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20150206 Human Capital



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The most important part of capital necessary for production is human capital that is humans with accumulated knowledge and skills allowing such production. This human capital has all characteristic of any other forms of capital such as ability produce profit in form of earnings to owner of this capital, investment options in form of expenses on education, and so on. Human capital is probably the most important form of capital and should be consciously developed and expanded.


INTRODUCTION TO THE SECOND EDITION; INTRODUCTION TO THE FIRST EDITION: Introduction includes brief description of the structure of this book and content of its chapters.

II. HUMAN CAPITAL REVISITED: Introduction; Education and Training; Human Capital and the Family; Human Capital and Economic Development; Conclusions

This is introduction of the notion of human capital as combination of knowledge and skills obtained via education and training. It reviews formation of such capital starting with the family and its highly positive impact on economic development.

Part One: Theoretical Analysis.

III. INVESTMENT IN HUMAN CAPITAL: EFFECT ON EARNINGS: 1. On the Job Training: General Training; Specific Training; 2. Schooling; 3.Other Knowledge; 4. Productive Wage Increases;

This is analysis of educational investment based one separation of specific and general training with causal relation between accumulation of training and earnings rate. Sources of human capital defined as formal schooling and all other knowledge obtained outside of formal education. Finally wage increases that provide better access to goods and services including medical services are reviewed as methods for employers to increase human capital of their labor.

IV. INVESTMENT IN HUMAN CAPITAL: RATES OF RETURN: 1. Relation between Earnings, Costs, and Rates of Return (Addendum: The Allocation of Time and Goods over Time); 2. The Incentive to Invest; Number of Periods; Wage Differentials and Secular Changes; Risk and Liquidity; Capital Markets and Knowledge; 3. Some Effects of Human Capital; Examples; Ability and the Distribution of Earnings; Addendum: Education and the Distribution of Earnings: A Statistical Formulation; Addendum: Human Capital and the Personal Distribution of Income: An Analytical Approach; Supplement: Estimating the Effect of Family Background on Earnings

This chapter includes mathematical representation of relationship between earnings, costs and rates of return on human capital. This is followed by an analysis of dynamics of human capital in relation to age including variations of investment and returns. Overall, as expected investment decreases with age, while returns increase up to a point. It is especially typical for formal education when the length of remaining work life decreases value of investment. It also provides examples of such dynamics for various situations with detailed analysis of distribution of earnings.

Part Two: Empirical Analysis

V. RATES OF RETURN FROM COLLEGE EDUCATION: 1. Money Rates of Return to White Male College Graduates Returns; Returns 1939; Costs 1939; Rates in 1939 and 1949; 2. Some Conceptual Difficulties; Correlation between “Ability” and Education; Correlation between Education and Other Human Capital; 3. Rates of Return to Other College Persons; College Dropouts; Women; Rural Persons; 4. Variation in Rates of Return

This is an empirical analysis based on statistical data. The findings include: Return on college education for while male 11-13%. While high educational achievement strongly correlates with higher ability, author established that ability is responsible for proportionally smaller share or returns for higher levels of education. Rates of return declined from 1900 until 1940, but then grew up significantly despite increase in numbers of educated people. Rates of return are higher for white males than for black and higher for black men then for white women. Significant effort also allocated to analysis of returns causes broken down between abilities and education. It seems that ability as defined by high school rank and family background has increasing impact on earning with education, but it is not always consistent and depends of methods of analysis used.

VI. UNDERINVESTMENT IN COLLEGE EDUCATION? 1. Private Money Gains, Social Productivity Gains 3. Private Real Rates: This is analysis of comparative advantage of investment in education over other forms of investment. It also provides data about growth of investment ratio of human capital as share of total investment, indicating growing appreciation of its value.

VII. RATES OF RETURN FROM HIGH SCHOOL EDUCATION AND TRENDS OVER TIME 1. The Rate of Return from High School Education; 2. Trends in Rates of Return; After1939; Before 1939

This is analysis of returns on high school education. Unsurprisingly it was high before 1939 when it was relatively rare, but started going down with increase in numbers of graduates. However comparatively with dropouts it remains high as long as there are enough of middle level jobs for such people.

VIII. AGE, EARNINGS. WEALTH. AND HUMAN CAPITAL: 1. Age-Earnings Profiles; 2. Age-Wealth Profiles

This is an interesting analysis of relation between human capital of labor and its dependency on age. It is consistent with previous findings with income gap between people of different educational levels expanding up until middle age and then slowly decreasing. However total amount of wealth earned has obviously cumulative effect due to simple fact of disproportionally higher level of saving and investment rate for higher income individuals.

 IX. SUMMARY AND CONCLUSIONS: 1. Summary; 2. Future Research; 3. Concluding Comments

This chapter is a brief restatement of previous chapters and suggestion for future research into quantitative impact of different kinds of abilities on earnings, social effects of higher levels of education, and also variation of effects of human capital development on various countries.

Part Three: Economy-Wide Changes: Introduction

X. HUMAN CAPITAL AND THE RISE AND FAIL OF FAMILIES: 1. Introduction; 2. Earnings and Human Capital; 3. Assets and Consumption; 4. Fertility and Marriage References; 5. Empirical studies; 6. Summary and Discussion

This is analysis of impact of human capital on wider condition of society as whole: it’s economic growth, foreign trade, family conditions and so on. It is also provides review of empirical studies on cross generation cumulative impact or lack thereof. Some interesting findings are: earnings regress to mean faster in rich families than in poor; Consumption is opposite; Fertility is higher for rich, but lead to dilution of wealth.

XI. THE DIVISION OF LABOR, COORDINATION AND KNOWLEDGE: 1. Introduction; 2. Division of Labor among Tasks; 3. Coordination Costs; 4. Knowledge and Specialization; 5. Extent of the Market; 6. The Growth in Specialization and Knowledge; 7. The Division of Labor Between Sectors: teachers and Workers•

This chapter is review of relation between division of labor and human capital. Overall higher level of human capital occurs when the knowledge is specialized and applied via extended division of labor. However it is limited by extent of the market: the wider market, the better return of human capital.

XII. HUMAN CAPITAL, FERTILITY, AND ECONOMIC GROWTH; 1. Introduction; 2. Basic Properties of the Model; 3. Fertility and Growth; 4. Comparative Advantage in the Production of Human Capital; 5. Discussion; 6. Concluding Remarks

This part is the detailed view of relationship between human capital, fertility, and economic growth. It analyzes returns on children vs. return on human capital with conclusion that it depends on overall level of human capital, division of labor, and economic conditions of society. In developed countries high level of all these factor leads to higher return from human capital than from children causing relative decrease in fertility, while in economies with low level of development return on children is higher causing preference for higher fertility vs. higher education.


I think that this research of human capital and its economic value is extremely interesting and provides a glimpse of future development when human capital could become by far the most important and valuable form of capital dwarfing all others. It should come as an inevitable consequence of access of each individual to reasonable levels of material well being when material staff could become much less valuable due to its triviality. Much more value would be assigned to satisfaction of intellectual and psychological needs that would come from complete merge of production and consumption of human capital.

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