Magazine article International Productivity Monitor

Net Investment and Stocks of Human Capital in the United States, 1975-2013

Magazine article International Productivity Monitor

Net Investment and Stocks of Human Capital in the United States, 1975-2013

Article excerpt

Accounting for human capital continues to be one of the liveliest topics in national accounts. The stock of human capital measures the long-term productive capacity of a population or workforce. Activities that add to this stock, such as education, are identified as investment in human capital, and are valued at the extent to which they increase the human capital stock. Boarini et al. (2012) identify several reasons for persistent interest in human capital, including as an avenue to a more complete understanding of productivity and economic growth, as a broader measure of capital for assessing the sustainability of economic development, as an alternative approach to measuring the output and productivity of the education sector, and as an indicator of overall economic well-being. (2)

This study continues the research of Christian (2010, 2014) and develops estimates of a series of human capital from 1975 to 2013 using the income-based approach of Jorgenson and Fraumeni (1989, 1992). The estimates include human capital embodied in persons of all ages, including children, persons of working age, and persons of retirement age, whether currently in the labour force or not. The primary data set used in producing the estimates is the March demographic and October school enrollment supplements of the Current Population Survey. The stock of human capital rose at an annual rate of 1.0 per cent between 1977 and 2013, with the effect of greater levels of education, which increases the stream of earnings produced over the remaining lifetime of the existing population, being offset by the effect of an aging population, which reduces this stream of earnings. Per capita human capital remained much the same over this period, with the effect of greater levels of education being offset by the effect of an aging population. While net investment in education rose annually by 1.0 per cent per year, net investment in human capital as a whole declined between 1977 and 2013, with depreciation from aging increasing substantially over this period. The series presented includes both a market component based on lifetime market earnings (which is what is used to measure the above growth rates), as well as a non-market component based on lifetime non-market production. It also breaks out "active" human capital, which is comprised of persons of working age and older, separately from "nascent" human capital, which is comprised of children younger than working age.

The study also discusses the cost method of human capital, most commonly associated with Kendrick (1976). It compares income-based and cost-based estimates of investment in education, with the former typically being about three times greater than the latter. Interestingly, when GDP is measured using income-based measures of investment in education as an alternative to the cost-based consumption measures in the official GDP estimates, the extent of the decline in GDP in the Great Recession is mitigated by a modest degree.

The two sections that immediately follow briefly discuss alternative approaches to human capital measurement and review recent efforts in measurement of human capital. The main results of the study are in the section entitled "Updated and Extended Income-Based Measures of Human Capital for the United States". This section presents new measures of human capital in the United States from 1975 to 2013 using a method based on the income-based approach of Jorgenson and Fraumeni (1989, 1992). The last three sections discuss cost-based approaches to human capital, illustrate the implications of human capital investment measures for education with respect to the Great Recession, and present possibilities for future research.

Methods for Measuring Human Capital

Human capital can be measured in several different ways. The most commonly applied method is the lifetime income approach of Jorgenson and Fraumeni (1989, 1992). The lifetime income approach measures the stock of human capital using an estimate of the lifetime earnings in present discounted value of all persons in a population. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.