Measuring what people know : human capital accounting for the knowledge economy PDF
Preview Measuring what people know : human capital accounting for the knowledge economy
,- y X.1vc.24 Measurin What Know People •A•n«*_<n’sSnw345r®i8*-mu*mV*-»4t2I-..mSJ.sK%.'2Il«75?eCrs.1Ha..—..%».'.'sm288m8r684»»%%%::'A^n53®#tmtuXtt3’48ftfe»j%e%,\i_/pWsgSd3!"«6-.'atm.&g»tejja1w®•j**'*;«jj—#Jrj//--:'I.'7~i7!M*•(J«38.ma1«5«m*w 4?4%>*«1.’5*m 11J85K..V mM2«4%nWil ,a*/iiJ?.-,...•:*(*5s55‘££k86«J>|%*%Ic.-i5S4M»s8m«435S?UK^WS%-T:;avgIs*M?WmSw*Sj*mS«*Kgtl'*twoWgiIwllk*w\ *•.-.£Si Measuring What People Know Human Capital Accounting for the Knowledge Economy ORGANISATIONFORECONOMICCO-OPERATIONANDDEVELOPMENT ORGANISATIONFORECONOMICCO-OPERATION ANDDEVELOPMENT PursuanttoArticle1oftheConventionsignedinParison14thDecemberI960, andwhichcameintoforceon30thSeptember1961,theOrganisationforEconomic Co-operationandDevelopment(OECD)shallpromotepoliciesdesigned: -toachievethehighestsustainableeconomicgrowthandemploymentandarising standardoflivinginMembercountries,whilemaintainingfinancialstability,and thustocontributetothedevelopmentoftheworldeconomy; -tocontributetosoundeconomicexpansioninMemberaswellasnon-member countriesintheprocessofeconomicdevelopment;and -tocontributetotheexpansionofworldtradeonamultilateral,non-discriminatory basisinaccordancewithinternationalobligations. The original Membercountries oftheOECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the UnitedKingdomandtheUnitedStates.ThefollowingcountriesbecameMemberssubse- quentlythroughaccessionatthedatesindicatedhereafter:Japan(28thApril 1964), Finland(28thJanuary1969),Australia(7thJune1971),NewZealand(29thMay1973), Mexico (18th May 1994) and the Czech Republic (21st December 1995). The Commission oftheEuropean Communities takes partinthe workofthe OECD (Article13oftheOECDConvention). Publieenfran^aissousletitre: MESURERLECAPITALHUMA1N Versunecomptabilite dusavoiracquis ©OECD1996 Applicationsforpermissiontoreproduceortranslateallorpartofthis HeapdubolifcPautbiloincasthioounlsdSbeervmicaed,eOtEo:CD 2,rueAndre-Pascal,75775PARISCEDEX16,France. FOREWORD Thisreportwasundertakenwithintheframeworkofajointactivitybythe OECD’s Education CommitteeandtheEmployment, Labourand SocialAffairs Committeetoinvestigatetheinvestmentnatureoffurthereducationandtraining. Basedonresearchintendedtostudytheoreticalandpracticalunderpinningsforthe economictreatmentofskillformationandqualificationsofworkers,itfollowsupon earlierworkthatappeared in IndustryTraininginAustralia, Sweden, andthe UnitedStates(1993),andwasabasisforworkthatappearedinTheOECDlobs Study:Facts,Analysis,Stategies(1994),TheOECDlobsStudy:EvidenceandExpla- nations(1994),andTheOECDlobsStudy:ImplementingtheStrategy(1995). ThereportwaspreparedbyMr. Riel MilleroftheOECDSecretariat. Itis publishedontheresponsibilityoftheSecretary-GeneraloftheOECD. TABLEOFCONTENTS EXECUTIVESUMMARY 7 PartI DEVELOPINGAFRAMEWORKFORRETHINKINGHUMANCAPITAL INFORMATIONANDDECISIONMAKING 1. DefEicnoinnogmtihceCPirrocbulmesmt:anHcuemsanCapitalDecisionMakingunderChanging 15 1.1. Changingeconomiccircumstances. 