Human capital : a new measurement approach with applications to a study in inequality

Lim, Audrey Siew Kim. (2005). Human capital : a new measurement approach with applications to a study in inequality Honours Thesis, School of Economics, The University of Queensland.

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Author Lim, Audrey Siew Kim.
Thesis Title Human capital : a new measurement approach with applications to a study in inequality
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2005
Thesis type Honours Thesis
Total pages 162
Language eng
Subjects 14 Economics
Formatted abstract The objectives of this thesis are: (a) to improve the current measure of human capital; (b) to use the improved measure to examine human capital inequality across countries over the past four decades; and (c) to investigate the relationship between human capital inequality and education inequality. We observe that in addition to its impact on development, human capital inequality may be an important indicator of other underlying disparities such as inequality in income and/or health. A survey of previous literature shows that the current practice of merely using years of school as a proxy of human capital often results in inaccurate measures of human capital. The erroneous measurement of human capital also leads to an underestimation of its impact on development. To properly specify human capital, we weight the standard years of schooling measure with different rates of return to education for various levels of schooling and different education quality across countries. Moreover, we choose an exponential transformation of schooling years such that even those with no formal education have a positive amount of human capital. Gini coefficients of human capital inequality and education inequality are constructed using data primarily from the Barro and Lee (2000) data set, and the UNESCO database. Schooling quality measures are sourced from Hanushek and Kimko (2000) and missing observations are obtained using a regression method. Rates of return to schooling are taken from Psacharopoulos and Patrinos (2004). The constructed dataset covers 99 countries from 1960 to 2000. Our measures suggest that most countries have reduced both education inequality and human capital inequality. We also find evidence of declining inequality on a world level. Furthermore, we observe that education inequality and human capital inequality are non-linearly related. While the literature has suggested evidence of an education Kuznets curve, we find the relationship between education inequality and the average years of schooling to be negative. However, we do find strong evidence of a human capital Kuznets curve.  

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