Review Article: The New Political Economy of Skill Formation

Abstract

This article reviews the emerging literatures on public policies to invest in, and protect, human capital and valuable asset-specific skills. Special attention is given to two recent books on the topic: James Heckman and Alan Krueger's (2003) Inequality in America, and Torben Iversen's (2005) Capitalism, Democracy, and Welfare. The article argues that, cumulatively, the literatures in economics, politics, sociology and political economy show that human capital policies can be institutional sources of competitive economic advantage. Efficiency can be boosted by strategies aiming both to provide affordable, high-quality childcare and cognitive as well as behavioral skills in schooling, and to protect valuable asset-specific skill investments. These are important messages for policymakers, and they open up promising avenues for future research on the cognitive, behavioral, and micro-political sources of long-term success in the knowledge economy.

Keywords: education policies, welfare states, early childhood investment, asset-specific skills, institutional analysis, economic inequality, James Heckman, Torben Iversen