Human capital claudia goldin department of economics harvard university and national bureau of economic research abstract human capital is the stock of skills that the labor force possesses. Human capital theory in the 1950s and 1960s, theodore schultz and gary becker introduced the concept of human capital to demonstrate how individuals investment in themselves was analogous to. This chapter presents the basic elements of human capital theory and applies it mainly to the areas of education and training. In contrast, the vigorous development of empirical research in the field of personal income distribution is of recent origin. Human capital theory the essence of human capital theory is that investments are made in human resources so as to improve their productivity and therefore their earnings. The idea is that human capital makes people more productive, which. Prior to 1958, there was no such thing as human capital theory in economics, much less in the discussion of education policy. Daron acemoglu mit human capital theory bilkent, july. Jul 04, 2014 evolution of human capital theory foundations a. General issues one of the most important ideas in labor economics is to think of the set of marketable skills of workers as a form of capital in which workers make a variety of investments. As a leading member of a group of economists known as the chicago school of economics, mincer and nobel laureate gary becker helped to develop the empirical foundations of human capital theory, consequently revolutionizing the field of labor economics. Within five years, there was an active theoretical and empirical human capital research program in economics. The first applications of human capital theory in economics are by becker and mincer of the chicago school. So, the version of the human capital idea initially presented to economists and economic policy makers in the late 1950s and early 1960s was schultzs version, with its emphasis on the link between human capital and growth, and on the possibility of an aggregate underinvestment in human capital formation.
Human capital and economic growth by jacob mincer ssrn. Many studies have shown that high school and college education in the united states greatly raise a persons income, even after netting out direct and indirect costs of schooling, and even after adjusting for the fact that people with more education tend to have higher iqs and bettereducated, richer parents. Chapter 9 human capital, learning technology, and the mincer. We use standard human capital theory to estimate stocks of human capital and allow the quality of human capital to vary across countries. Introduction economists have long theorized about the nature or causes of inequality in personal incomes. Yrs of work forgone to pursue education were rationally compensated with high wage s. Estimating the return to schooling using the mincer equation the mincer equation gives comparable estimates of the average monetary returns of one additional year of education keywords. Jacob mincer and the centrality of human capital for. Human capital theory the essence of human capital theory is that investments are made in human resources so as to improve.
How the human capital model explains why the gender wage. Human capital theory has been the basis of a huge literature studying the determination of earnings and inequality. Increases in the stock of human capital occurs through formal education. Human capital theory s origins human capital theory originated in the mid20th century work of mincer 1958, schultz 1961, and becker 1962. We think of technical knowledge as a list of instructions about how di.
Humancapital theory this is a moden extension of adam smiths explanation of wage differentials by the socalled net disadvantages between different employments. Neoclassical economists use human capital theory to explain wage differentials. Human capital theory assumes that education determines the marginal productivity of labour and this determines earnings. Paper masters can compose a custom written research paper on human capital theory that follows. Much later authors such as mincer 1958, schultz 1961 and backer 1975 gave meat to this theory when they affirmed that time and money spent on education builds human capital hence one should be able to estimate the rate of return ror on such investment, in a way similar to investment in physical capital. Since the 1960s, it has dominated the economics, and policy and public. Claudia goldin, human capital 2232014 3 fraction of the growth of income per capita in u. Human capital theory is the dominant approach for understanding personal income distribution. May 26, 2004 human capital is a link which enters both the causes and effects of these economicdemographic changes. Our model can explain differences in schooling and earnings profiles and, consequently, estimates of mincerian. Human capital is a link which enters both the causes and effects of these economicdemographic changes. A principle of chemical engineering is an example of a piece of technical knowledge.
The application of the human capital concept to economic growth and to labor economics were initially pioneered independently. Butler for their assistance and encouragement since the inception of this research. Human capital theory research papers paper masters. Human capital is substitutable, but not transferable like land labor 10. Upon learning of mincers research on human capital investments and income distribution, he arranged a. Pdf limitations of human capital theory researchgate. Investment in human capital and personal income distribution jacob mincer city college of new york i. These authors proposed a remarkably simple explanation of personal income. Chapter 9 human capital, learning technology, and the. The earnings functions are an easy and flexible tool, for the. Then we analyse his pioneering work on human capital theory and the multiple applications that mincer made of its theoretical nucleus. Human capital theory views humans and individuals as economic units acting as their own economy. Human capital theory the theory of human capital is rooted from the field of macroeconomic development theory schultz, 1993. Daron acemoglu mit human capital theory bilkent, july 20.
Human capital to schultz was the acquisition of all useful skills and knowledge that is part of deliberate investment. Human capital theory is concerned with knowledge and experiences of smallscale business owners. Jun 06, 2012 much later authors such as mincer 1958, schultz 1961 and backer 1975 gave meat to this theory when they affirmed that time and money spent on education builds human capital hence one should be able to estimate the rate of return ror on such investment, in a way similar to investment in physical capital. Education, training, and health are the most important investments in human capital. This perspective is important in understanding both investment incentives, and the structure of wages and earnings. This pdf is a selection from an outofprint volume from. According to human capital theory, education directly increases individual.
