Measuring human capital : a comparative study with emphasis on Malta

Abstract

The main aim of this paper was to produce an estimate for human capital stock for Malta over the period 2005 to 2013 and to compare Malta’s performance with that of other countries, wherever possible. The paper attempts to answer two main questions, the first, is how can one give a value to the amount of capital embodied in humans, and the second is what was the human capital dynamics in Malta over the years, particularly when compared with other countries. This research is primarily motivated by the fact that human resources are Malta’s only resource, in the absence of any natural endowments. The conclusions of this paper are as follows: First, the lifetime income approach was found to be a more reliable monetary metric. Second, the human capital stock of Malta grew by 70% in nominal terms from 2005 to 2013 whereas the nominal average annual growth rate was approximately equal to 7%. The real human capital stock grew by 32% over the same period. The real change in human capital was attributed to a 2% increase in the labour force population and a 1% increase in real lifetime income per capita. Third, human capital stock were estimated to be on average twice the value of physical capital stock and four times the value of Malta’s GDP. Fourth, the level of human capital stock estimates was found to be sensitive to the choice of the expected future income growth and the rate used to discount the future income.