April 16, 2010

Modelling Human Capital Formation in WorldScan

We build new modelling capabilities in WorldScan –CPB's multicountry recursive dynamic CGE model– to address policy questions related to human capital and skill formation. To achieve this goal we revise and update the human capital satellite model by Jacobs (2005).

In addition, new features are introduced into WorldScan to deal with human capital policies:

  • a new production structure that incorporates capital-skill complementarity;
  • a constrained supply of high-skill workers in the R&D sector and;
  • more information is taken from the satellite model (i.e. skill-specific labour supply and efficiency changes, instead of only aggregated labour efficiency changes).

Finally, this new version of WorldScan is used to evaluate current EU human capital policies. The new results have a similar dynamic pattern of macroeconomic pattern than previous WorldScan versions.

However, now the Lisbon skill targets have a higher impact, while the R&D targets have lower effects due to the R&D workers constraints.



Hugo Rojas-Romagosa