Social Policies and Human Capital Availability in the OECD

ABSTRACT This study examines how education spending and expenditure across a range of social policy domains are associated with human capital availability in OECD countries. Data covering 10 categories of social expenditure (education, old age, survivors, incapacity, health, family, unemployment, active labour market programmes, housing and other social policy welfare programmes) were used to estimate the associations between government spending and human capital. Estimation results with fixed effects with Driscoll–Kraay corrected standard errors indicate that, beyond education spending, expenditures on unemployment, housing, and family programs are associated with higher levels of human capital. These results remain largely consistent across several sensitivity analyses but vary by countries' human capital endowments, signalling that the strength and significance of these associations depend on underlying structural conditions and supporting the need for differentiated policy approaches across low‐ and high‐human capital contexts. Taken together, the evidence suggests that governments should pay attention to spending in areas beyond education to improve human capital, and that conceiving some social spending as part of education policy may constitute a promising approach to fostering human capital formation.