Part Four   Human Capital and Well-Being[38]

Human capital is positively associated with other factors affecting well-being

Individual and community levels of education have a strong association with a range of social benefits that are aspects of human well-being. Better-educated people tend to be healthier. This association may be due to a number of factors other than higher income. More educated people adopt healthier habits and life styles – for instance, they are less likely to smoke or drink heavily, and to be overweight, and they engage in more exercise. They may be exposed to fewer occupational hazards. They may be able to better access and use health related information[39].

Higher levels of education lead to lower take up of social transfer benefits (even when eligible), and, of course, through higher wages, to paying more tax (Wolfe and Haveman, 2000). More educated people conduct labour market search more efficiently and effectively. They also tend to be more efficient consumers (Rizzo and Zeckhauser, 1992).

The children of better-educated parents themselves do better at school. Moreover children in communities where the average level of education is higher are more likely to complete secondary schooling, other things being constant. Individual education levels are associated with a lower risk of crime, and there is an additional effect from average levels of education in a community[40].

Education and literacy skills are positively associated with levels of political and social engagement, and participation in voluntary community activities, as well as in resources devoted to charity. They are also associated with higher levels of trust, tolerance of diversity, commitment to equality of opportunities and resistance to political alienation[41].

Finally, education has both an immediate and long-term positive association with self-reported happiness, even when taking account of the effects of family income (Blanchflower and Oswald, 2000). Moreover, there is evidence that this is not just a relative effect – individual happiness is also positively correlated with average levels of education in the community (Putnam, 2000).

… but again causal effects are difficult to untangle

Despite this evidence, it is difficult to untangle and quantify the causal effects of education on well-being. As OECD (2001a) notes: “Some of the influences … may be mediated by the fostering of habits, characteristics and attitudes which assist job creation, productivity, personal well-being, positive time preferences and self-discipline. Some of these characteristics as well as innate abilities and attributes are formed outside formal education but are highly correlated with schooling.”

In addition there is the problem of reverse causality – some of the outcome measures may have a causal effect on education. The lack of consistent measurement of outcomes, and of large cross-country data sets providing regular measurement over time, make the inference of causality even more difficult than in the case of education, productivity, earnings and growth (see Appendix).

… Nevertheless, indirect effects of human capital on well-being and social outcomes could be as large as the direct effects through earnings and growth

Despite the difficulties in establishing causal effects, researchers (Wolfe and Haveman, 2000; Wolfe and Zuvekas, 1997; Bynner et al., 2000; McMahon, 2000, Schuller et al., 2000) have begun the task of attempting to quantify these benefits. One approach is to value them at the cost of alternative means of obtaining the desired outcome. These approaches typically find that the social benefits of education (controlling for direct benefits) are large – possibly larger than the direct labour market and macro-economic effects.

Summary

• Evidence suggests that, while causal effects are uncertain, human capital contributes to individual well-being through many channels, in addition to direct productivity and earnings effects.
• It follows from this that effects of low human capital on earnings may be compounded through effects on other dimensions of well-being such as health. Also, to the extent that individuals with low human capital live in communities with average low levels of human capital, they are likely to experience additional harm to their well-being, over and above that due to their own low level[42].
• Human capital formation is likely to increase individual and societal well-being, even if it does not lead to participation in the labour market. This is obviously relevant for two groups – people with disabilities that prevent such participation, and older people who are near or who have already entered retirement.
• The mechanisms discussed in this Part mostly reinforce the particular benefits for the distribution of well-being from raising human capital in the bottom part of the current distribution of skills.
• On the other hand, some of the mechanisms discussed in this section (for instance, effects on charitable giving, voluntary community participation, political participation, commitment to equality of opportunities) may be just as relevant in other parts of the distribution of skills.