15 1.2. Humancapitalinformationandthecontentofacquiredknowledge 17 2. HumanCapital:ReassessingPriorTheoryandAssumptions 19 2.1. Abriefreviewofhumancapitaltheory 19 2.2. Knowledgeandthemeasurementofhumancapital 21 2.3. Rethinkingthedefinitionofhumancapital 22 3. HumanCapitalAllocationDecisions:TheDistinctionBetweenAcquisition andUtilisationofEmbodiedHumanCompetences 25 3.1. Theinformationcircuit-Aschematiclookathumancapitaldecision making 28 3.2. Distinguishingphysicalandhumancapitaldecisionmaking 29 PartII RETHINKINGHUMANCAPITALINFORMATIONANDDECISIONMAKING RecentDevelopmentsintheMeasurement,Accounting, andMarketRecognitionofCompetences — Introduction . 33. 4. HumanCapitalMisinformation:CurrentPracticeinFinancialAccounting andReportingofTrainingCostsandLabourForceQualifications . . 37 _JLJ MEASURINGWHATPEOPLEKNOW 5. ObsoftaHculemsantoCtahpeitMaelasurement,Accounting,andMarketRecognition 43 5.1. Obstaclestothemeasurementandownershipofhumancapital 44 5.2. Obstaclestoestablishingaccountingandmarketrecognitionofhuman capital 50 6. ImSptroocvkisngatnhdeFMleoawssuorfemAecnqtu,irAecdcoHuunmtainngCaonmdpeMtaernkceetsRecognitionofthe 57 6.1. Attheindividuallevel-Diversenationalinitiativestodefine andmeasureacquiredcompetences 59 6.2. Atthefirmlevel-Apragmaticapproachtoaccountingforhuman competences 65 6.3. Atthegovernmentlevel-Changestonationalandbudgetaccounting systems,andeducationalreform 69 6.4. Towardsstrongerhumancapitalmarkets-Findingcommonground foraction 74 7. TheRoleofGovernmentandtheBenefitsofRethinkingHumanCapital InformationandDecision-makingSystems 79 NOTES 86 Annexes A. Allocationtoindividuals,firmsandgovernments,ofcostsandbenefits ofhumancapitalacquisition 99 B. SummaryofthecharacteristicsoftheAustralianmodelofvocational educationandtraining 102 BIBLIOGRAPHY 103 EXECUTIVESUMMARY Thisbookisconcernedwiththechangingconnectionbetweenhumancapital andeconomicperformance.OECDcountriesareundergoingeconomicchanges withimportantimplicationsforthewaysinwhichhumancapitalisacquiredand used.Exploringthesetrendsleadstoananalysisoftheinformationanddecision- makingsystemsthatshapehumancapitalacquisitionandutilisation.Inturn,this analysisofthemethodsandinstitutionsofhumancapitalmeasurement,account- ingandvaluation,leadstotheconclusionthatimprovementstothesesystemsare akeyfactorinhelpinganation'sfirmstocompete. Iflearningisthemaincharacteristicofsocialandeconomicchange, then humancapital information anddecision-makingsystem-the determinantsof learning-becomecentraltoeffortstocopewithchange.Theneedtorethinkthe waywemakechoicesabouttheutilisationandacquisitionofhumancapitalarises fromtheprofound upheavalstakingplaceinthe natureoftechnology,wealth creation,andemployment.Inbrief,thisbookattemptstodemonstratethatitis timetosignificantlystrengtheninpracticetheoft-mentionedconceptualparallel betweenphysicalandhumancapital.Readersofthemanagementliteraturewillbe familiarwithmanyproponentsoftreatingemployeesasinvestmentsasopposedto costs.Oncetheshiftfromcost-to-investment-basedthinkingismade,itisnatural tocontinuethetransitiontowardsfullaccountingofhumancapitalinvestmentsas assetsthatproducereturnsoveranextendedperiodoftime.Thisbookfocuseson