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Measuring Human Capital Across Countries: IQ and the Human Capital Index by Gail Heyne Hafer and R.W

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Measuring Human Capital Across Countries: IQ and the Human Capital Index by Gail Heyne Hafer and R.W Measuring Human Capital Across Countries: IQ and the Human Capital Index By Gail Heyne Hafer and R.W. Hafer EXECUTIVE SUMMARY survey. Over the past several years, researchers have continued to It has been shown that country-level expand the boundaries of previous IQ and aggregated performance by work. A small selection of work school-age children on international done in the past few years—for sake assessment tests in math and science of brevity, we focus on economic are by-in-large capturing analogous fields—includes evaluating IQ’s indicators of the cognitive human ability to empirically explain national capital. We expand that analysis by differences in entrepreneurial comparing country-level IQ to the activity (Hafer & Jones, 2015; Hafer, The Center for Economics and the World Economic Forum’s Human 2017); corruption (Potrafke, 2012); Environment is an economics Capital Index (HCI). This index, financial development (Kodila- research center in the John W. comprised of several dozen separate Tedika & Asongu, 2015; Hafer, Hammond Institute for Free indicators, accounts for inputs and 2017); economic welfare (Hafer, Enterprise. Its focus includes policy- outcomes to measure human capital, 2017); happiness (Stolarski, et al., oriented research on the business and across age profiles and gender. Two 2015; Noklaev & Salahodjaev, economic environment, particularly of outcomes are of note. First, there is 2016); and cognitive capitalism state and local economies. a positive, significant correlation (Coyle, et al, 2016). The gist of the between IQ and the vast majority of evidence is that countries with the component indicators in the higher national average IQ tend to HCI across all age cohorts. Second, be more successful economically, because the HCI’s interpretation of have greater levels of educational attainment extends entrepreneurial activity (in general CEE Policy Series beyond formal education by and among women), less corruption, including indicators such as on-the- and a propensity toward more Number 31 job learning and other work-related democratic institutions. 2018 skills, our finding that IQ is positively correlated with these Especially in economics, attempts to measures suggests a deeper measure human capital have connection between national generally focused on either average IQ and the fundamental educational inputs (e.g., years in factors of what constitutes the school) or outcomes (e.g., test cognitive side of human capital scores). In terms of assessing the development. role of human capital in explaining differences in economic growth, 1. INTRODUCTION Mankiw, Romer and Weil’s (1992) inclusion of the rate of secondary There is a large (and expanding) school enrollment in their empirical body of work investigating the role growth model was an initial step to that IQ plays in helping to explain better understand how human economic and social outcomes. The capital affects economic growth. breadth of this work is well- Their work was followed by many represented by Lynn and similar studies: A good example is Vanhanen’s (2012) exhaustive Sala-i-Martin’s (1997) analysis HAFER AND HAFER 1 MEASURING HUMAN CAPITAL ACROSS COUNTRIES: IQ AND THE HUMAN CAPITAL INDEX wherein he tried eight different to the set of explanatory variables. In what follows, we address the measures of education-based human “This dramatic decline in the following questions: capital to explain economic growth statistical significance of primary across countries. Of these he school enrollment,” Jones and • How closely correlated are IQ found that the rate of primary Schneider note, “makes the and the HCI? school enrollment was empirically performance of IQ—statistically the most robust in his exhaustive significant in 99.8% of the same • Given the structure of the HCI, search process. In contrast to using regressions—all the more surprising. is it possible to identify input-oriented measures of Not only is IQ robustly correlated specifically areas with which IQ education, others have argued that with economic growth in this is more closely related than output-based measures—e.g., sample: it is also the most robust others? That is, can we glean average scores on international math human capital measure in this any information from and science tests, such as TIMMS dataset.” (p. 88) correlating IQ with the and PISA—were more appropriate disaggregated parts of the HCI, to capture the cognitive The current paper is in the spirit of across indicators and across age development of labor. Lynn and Meisenberg (2011), who profiles? Representative work in this area show that country-level IQ and include Hanushek and Kimko aggregated performance by school- • How closely is real GDP related (2000), Hanushek and Woessmann age children on international to each of the two series? (2008, 2015), and Hanushek, et al. assessment tests in math and science (2017). Wobmann (2003) offers an are by-in-large capturing analogous The Report also provides