The Population Dynamics of Human Capital Accumulation

This chapter presents a method for modeling the dynamics of changes in human capital as measured by educational attainment. The methodological basis for this approach, known in demography as multi-state methods, was developed in the 1970s at the International Institute for Applied Systems Analysis (IIASA). Originally developed for the simultaneous projections of the populations of subnational regions with migration between them, these methods can be applied to modeling virtually all subsets of the population as defined by relatively stable criteria. They are hence appropriate for modeling the dynamics of the subpopulations as defined by educational attainment levels. Over recent years researchers associated with IIASA have successfully applied the methods to human capital projections in selected countries and major world regions. Until now, however, there has not been an effort to study the feasibility of making such projections by level of educational attainment on a regular basis for virtually all countries. That is the main purpose of this exercise. When studying education trends at the macro-level of society, it is essential to distinguish between stocks and flows. We use the following terminology: Education is the process (flow) through which people gain skills and knowledge. The stock of educated people with such skills and knowledge is referred to as human capital. Under this definition, education as measured by enrollment or completion rates contributes to the accumulation of human capital stock, which is measured by the educational attainment of the adult population. There is an important time lag: today’s human capital stock is a result of education over the past decades. Since education is mostly attained at a young age, changes in the human capital of the adult population have a large momentum. Current education efforts influence the adult popula-