The contribution of human capital to growth and productivity in Israel's business sector,1970 to 1999

02/01/2006 |  Bergman Arie, Marom Arie
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The contribution of human capital to growth and productivity in Israel's business sector,1970 to 1999
Arie Bregman and Arie Marom
This research indicates the central role played by human capital in determining productivity and GDP in Israel.It was found that the average number of years of study is a decisive factor in human capital,but the type of study is also important. Thus,for example,years of university studies provide a higher return than do years of high school or professional education.It is clear,however,that the contribution to productivity of staff with higher education is also affected by their earlier years of schooling as well as their innate abilities.
The addition of an average of one year of study for all workers in the period reviewed led to a direct rise of about 7 percent in GDP and productivity in Israel,similar to the contribution of one year of study (on average)in a typical European country. It was found that non-professional and foreign workers complement those with high human capital.The results show the apparent negative effect on productivity of the rate of inexperienced young workers with low seniority,the share of relatively older workers,the share of those with little education,and the share of workers from development areas in the total labor force.
The estimates indicate that the return of human capital and R&D capital (which represents the technology factor)are higher than those of physical capital and share capital.The total rise in human capital in the period studied contributed about 45 percent on average to GDP according to the various estimates––a figure that is close to the productivity of the business sector.
The main conclusion of this research with regard to public policy,in line with the latest research findings abroad,is that human capital is vital for long-term growth. Governments have a key role to play in expanding the stock of human capital and in directing investment towards it.In the framework of government decision-making the relatively great contribution of higher academic education should be taken into consideration,particularly that leading to higher degrees (above 16 years of education),although it is obvious that expansion in that area depends on improving earlier education too.Any adverse effect on the development of human capital is likely to cause significant harm to the economy's productivity and growth in the future.
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