Definitions and Basics

Human Capital, from the Concise Encyclopedia of Economics

To most people capital means a bank account, a hundred shares of IBM stock, assembly lines, or steel plants in the Chicago area. These are all forms of capital in the sense that they are assets that yield income and other useful outputs over long periods of time.

But these tangible forms of capital are not the only ones. Schooling, a computer training course, expenditures of medical care, and lectures on the virtues of punctuality and honesty also are capital. That is because they raise earnings, improve health, or add to a person’s good habits over much of his lifetime. Therefore, economists regard expenditures on education, training, medical care, and so on as investments in human capital. They are called human capital because people cannot be separated from their knowledge, skills, health, or values in the way they can be separated from their financial and physical assets….

 

Video introduction and comprehension quiz on human capital from EconEdLink.

Basic overview of capital and human capital at Khan Academy:

Human Capital and Signaling at Marginal Revolution University:

In the News and Examples

If going to college is such a great way to boost human capital, should governments invest in more of it? “Are Government ‘Investments’ in Higher Education Worthwhile?” by George Leef at Econlib, December 1, 2008.

Advocates contend that raising the “educational attainment” of the populace (i.e., more years spent in formal schooling) results in a labor force that is better trained and more capable… The conventional wisdom holds that students who go through college learn a lot that makes them more valuable as workers, but today’s college experience often fails to do that.

Is the value of education (especially higher education) really increases in human capital, or is its value merely a function of signalling? Listen to Bryan Caplan on The Case Against Education at EconTalk:

Caplan argues that very little learning takes place in formal education and that very little of the return to college comes from skills or knowledge that is acquired in the classroom. Schooling, he concludes, as it is currently conducted is mostly a waste of time and money. Caplan bring a great deal of evidence to support his dramatic claim and much of the conversation focuses on the challenge of measuring and observing what students actually learn.

See also Learning How (Not) to Learn, an EconTalk Extra to complement Caplan’s episode (above).

Econ Duel: Is Education Signaling or Skill Building? at Marginal Revolution University:

Dan Pink on How Half Your Brain Can Save Your Job. EconTalk podcast episode, June 11, 2007.

Author Dan Pink talks about the ideas in his book, A Whole New Mind: Why Right-Brainers Will Rule the Future. He argues that the skills of the right side of the brain—skills such as creativity, empathy, contextual thinking and big picture thinking—are going to become increasingly important as a response to competition from low-wage workers overseas and our growing standard of living….

Weinberger on Everything is Miscellaneous and the Wonderful World of Digital Information. EconTalk podcast episode, June 18, 2007.

Author David Weinberger, a fellow at Harvard’s Berkman Institute for Internet and Society, talks with EconTalk host Russ Roberts about the ideas in his latest book, Everything is Miscellaneous: The Power of the New Digital Disorder. Topics include the differences between how we organize and think about physical and digital information, the power of the internet to let us consume information in unique and customized ways and the implications for retailing, politics and education….

A Little History: Primary Sources and References

Gary Becker. Biography of Nobel Prize winner Gary Becker from the Concise Encyclopedia of Economics

… In the early 1960s Becker moved on to the fledgling area of human capital. One of the founders of the concept (the other being Theodore Schultz), Becker pointed out what again seems like common sense but was new at the time: education is an investment.

A Conversation with Gary Becker, an Intellectual Portrait.