Capital and its Policies to Per Capita Income in Europe and the OECD

Abstract

This paper studies empirically the effect of education policies on human capital and per capita income. The results suggest for European and OECD countries that higher attendance at pre-primary education, greater autonomy of schools and universities, a lower student-to-teacher ratio, higher age of first tracking in secondary education and lower barriers to funding to students in tertiary education all tend to boost human capital through amplifying the positive effects of greater public spending on education. Benefits from pre-primary education are particularly high for countries with an above-average share of disadvantaged students. School autonomy yields high benefits especially in countries where schools are subject to external accountability. From a policy perspective, improving the quality of the labour force and value-for-money of education policies are of utmost importance in the future, especially in European countries facing population ageing and ever increasing fiscal constraints. Prompt policy action is needed given the very long delay with which the full effect of reforms in education policy materialises on human capital and per capita income.