classified by several characteristics of individuals, such as age, gender and education; then, the lifetime income of the representative individual within each cross-classified group is simulated; finally, aggregating across these groups yields an estimate of the monetary value of the human capital stock for each country.

In addition to strengthening the theoretical consistency within the wealth accounting framework, the lifetime income approach, by bringing together the influence of a broad range of factors (demography, mortality, education and labor market aspects), allows comparison of the relative importance of these factors, which can lead to useful policy implications. For instance, information drawn from the estimates could be used to answer questions such as to what extent investment in higher education could offset the negative impact on human capital accumulation due to population aging.

The OECD human capital project has required the creation of a database for the participating countries over a range of observed years, including all the elements needed for human capital estimation based on the lifetime income approach. The estimated results and analyses based on these results are presented in Liu (2011).

To the purpose of this paper, the relevant data for thirteen countries (Canada (CAN), France (FRA), Israel (ISR), Italy (ITA), Korea (KOR), the Netherlands (NLD), New Zealand (NZL), Norway (NOR), Poland (POL), Romania (ROU), Spain (ESP), the United Kingdom (GBR) and the United States (USA))<sup>6</sup> for the year 2005 or closest available year are drawn from the OECD database; these data are combined with the World Bank (2011) estimates of the total wealth for these same countries in 2005.

# **4. The wealth decomposition with human capital included**

Since the wealth decomposition with human capital included is based on two different sources, Liu (2011) and World Bank (2011), the assumptions used by each should be compared and, if appropriate, aligned. This section describes the type of alignment that was implemented.

# **_4.1. The scope of population_**

The first issue concerns the scope of the population covered in both sets of estimates. Subject to certain conditions,<sup>7</sup> wealth in per capita terms is the correct measure of social welfare (Dasgupta, 2001). This motivates the comparison of national wealth in per capita terms. The OECD project focuses on the working age population (15 to 64), while the whole population is used in the World Bank wealth accounting.

As the OECD estimates of human capital refer to the working age population rather than to the whole population (i.e. they exclude the human capital embodied in children and in elderly people who are assumed to have fully withdrawn from the labor market), the human capital per capita (denoted as HCPreal), defined as total human capital of the whole population divided by the corresponding whole population, could only be approximated as total human capital of working age population 6. Except Romania, all chosen countries are OECD members.

7. These conditions are: population grows at a constant rate; per capita consumption is independent of population size; and production exhibits constant returns to scale.

6