An Industry-Level Measure of Quality-Adjusted Human Capital in the European Union

This paper examines the role of human capital in driving labour productivity growth across industries in the EU and the UK from 2010 to 2021. Building on Égert et al. (2022), we introduce a novel quality-adjusted human capital (QAHC) measure that combines both the quantity and quality of education, incorporating data from OECD’s Programme for International Student Assessment (PISA) and Programme for the International Assessment of Adult Competencies (PIAAC) on test scores and mean years of schooling, alongside employment composition from the EU KLEMS & INTANProd database. We show that this measure yields reasonable output elasticities in a Stochastic Frontier model and that it has statistically significant link to labour productivity growth, particularly in goods-producing industries, unlike traditional proxies such as education attainment shares.