We construct a measure of human capital using micro datasets on labor composition of age, gender, education, and wage rate and analyze its role in economic growth for the Korean economy. Over the past three decades, human capital has grown steadily at about 1% per year, contrasting to a continuously declining trend of total work-hours. This growth has been driven by the rise of better-educated baby-boom cohorts. A growth accounting exercise shows that human capital contributes significantly to economic growth; it accounted for 0.5% points of annual GDP growth over the period. Human capital is projected to remain a major growth factor over the next two decades as the increase in educational attainment continues. Increased employment rate of elderly or female workers reduces the aggregate human capital growth while increasing the available labor. Polices to improve human capital of female or elderly workers help to increase aggregate human capital growth.

Introduction

The Republic of Korea (henceforth, Korea) is known for its economic accomplishments. It grew at an average rate of 7.6% each year from 1965 to 2015,1 making it one of the fastest growing economies in the world. Numerous studies on the backdrop of Korea’s economic achievement have pointed out the improvement in human resources, alongside higher savings and investment ratios, greater trade openness, and improvements in rule of law, as significant factors for this growth (Lee, 2016). The expansion and upgradation of the workforce have played a critical role in helping Korea catch up with the economic development of advanced economies. In the early stages, Korea enjoyed a large demographic dividend as large baby boom cohorts reached working age, boosting the nations productive capacity. The nation has also accumulated a stock of educated workforce at an unprecedented rate, backed by a strong household demand for higher education, and high public investment in the education sector. The abundant supply of welleducated labor force has allowed Korea to improve the competitiveness of its industries, transforming the economy into one of the worlds’ top exporters. In this paper, we present a measure of aggregate human capital stock in Korea and evaluate the contribution of human capital to GDP growth rate from 1986 to 2017. In addition to analyzing the past human capital development, we construct projections of human capital growth over 2020–۲۰۴۰, considering changes in population structure, educational attainment, and main labor market variables, such as employment and wage rate, with diff ;erent sets of scenarios.