Human capital theory refers to the aggregate stock of competencies, knowledge, social, and personal attributes embodied in the ability to create intrinsic and measurable economic value. Can human capital theory alone explain the variation in. The costs of learning the job are a very important component of net advantage and have led economists such as gary s. According to human capital theory, increases in a persons stock of knowledge or human capital raise his. The cipd is the professional body for hr and people development. Estimating the return to schooling using the mincer equation. First developed by becker and mincer, this theory explains both individuals decisions to invest in human capital education and training and the pattern of individuals lifetime earnings. The synergy between mincer and becker during the 1960s is discussed, as is the development of the schoolingearnings function by gary s. Human capital theory is a theory of earnings, one of the major determinants of poverty. A theoretical and empirical analysis with special reference to education, illustrates this domain. Suggested citation mincer, jacob, human capital and economic growth november 1981.
Human capital theory hct concludes that investment in human capital will lead to greater economic outputs however the validity of the theory is sometimes hard to prove and contradictory. In short, human capital theorists argue that an educated population is a productive population. Jacob mincer, journal of political economy, 1958, p. Human capital is the stock of habits, knowledge, social and personality attributes including creativity embodied in the ability to perform labour so as to produce economic value human capital is unique and differs from any other capital. Jacob mincer, experience and the distribution of earnings. Keywords human capital theory, income distribution, critique, hierarchy, productivity. My approach to the demand for health has been labeled as the human capital model in much of the literature on health economics because it draws heavily on human capital theory becker 1964, 1967, benporath 1967, mincer 1974. Becker argues that there are different kinds of capitals that. Expanding beyond mincer to human capital portfolios laura l.
Human capital theory an overview sciencedirect topics. Human capital theory originated in the mid20th century work of mincer. Loglinearity of earnings as a function of years of schooling is in fact a key empirical implication of the human capital model with identical individuals proposed by mincer 1958. This rapid rise in female labor force participation constitutes the single most significant labor market trend in the u. Mincerian earnings functions have been estimated for a large number of countries and across many different demographic groups. Human capital theory is an economic approach to the evaluation of the costs and benefits of the investment in skills and knowledge. Investment in human capital and personal income distribution. The idea is that individuals can gain skills human capital that will make them more productive. Jacob mincer, into questions raised by the human capital concept. The introduction of human capital theory into education. In the past, economic strength was largely dependent on tangible physical assets such as land, factories and equipment. Human capital, learning technology, and the mincer equation very di.
These indicators can also be used as a basis for setting public policy with respect to investment in education. As a public investment, the fundamental argument is that investing in education leads to economic growth through increased productivity, social stability, and healthier lifestyles. Mar 12, 20 human capital a means of production, into which additional investment yields additional output. Abstract the aim of this paper is not to supply a synthesis of the chicago school human capital theory, but rather to define and analyze the earnings functions and their relations with the human capital concept. Proin gravida dolor sit amet lacus accumsan et viverra justo commodo. Perspectives on education in the postapartheid era by ntombifuthi winnie gamede submitted in accordance with the requirements for the degree of master of commerce in the subject economics at the university of south africa supervisor. How the human capital model explains why the gender wage gap narrowed married womens labor force participation rose dramatically from 4. It is needed for companies to achieve goals, develop and remain innovative. Human capital is the aggregate of the individuals action within an economy. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Walter heller and the introduction of human capital theory. This includes the development of the human capital. Continuing professional education and human capital theory. Human capital a means of production, into which additional investment yields additional output.
While theodore schultz coined the term human capital, the foundations of the theory were laid by gary becker and jacob mincer becker, 1962, 1980. Measuring human capital can serve a number of purposes, e. Pdf the trouble with human capital theory blair fix. Any research paper on human capital theory will want to explore adam smith as one of the earliest proponents of human capital, but the theory does have its critics as well. Economists today understand human capital theory as an integrated set of models of human. Second, it is difficult that human capital itself independently contributes to individual development and national economy growth. Mincer was considered by many to be a father of modern labor economics. Origin of the term the bestknown application of the idea of human capital in economics is that of mincer and gary becker of the chicago school of economics. The flow of these skills is forthcoming when the return to investment exceeds the cost both direct and indirect. Human capital theory this is a moden extension of adam smiths explanation of wage differentials by the socalled net disadvantages between different employments. Jacob mincer economics department columbia university international affairs bldg. Mincer 1958 suggested that investment in human capital has an opportunity cost that must be compensated, therefore suggesting that an increase in human capital would lead to an increase in earnings. The role of human capital is widely discussed in economic. Jacob mincer extended this relationship by incorporating experience to form the human capital earnings function in his schooling, experience and earnings 1974.
According to this theory, individual income is the result of human capital. Becker and jacob mincer to claim that, other things being equal, personal incomes vary according to the amount of. The schooling coefficient, ill, provides an estimate of the rate of return to education which is assumed to be constant in this specification. Human capital theory emphasizes how education increases the. The theory that is most commonly used is the general human capital theory, developed by mincer 1970 and becker 1993, which examines why a variation in earnings distribution exist among individuals. Implications for education policy article pdf available in south asia economic journal 92 september 2007 with 425 reads how we measure reads. Mincer, 1974 presents he as both a public and private investment decision for governments and its people.
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