Definition
Human capital is the value that is put on the skills and traits of workers that affect their productivity, like education.
Human Capital
The concept of human capital acknowledges the non-tangible resources and characteristics that enhance worker productivity and benefit the economy. These characteristics are inextricably linked to the individuals who receive or possess them.
Gary Becker and Theodore Schultz, Nobel Prize winners and University of Chicago economists, were among those most instrumental in developing the theory of human capital in the 1950s and early 1960s.
Becker discovered that investing in laborers, another factor of production, was no different from investing in capital equipment. Each of these assets generates money as well as other outputs.
Human capital can be divided into general and specific forms by Becker.
Specific human capital: education or training that solely serves one business.
General human capital: skills or characteristics that are advantageous to an individual in any workplace.
According to Becker, businesses were more willing to invest in specialized human capital than individual investors were. Companies showed less interest in investing in employees who might later be stolen by rivals.
Human Capital Types
Human capital is any human quality or value that can help the economy grow and make people more productive.
Quantifying them might be challenging because they are intangible assets that cannot be divided from specific employees. They do, however, consistently result in improved economic performance.
Qualities like these can be found in human capital:
- Education
- instruction that is technical or practical.
- Health
- Emotional and mental health
- Punctuality
- Problem-solving
- Management of people
- talents in communication.
The labor force's skills are improved by investing in these attributes. Greater economic output and higher personal income are the end results.
Education and Human Capital
The subject of Becker's research was education. Becker emphasized that time was also a factor in the price of education.
Students who choose to pursue an education forfeit the chance to work, travel, or start a family. Only when the prospective financial benefit outweighed the cost did people pursue their education.
Becker's research has some flaws because it focuses so much on the education of white men and not on other groups of people.
According to Becker's argument, governments, businesses, and individuals all profited from investing in education.
The national median household income in 2020 was $67,521, a 2.9 percent decrease from the 2019 median of $69,560.4, and higher than the majority of states that spend the most on education.
Economic mobility and human capital
Investment in human capital increases earning potential and the capacity to accumulate wealth, which helps both the individual worker and the economy in which they participate. In education, this is especially true.
According to Federal Reserve research, households with college degrees had a median family income of $95,700 in 2019, compared to $45,800 for families with only a high school diploma.
They are able to save money and build wealth as a result, which is essential for economic mobility.
Enhanced Early Childhood Education
Families with parents who have college degrees typically make more money than those who don't. They either have access to private schools or reside in affluent areas with superior educational institutions.
As a result, their kids get better educations than the kids of parents with lower incomes. Children of more educated parents consequently have higher earning potential and greater economic mobility.
The College's Impact on Families
Studies by the Federal Reserve show that getting a higher degree can affect the lives of people in the future.
The Fed study discovered that a person's education is closely tied to that of their parents, indicating that the likelihood that an adult child will have a four-year degree increases the more comfortable and successful the parents are with higher education.
The Fed later discovered that younger generations have much greater rates of continuing college graduation.
In reality, the 2018 Survey of Household Economics and Decisionmaking by the Federal Reserve found that 21% of people aged 25 to 64 were continuing-generation graduates, compared to 16% of first-generation graduates.
The United States' investment in education
In comparison to other industrialized nations, the United States does not invest as much in human capital, such as education.
Public education spending in the United States increased by almost 10% between 2012 and 2017. Considerably while other industrialized nations boosted spending, even more, this was slightly over the global average.
The United States is investing less in higher education than other nations do. Only 50% of Americans between the ages of 25 and 34 hold a college degree.
Nine other nations, including South Korea and Ireland, where 70% of young people have a college education, have a lower rate than that.
The fact that higher education in the United States is more expensive than in many other nations is one factor contributing to the decreased investment in education.
For the 2020–2021 academic year, in-state residents paid an average of $22,180 in tuition, fees, room, and board, while out-of-state students paid an average of $38,640.
Children from wealthy families are therefore more likely to pursue higher education. Due to the restriction on who can attend college, this lowers economic mobility in the US. Additionally, it restricts the growth of human capital, which in turn restrains economic expansion.
Main points
The economic worth of labor's skills and characteristics that affect productivity is known as human capital. These are attributes like education, good health, and work experience. Although intangible, workers and human capital are inseparable.
Education is one of the most important parts of human capital because it boosts economic output, individual income, and economic mobility for families.
Limited economic mobility and stagnant growth in human capital are consequences of low educational investment in the United States as well as the high cost of higher education. The potential for economic expansion is thereby constrained.
