Education and labour productivity in New Zealand

Abstract

We estimate the effect of four types of education qualifications, as a proxy for human capital and skill levels, on GDP per capita, and compute the average percentage returns. We also test the effect of the product of each proxy of human capital with R&D on GDP per capita. We find that only university qualification and its product with R&D to have a positive effect on the average economy-wide productivity.

Acknowledgements

The views expressed in this paper do not reflect those of the Department of Labour. We thank Hans-Jürgen Engelbrecht, Victoria Johns and Fiona Sterling for their valuable comments. Access to the data used in this study was provided by Statistics New Zealand under conditions designed to give effect to the security and confidentiality provisions of the Statistics Act 1975. The results presented in this study are the work of the author, not Statistics New Zealand.

Notes

† The views expressed in this paper do not reflect those of the Department of Labour.

¹ We tested the data for unit root. We used commonly used unit root tests for time series and panel data. We estimated a variety of specifications (constant, time trend, etc) and examined a variety of lag structures using different Information Criteria. We could not reject the hypothesis that the data have unit roots. We estimated the production function in Equation 2(2) (without a lagged dependent variable) and tested the residuals for unit root using a variety of unit root tests. We rejected the unit root hypothesis. We concluded that the variables are probably cointegrated, hence a log-level regression of the sort we report produces super-consistent parameters. All results are available upon request.

Table 1. The production function estimate regression: cross-section weights and white cross-section SE and covariance – degree-of-freedom correction

² University, vocational and high school qualifications are correlated. The correlation is weak. Although it is not quite obvious why, but the correlation between vocational and university qualification is strongest. We re-run the regressions by dropping the share of university qualification. We still find the share of vocational qualification insignificant.

³ It is quite plausible that the coefficients vary across industries. We do not allow for that because we have a relatively small sample size.

⁴ We report the GMM estimates of vocational qualifications even though the estimated coefficient was statistically insignificant.

⁵ It is well documented in the literature that the private rate of return to education is smaller than the social rate of return.