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Beyond The Crisis: Human capital, the priority factor to ride out the crisis

By Renato Chahinian, former Secretary General of Treviso Chamber of Commerce

Palazzo dei Trecento_Treviso

The previous article "Riding out the crisis...with productivity factors" underlined that recovery is proceeding at a slow pace, but it also suggested that increasing productivity through appropriate factors may lead to a faster way out of the crisis, both being more competitive on the same markets in crisis and fostering demand to accelerate recovery. Now, it is necessary to describe the most effective features of productivity factors.

The first, overriding productivity factor is human capital, due to its basic features that can positively influence other factors.

By "human capital", we mean the "improvement in labour created by the education and knowledge embodied in the workforce" (Krugman - Wells, "Macroeconomics"). Such improvement in quality in the average workforce might increase the aggregate production function (that is, real GDP per labour unit: productivity), other factors (intensity of physical capital and state of technology) being equal. This allows to compensate for decreasing output of physical capital, which would be likely to prevent further growth in production values.

Without going into details of economic theory, it is instead important to focus on the characteristics of human capital to analyse whether it can practically contribute to achieving better productivity and, thus, economic growth (per capita GDP growth), also in order to ride out the crisis.

First of all, human capital depends on education, that is, on knowledge acquired by workforce at school. Leaving aside the borderline cases of those who were fortunate enough to be successful without knowledge, it is evident that a good education level is the general requirement that allows to detect and use the appropriate skills in one's work. From this point of view, today's higher education levels foster labour productivity.

Nevertheless, education is not enough: ...

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English translation by m.b.