Human Capital Productivity and "ageing" Expenditure: An OECD Study

Abstract

Demographic ageing that is already evident in many OECD countries will become more acute in the coming decades. The costs associated with this phenomenon are most apparent in spending on pensions, healthcare and long-term care. Among the solutions put forward to deal with this, the productivity of human capital is the one we propose and analyze. According to Mincer's theory, the salary, which represents the reward for production, is the variable that we propose to use in the analysis of human capital productivity. Salary is the materialization of work done, so the higher it is, the more productive it is. Salary variation is therefore our dependent variable and spending on pensions and healthcare are our key independent variables. Our analysis covers 33 of the 37 countries that make up the OECD system. We use the ordinary least squares method on panel data covering the period 2000-2020. Our key independent variables show a negative correlation with salary variation. This would mean that an increase in spending on pensions and healthcare would lead to a reduction in salaries to cover these costs. However, as our education variables (average years of study, employment rate of secondary and tertiary graduates...) show a positive correlation with salary variation, we can undoubtedly state that improving human capital through education and training is the solution to be encouraged by the public authorities in a context of ageing. JEL classification numbers: H51, H55, E24. Keywords: Productivity, Human capital, Pension expenditure, Healthcare expenditure.