Estimating the Value of Human Capital within the World Bank Wealth Accounting Framework
2015
Sall, Chris
The purpose of this paper is to come up with an estimate for the value of human capital with the World Bank wealth accounting framework for the Latin American and Caribbean Region. The proposed approach draws connections between wealth accounting and the development accounting literature that explores the effects of education and health on human capital, building on previous work by Arrow and coauthors (2012), UNU-IHDP and UNEP (2012), Farreira and Hamilton (2010), Weil (2007), and others. The approach is extended to value the loss of human capital due to air pollution and lack of access to clean water and sanitation. The wealth accounting framework is underpinned by the notion that total wealth is equal to the present value of current and future consumption in a competitive economy with constant returns to scale. The author uses a series of calculations representing the framework for and methodology of his framework. Later in this paper the author breaks down the variables in determining the value of human capital into the following categories: schooling, wages, returns to education, returns to health, survival rate, time period, social discount rate, and volatility. Each variable is accompanied by an explanation of its relevance to the equation. The results are quantified in a series of tables paying attention to each individual variable including comparisons to like studies over different time periods with previously collected data to show emphasis.
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