Traditional growth accounting exercises, which adjust for variations in the age, gender, and educational attainment of the workforce, conclude that changes in human capital contribute only modestly to economic growth. Yet, recent studies have argued that improvements in human capital make a more substantial impact through differences in the quality of education and the importance of human capital in the innovation process. In this study, we explore differences in the generation of human capital in Germany, Japan, and the United States.

The paper focuses on the dissimilarities in their education systems and labor markets as sources of variations in economic outcomes. It also looks at the contributions of innovation to economic growth. In empirical analysis using data from the Luxembourg Income Study, the paper finds that the returns to higher education in Japan is substantially lower than in the United States and Germany….

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