Human Capital Investment Strategies in Europe

Economists study the formation of human capital over the life cycle and its welfare consequences. Teaching is regarded as the major channel for fostering skills and human capital. According to political rhetoric educational policies overcome market failure in reaching the optimal amount of investment and in addition equalize educational opportunities. The European Commission (2010), for instance, postulates that improving the education of youth is one of the most prominent policy goals in Europe. While most economists would agree with the aim, the optimal timing and the optimal quantity of educational investments are in question. Since deep-seated skills are created early in the human developmental process (Amor 2003, Blomeyer et al. 2009, 2010, Heckhausen and Heckhausen 2008, Heckman 2007, among others) the priorities in public educational spending are under scrutiny. The formation of cognitive skills, such as intelligence, memory power and reasoning, and selfregulatory skills, such as motivation, delay of gratification and persistence, begins in early childhood, influenced by parent-child interaction. The level of these skills is decisive for becoming a productive member of society and for economic performance as well (see Cunha and Heckman 2007, 2009, Hanushek and Wössmann 2008, among others). There exists a bunch of public educational programmes covering preschool, primary and secondary education in all European countries. Furthermore, governments in modern European societies are engaged in post-secondary education as well as training and try to promote lifelong learning (OECD 2010, among others). While each of these educational programmes receives a great deal of attention in research1, a comprehensive empirical assessment of the patterns of investment into human capital during the life-cycle and its welfare implications under different educational regimes in Europe is still not available2, mainly for three reasons. First, counterfactual evidence of alternative human capital investments over the life cycle is scarce due to a lack of longitudinal studies ranging from the cradle to the grave (see Cunha et al. 2006, among others). Second, policies aiming at fostering human capital during childhood will reach part of their expected economic impacts only in the following twenty to forty years (see Pfeiffer and Reuß 2008, among others). This period is beyond political foresight and children, as a rule have no voting power. Third, European countries are responsible for educational and labour.

Pfeiffer, Friedhelm and Karsten Reuß (2011), Human Capital Investment Strategies in Europe, ZEW Discussion Paper No. 11-033, Mannheim.