An update to estimates of human capital in New Zealand

Human capability is one of the four aspects of wealth in the Treasury’s Living Standards Framework. Combined with the other three aspects – the natural environment, physical and financial capital, and social cohesion, it underpins both current and future wellbeing. Human capability is defined as “people’s knowledge, physical and mental health, including cultural capability”. It would be ideal if we could measure the total contribution to wellbeing of all of these aspects but, at the moment, there is no generally accepted methodology to do this, so it is not covered in this note. Instead, the methodology used widely in the literature measures only the labour market value of the knowledge portion, by looking at lifetime earnings associated with different levels of education. We have called this component “human capital” in this note. Human capital is an important resource for the economy, enabling businesses to operate in a way that provides higher incomes. But it is equally important for an individual as not only do high levels of knowledge and skill increase their incomes, but they are also associated with many other positive outcomes in life. Treasury has previously written on the impact of human capability in lifting living standards in its Start of a Conversation series and this note is a continuation of this work (Morrissey, 2018). The Treasury, as part of the first wellbeing report Te Tai Waiora Wellbeing Report 2022, commissioned Trinh Le, a leading New Zealand expert in this area, to update the valuation of New Zealand’s human capital previously published with co-authors John Gibson and Les Oxley in 2006 (Le et al, 2006). This short note is an introduction to the methodology, and it highlights some aspects of these numbers that were interesting. This work also provides, for the first time, disaggregated numbers for Māori and non-Māori human capital. An accompanying spreadsheet is provided with the detailed tables.