additional assessment of how human capital indicators of the cognitive human information on other social often is calculated, though he makes capital. Our purpose here is to indicators—e.g., business no mention of Lynn and further consider the ability of perceptions of education, the Vanhanen’s national IQ measure. national-average IQ to represent a innovation environment in a broad concept of cognitive human country, and the vulnerability of The use of national IQ in an capital. To do this we compare workers in the labor market—that economic growth context was country-level IQ to a new human we also correlate with IQ. These introduced by Weede and Kampf capital construct that includes a “other” measures are not part of the (2002). They found that Lynn and cognitive component of human HCI, but they allow us to further Vanhanen’s national IQ has a large capital development and accounts gauge the ability of IQ to explain and statistically significant effect on for actual labor market outcomes. observed differences in social and economic growth, even after Not only does this measure, the economic conditions across controlling for other input-type World Economic Forum’s Human countries. education measures. It wasn’t until Capital Index (hereafter, HCI), thus Jones and Schneider (2006) that IQ consider inputs and outcomes to The point of our paper is to was tested rigorously against other measure human capital, it also consider as many facets of the social quantitative-based education provides information about these and economic environment that variables which had heretofore been aspects across a wide spectrum of may influence human capital used as proxies for human capital. age profiles and across gender. development and, in the end, Jones and Schneider found that Comprised of several dozen worker productivity. Our analysis, when pitted against a large battery separate indicators, the Forum’s we think, provides a useful of other variables, IQ was one of country-level index is constructed to extension to current understanding the most important variables in “serve as a tool for capturing the of what national IQ captures. In explaining differences in economic complexity of education and the end, our task is not to determine growth across a large sample of workforce dynamics so that various whether IQ or the HCI “beats” the countries. Even though primary stakeholders are able to take better- other in some statistical horserace: school enrollment survived their informed decisions.” (Report, p. 3) we leave that exercise to others. testing procedure and had a positive Thus, it offers a useful benchmark and significant effect on economic against which to compare IQ across The format of the paper is as growth, the number of times this countries. follows. Section II provides a brief variable achieved significance was overview of the two series. Our sharply reduced when IQ was added statistical analysis is found in HAFER AND HAFER 2 MEASURING HUMAN CAPITAL ACROSS COUNTRIES: IQ AND THE HUMAN CAPITAL INDEX Section III where we examine the alternative IQ series that focuses on educational side of human capital link between IQ and the HCI healthy Sub-Saharan populations of development account for such indicators, the “other” indicators normal socio-economic status. This factors as school enrollment, quality provided in the Report, and to real approach yields an average IQ of 80 of education, and workplace GDP. Summary remarks close the for this sample, which is learning. The other half (23) are paper in Section IV. significantly higher than that found labor market indicators, dealing with in the LV data. Lynn and labor market participation, such as 2. DATA Meisenberg (2010b) and Lynn and participation rates, and how well Vanhanen (2012) provide counter educational attainment and 2.A. National IQ arguments, and Jones and Potrafke knowledge—skills—are matched to (2014) note that the sampling bias employment. The national average IQ data are inherent in Wicherts, et al. approach taken from Lynn and Vanhanen could just as easily yield an over- What makes the HCI distinctive is (2012) (hereafter, LV). These data estimate of the average human that on top of this input-output are the most recent version of their capital level. Rindermann’s (2013) coverage it overlays a generational original IQ series (Lynn & recent analysis of African cognitive reflection by reporting the learning Vanhanen; 2002, 2006), and include measurement is worth noting in this and employment themes across adjustments due to Lynn and regard. specific age groups. In their Meisenberg (2010a, b). These data terminology, the “horizontal have been discussed in detail Partly to validate the IQ measure themes” of learning and elsewhere, so ours will be brief. and to put it into the broader employment are deployed across age The IQ data are an aggregation of perspective as a measure of human “pillars.” The Report assembles its existing cognitive testing scores capital, there has been much work index using data for the age groups from around the world, including comparing the Lynn-Vanhanen IQ Less Than 15; 15-24; 25-54; 55-64; journal articles and actual samples of to other indicators of cognitive and More Than 65.
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