The European Human Capital Index: Why I Should Move to Sweden and avoid Italy

The Lisbon Council
The Lisbon Council

In an earlier post I referred to the European Human Capital Index, a metric for the development of human capital by the Lisbon Council. I decided to go the source and read the original policy brief titled Innovation at Work: The European Human Capital Index (PDF) written by Peer Ederer.

The index looks at the ability of thirteen European Union countries to develop and deploy their human capital. Human capital is defined as:

[..] the cost of formal and informal education expressed in euros and multiplied by the number of people living in each country.
Specifically the index identifies and defines four types of human capital and analyses the way they collectively contribute to the wealth of European citizens:

  1. Human Capital Endowment. This figure measures the cost of all types of education and training in a particular country per person active in the labour force [..]. Specifically, we look at five different types of learning for each active person: learning on the job, adult education, university, primary and secondary schooling and parental education. The figure is subsequently depreciated to account for obsolescence in the existing knowledge base and some level of forgetting.
  2. Human Capital Utilisation. This figure looks at how much of a country’s human capital stock is actually deployed. It differs from traditional employment ratios in that measures human capital as a proportion of the overall population.
  3. Human Capital Productivity. This figure measures the productivity of human capital. It is derived by dividing gross domestic product by all of the human capital employed in that country. This diverges from traditional productivity measures, in that the figure takes account of how well educated employed labour is, instead of just how many hours are being worked.
  4. Demography and Employment. This figure looks at existing economic, demographic and migratory trends to estimate the number of people who will be employed (or not employed) in the year 2030 in each country.

When the thirteen European countries are ranked on each of the four dimensions and then the rankings are summed the following table results (four is the best possible score, 52 the worst):

Rank Country Overall score
1 Sweden 8
2 Denmark 14
3 United Kingdom 19
4 Netherlands 21
5 Austria 23
6 Finland 29
7 Ireland 30
8 France 30
9 Belgium 31
10 Germany 36
11 Portugal 37
12 Spain 38
13 Italy 48

This policy brief is a treasure trove of fascinating and insightful statistical information. The author analyses the data and even gives some policy advice.

Did you know that Sweden invests 2.5 times as much in education as Portugal? The difference is biggest in parental education.
Did you know that the Netherlands leads in human capital utilisation? 64% of the total human capital stock is utilised. This is due to our policy schemes like the Life Course Saving Scheme (“Levensloopregeling”) and the abolishing of early retirement schemes in 2004.
Did you know that the rapid expansion of the utilisation of human capital has depressed the growth of human capital productivity? Only Sweden and Finland have managed to keep human capital productivity stable. The human capital productivity of the Netherlands is falling rapidly.
Did you know that (if current employment and immigration patterns continue) Germany and Italy will lose 8.7 million employees by 2030, together accounting for 70% percent of the total European drop? In Italy 60 year olds will outnumber 20 year olds by two to one in 2030.

Based on the Human Capital Index methodology a couple of policy recommendations are made. Some of these are obvious (increase the quality and the quantity of spending on education, Europe spend less on education than its OECD peers), others might be controversial (being open to immigration of skilled labour: “By 2030, can Germans or Italians learn to live in a society where every other 20-year old is a foreigner?”).

This article is well worth the read.