Human capital covers not only people who work or want to work but also the characteristics of these people which impact the productivity of their labour. Over the last 25 years, the profile of workers has considerably changed in terms of gender, education and age. These changes have influenced the evolution of the productivity across most of the EU Member States.
Taking into account these changes in the growth accounting decomposition framework allows to better estimate TFP as indicator of innovation. Moreover, as this labour composition effect differs across countries in terms of timing and magnitude, it also leads to review the comparative evolution of TFP across Member States.
Human capital, or part of it, can also improve TFP as some skills are predominant in the innovation process. Unfortunately, over the last decades, the fields of specialisation of new workers are not enough aligned with the need of innovation and of its diffusion as reflected by the weakening TFP contribution to labour productivity growth.
After a presentation of some stylised facts on labour market evolution since 2000, the paper refines the growth accounting decomposition in order to take into account the heterogeneity of labour. The methodological explanation of labour composition effect estimations is followed by the comparison of its evolution across ten Member States from the North and the South of the Union. The implied change of TFP evolution across these countries is also illustrated. The last section is devoted to the indirect role of human capital on labour productivity growth, through its impact on innovation and thus on TFP.
