Brazil’s Human Capital Index: A Key Driver of Economic Growth, Reveals Groundbreaking Study
São Paulo, Brazil – In a new landmark study by the Brazilian Institute of Economics (FGV IBRE) at the Fundação Getulio Vargas, researchers have unveiled Brazil’s first long-term Human Capital Index. The study finds that human capital in Brazil increased by 2.2% annually between 1995 and 2023, making it the principal contributor to the country’s Gross Domestic Product (GDP) growth over this period.
The research incorporated data from the National Household Sampling Survey (PNAD) and Continuous National Household Sampling Survey (PNADC), curated by the Brazilian Institute of Geography and Statistics (IBGE). This comprehensive database includes insights into Brazilians’ earnings and educational backgrounds.
“Human capital essentially encapsulates the processes by which individuals accumulate knowledge and skills,” explains Janaína Feijó, one of the study’s principal researchers. “To construct this index, we scrutinized the ramifications of educational attainment and professional experience on the wages of Brazilian laborers.”
Quantifying human capital has historically posed formidable challenges to economists. Existing international measures often fail to account for country-specific economic nuances. Brazil’s educational landscape has undergone profound transformations in recent decades, prompting the necessity for a tailored Human Capital Index to assess the ramifications on workforce qualifications.
Fernando Veloso, FGV IBRE researcher and overseer of the Regis Bonelli Productivity Observatory, elucidates that their methodology transcended conventional metrics by integrating both educational access and professional experiences into the evaluation. “We evaluated the combined impact of education and experience on workers’ compensation, formulating a productivity indicator that amalgamates these factors,” Veloso adds.
Demystifying Economic Growth: The Role of Human Capital
Traditional economic growth metrics in Brazil have predominantly emphasized physical capital and labor hours, with human capital often subsumed under total factor productivity (TFP), which aggregates economic efficiency and technological advancements. Veloso notes the novelty of their work lies in isolating and analyzing human capital over a prolonged timeline, a methodology hitherto unexplored in Brazilian economic studies.
Despite persistent educational sector challenges, the study highlights a steady ascent in human capital since 1995. Additionally, Brazil has reaped demographic dividends through an increased working-age population. “Our study underscores that investments in education have indeed yielded dividends, propelling human capital forward and bolstering economic growth,” Veloso observes.
Human Capital Ascends as TFP Declines
Feijó emphasizes that TFP gauges the contributions of economic efficiency and technology towards growth, exemplified by corporate adoption of artificial intelligence. Isolated analysis of human capital revealed an enigmatic trend: TFP, traditionally exhibiting sluggish growth, has actually been declining over recent decades. This phenomenon becomes evident only when human capital is dissected independently from TFP.
“The decoupling allowed us to recognize a drop in economic efficiency and technological adaptation, even as human capital continued to grow,” Veloso explains. He attributes this TFP decline partly to the intricate Brazilian tax system, which incentivizes productive inefficiency by dislocating production centers away from consumption hubs. A proposed tax reform in Congress aims to address these inefficiencies and enhance TFP.
Policy Implications and Future Directions
Feijó asserts that the empirical evidence linking human capital to GDP growth necessitates a reinvigorated focus on educational investments. The study advocates for policies fostering professional skill enhancement, workforce mapping, and the development of both technical and socio-emotional competencies.
“Upgrading the National Employment System could augment the efficiency of labor allocation across various sectors, thereby stimulating TFP growth,” Veloso adds. Both researchers stress the imperative to further elucidate the individual contributions of education and professional exposure to the evolution of human capital over the past three decades.
The data from this pioneering research is now accessible through the Regis Bonelli Productivity Observatory, available to researchers, policymakers, and the public. For detailed insights, visit the links below to access the full study and policy paper.
