Education Human Capital and Economic Growth: A Study with Finnish Linked Employer-Employee Data

Abstract

This Thesis studies the implications of education human capital and especially the relation between education and economic growth using a linked employer-employee data from 1995 to 2006. The main objective of the study is to find out how education affects the productivity growth of the firms. The distinction is made between different levels of education as well as between technical and non-technical education. The productivity and wage returns to education are also calculated and compared to find out if wages are based on productivity.

The two alternative roles of education in economic growth, documented by the growth theory, form the theoretical basis for the hypotheses tested in the empirical part of the Thesis. The effects of education human capital on productivity are investigated by pooled ordinary least squares. Monte Carlo simulation is used for creating the productivity and wage profiles of education.

The study finds that firms with higher level of education human capital are more productive and pay higher wages. The results also indicate that education is underpaid relative to productivity. The productivity growth analysis reveals that both the growth and level of education human capital contribute to growth. The temporal analysis suggests that the long-run effects of education are notable especially in large firms. Furthermore, the analysis points out that increases in technical education lead to productivity growth with a longer lag than increases in non-technical education, implying complementarities between the technically educated and R&D.