Measuring Human Capital
Journal of Economic Perspectives
vol. 36,
no. 3, Summer 2022
(pp. 103-30)
(Complimentary)
Abstract
We review the existing literature on the measurement of human capital. Broadly speaking, economists have proposed three approaches to constructing human capital measures—the indicator approach, the cost approach, and the income approach. Studies employing the indicator approach have used single measures such as average years of schooling or indexes of multiple measures. The cost approach values human capital investments based on spending. The income approach values human capital investments by looking forward to the increment to expected future earnings they produce. The latter two approaches have the significant advantage of consistency with national income accounting practices and measures of other types of capital. Measures based on the income approach typically yield far larger estimates of the value of human capital than measures based on the cost approach. We outline possible reasons for this discrepancy and show how changes in assumptions can reconcile estimates based on the two approaches.Citation
Abraham, Katharine G., and Justine Mallatt. 2022. "Measuring Human Capital." Journal of Economic Perspectives, 36 (3): 103-30. DOI: 10.1257/jep.36.3.103Additional Materials
JEL Classification
- C43 Index Numbers and Aggregation; leading indicators
- E22 Investment; Capital; Intangible Capital; Capacity
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- I26 Returns to Education
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- M53 Personnel Economics: Training
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