Empirical Evidence on Human Capital Externalities

James Davies

Working Papers-Department of Finance Canada from Department of Finance Canada

Abstract: The focus of the paper is on the extent to which human capital formation (specifically, post-secondary education and training) benefits society in general, and productivity growth in particular, over and above its benefit to the individual. The paper provides a comprehensive review of the economic literature in this area and concludes that a very rough estimate of the benefit to society of investment in post-secondary education and training is in the range of 6 to 8 percent. This is in addition to the private rate of return of about 8 percent. The existence of this societal benefit (externality) justifies government assistance to post-secondary education and training. A possible extension of this work would be to attempt to determine if current assistance levels are consistent with the estimated level of the externality.

Ce document porte principalement sur le degré auquel la formation du capital humain (plus particulièrement l’enseignement post-secondaire et la formation) bénéficie à la société en général et accroît la productivité, en plus du simple avantage qu’en tire l’individu. Le document offre un examen exhaustif de la littérature économique publiée à ce propos et conclut que la société bénéficie des investissements dans l’enseignement post-secondaire et la formation dans une proportion approximative de 6 à 8 p. 100. Et ce, en plus du taux de rendement individuel d’environ 8 p. 100. L’existence de bénéfices sociétaux (externalité) justifie l’aide du gouvernement à l’enseignement post-secondaire et à la formation. Une suite possible à ces travaux serait d’essayer de déterminer si les niveaux d’aide actuels sont conformes au niveau estimé d’externalité.

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Working Paper: Empirical Evidence on Human Capital Externalities (2003)
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