theconceptualandpracticalaspectsofextendingthetreatmentofphysicalcapital tohumancapital. Oneofthereasonsforundertakingthisefforttodeepenourunderstandingof howandwhyweinvestandusehumancapitalisthatOECDgovernmentsare stronglycommittedtoimprovingtheskillsoftheircitizensasoneoftheprincipal meansfordealingwithcurrenteconomicuncertainty.Thiscommitmentposesnew challengestohumancapitalinvestment.Whatshouldweinvestin?Howdoweset theproperincentives?Isthereawaytodeterminetheextentofover-orunder- investment?Arewemakinggoodandefficientuseoftheexistingstockofhuman resources? MEASURINGWHATPEOPLEKNOW Inansweringthesequestions,thisvolumeturnstotheinsightsofthreedisci- plines:economics,accounting,andeducation.Combiningtheconceptualandprac- ticalsuccessesandfailuresofthesedistinctvantagepointshelpstoprovidenew perspectivesonthelargerquestionofhowhumancapitalinformationanddecision- makingsystemsmustbereshapedinordertoreflecttoday’seconomicchanges.The diversityofinstitutionsandregulationsthatgovernhumancapitalinformationand decision-makingsystems in different OECD countries also demands a multi- dimensionaltheoreticalframeworkcapableofencompassingarangeofpractices, policiesandoutcomes. Onewayofforgingtheanalyticaltoolsneededtounderstandhumancapital informationanddecision-makingsystemsistoexaminethetheoreticalandpracti- calaspectsofknowledgeproduction,diffusionandconsumption.Recently,econo- mistshaveexhibitedarenewedinterestintheanalysisofknowledge,fromRomer's modificationstoneo-classicalgrowththeorytoincludeendogenoustechnological changeandPorter'sattentiontointangibleinvestmentforafirm'scompetitive success,tonewSchumpeterianperspectivesonafirm'sincentivetotrain,andthe OECD'semphasisonactivelabourmarketpolicies.Asimilarupsurgeisoccurringin theworkofaccountants,grapplingwiththeproblemsposedbyintangibleassets, andbyeducators,reconsideringthedefinitionsandmethodsofassessmentof acquiredknowledge/skills. Spurredbythesameunfoldingofeconomicevents,policymakersareunder intensepressuretoassimilateanynewinsightsregardingtheroleofhumanknowl- edgeineconomicdevelopmentandrespondbyimplementingtheappropriate regulatoryand fiscal policies.Takingthepolicychallengeasacue, thisbook considers: -Thereasonsforintroducingpoliciesthatimprovethemethodsusedby individuals,firms,andgovernmentsforrecordingthestocksandflowsof humancapitalthatresultfromknowledgeinvestment. -Theimplicationsofchangesinhumancapitalinformationanddecision- makingsystemsforlabourandcapitalmarketswhereboththepricesassoci- atedwithspecificskillsandthewillingnesstoborrow/lendfortheacquisi- tionofsuchskillsaredetermined. inapproachingtheeconomicroleofknowledge,thisbooknarrowsitsfocusto theallocativedecisionsmadebyindividuals,firmsandgovernmentstoacquireand usehumanembodiedknowledge(knowledgeembodiedinpeopleasopposedto knowledgeembodiedinmachineryorbooks). Itdoesnotconsideranumberof relatedissuessuchasthelearningprocessperseorresearchanddevelopment activitiesthatareimportantcomponentsoftheoverallproduction,diffusionand consumption ofknowledge. Bysituatingthediscussionofcompetenceonthe I S theoreticalterrainofboththeeconomicsofknowledgeandthedecision-making
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