Abstract:

Purpose: This study confirms that human capital investments are essential to productivity growth and socioeconomic development. The aim of this study is analyzing the relationship between human capital investments (education and healthcare expenditures) and labor productivity using the Vector Autoregression (VAR) Model. Method: Over the period 1986Q1-2020Q1, the UK's labor productivity is evaluated using output per hour worked, household health expenditure, household education expenditure, the unemployment rate for those aged 15-64 and the total hours worked by all persons engaged in production. Findings: According to the VAR model, which was developed to examine the relationship between the series that became stationary at their first difference, increasing the hours worked as labor input and household education expenditures negatively affect the amount of output per working hour, while increasing household health expenditures positively affects the amount of output per working hour. According to the results of variance decomposition analysis; as of the tenth period, 61,8% of the change in labor productivity is explained by itself, 25,2% by labor input, 2,1% by unemployment, 8% by household health expenditures, and 2,7% by household education expenditures. Originality: Unlike previous studies, this study evaluates the relationship between human capital investment and labor productivity by including household consumption expenditures as a health and education variable in the model.

Keywords: