Measuring Human Capital

Katharine Abraham and Justine Mallatt ()

No 30136, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There are many reasons to want measures of countries’ investments in human capital and especially their investments in formal education. We review the existing literature on the measurement of human capital. Broadly speaking, economists have proposed three approaches to the measurement of human capital—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 created indexes of multiple measures as human capital proxies. 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, but there are also challenges to their implementation. 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.

JEL-codes: E01 I26 J24 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-dem, nep-lma and nep-mac
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Citations: View citations in EconPapers (6)

Published as Katharine G. Abraham & Justine Mallatt, 2022. "Measuring Human Capital," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 103-130, Summer.
Published as Katharine G. Abraham & Justine Mallatt, 2022. "Measuring Human Capital," Journal of Economic Perspectives, vol 36(3), pages 103-130.

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