This paper attempts to examine how social trust influences human capital formation using prefectural level data in Japan. To this end, I constructed a proxy for social trust, based on the Japanese General Social Surveys. After controlling for socioeconomic factors, I found that social trust plays an important role in reducing the rate of long-term truancy in primary and junior high school. Results suggest that social trust improves educational quality.
Social capital draws much attention from researchers in the field of social science (Putnam, 1993 and Putnam, 2000). In terms of economics, social capital, which includes social trust, improves efficiency by reducing transaction costs, resulting in economic growth (Knack and Keefer, 1997 and Zak and Knack, 2001). From another point of view, economic growth in part depends on physical and human capital formation. Previous works provide evidence that social trust is positively associated with school enrollment rates (Papagapitos & Riley, 2009) and growth of schooling (Bjørnskov, 2009). Through human capital formation, social trust also makes a contribution to economic growth.
In contrast to developing countries, school enrollment rates are high in developed countries. Taking Japan as an example, the secondary school enrollment rate was about 99% in 2000, indicating that quantity of education is sufficient. It is more important to improve the quality of education in Japan. According to a white paper, as shown in Fig. 1, the rate of long-term truancy has risen since the 1990s.1 Even though the scale is different between primary school and junior high school, it appears that both primary and junior high school truancy rates doubled within a fairly short period of time.2,3 This suggests that a problem in educational quality exists.Although there are no data regarding the truancy rate for high school, after entering high school, which is not compulsory in Japan, those who had a tendency to skip junior high school are likely to skip high school, resulting in dropouts. It is appropriately argued that long-term truancy has become one of the central issues in Japanese education policy. Social capital, including social networks and social trust, is thought to play a critical role in coping with the long-term truancy problem (Ministry of Education, Culture, Sports, Science and Technology, Japan, 2009, chap. 2). Long-term truancy or dropping out of school are thought to reflect a low quality of education, leading to an impediment in human capital formation even if quantity of education is sufficiently provided. However, little is known about the effect of social capital on quality of education, with the exception of the work of Coleman (1988) and Anderson (2008). Therefore, this paper attempts to examine how and to what extent social trust, considered a kind of social capital, affects the long-term truancy rate in Japan.
The organization of this paper is as follows: Section 2 provides a review of related literature. Section 3 presents an explanation of data set and simple econometric framework. The results of the estimations and discussion are provided in Section 4. The final section offers concluding observations.
Previous studies using cross-country data have provided evidence that social trust is positively associated with quantity of education such as school enrollment rate. In developed countries like Japan, quantity of education is sufficiently supplied. Thus, quality of education is more important in increasing the human capital effect on economic growth. However, little is known about how social trust influences quality of education. Long-term truancy can be considered one of the proxies for educational quality, despite not being reflected in school enrollment rate. This paper constructed a proxy for prefectural level social trust to examine the effect of social trust on long-term truancy in Japan.
The main findings of the regression analysis after controlling for endogeneity bias and socio-economic factors are as follows. I found that social trust plays an important role in decreasing long-term truancy in primary and junior high school. Furthermore, the effect of social trust on reducing long-term truancy in primary school was four to seven times larger than in junior high school. This indicates that social trust improves the quality of education, especially for more fundamental and basic levels of education. Primary school students learn the minimum knowledge needed for not only work, but also for everyday life. There is an assertion that the search cost for workers with social skills is very high in societies where level of social trust is low. Inevitably, employers put more emphasis on direct information obtained from trustworthy sources than on formal qualifications such as education (Bjørnskov, 2009). However, results obtained in this study lead me, to a certain extent, to argue that the effect of social trust can be more reasonably explained in terms of the supply side rather than the demand side of education partly because primary and junior high school education is compulsory in Japan.
Because of data limitations, this study used prefecture level aggregated data. Therefore, I could not examine directly whether the relationship between social trust and human capital formation can be more appropriately explained from the viewpoint of supply side. Individual level data allowed me to examine the social capital effect on human capital formation more precisely. Furthermore, this paper shed light on student truancy related to investigating the social capital influence on quality of education. However, examination scores rather than student truancy can reflect more directly the quality of education. For example, Anderson (2008) used rich individual level data to assess the social capital effect on examination scores. An examination of the social capital effect on examination scores using individual level data in Japan is recommended in future studies.
