The Value and Risk of Human Capital

Luca Benzon () and Olena Chyruk ()
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Luca Benzon: Federal Reserve Bank of Chicago, Chicago, Illinois 60604
Olena Chyruk: Federal Reserve Bank of Chicago, Chicago, Illinois 60604
Authors registered in the RePEc Author Service: Luca Benzoni

Annual Review of Financial Economics, 2015, vol. 7, issue 1, 179-200

Abstract: Human capital embodies the knowledge, skills, health, and values that contribute to making people productive. These qualities, however, are hard to measure, and quantitative studies of human capital are typically based on the valuation of the lifetime income that a person generates in the labor market. This article surveys the theoretical and empirical literature that models a worker's life-cycle earnings and identifies appropriate discount rates to translate those cash flows into a certainty equivalent of wealth. We begin with an overview of a stylized model of human capital valuation with exogenous labor income. We then discuss extensions to this framework that study the underlying economic sources of labor income shocks, the choices that people make during their lives (such as about work, leisure, retirement, and investment in education), and the implications of these factors for human capital valuation and risk.

Keywords: aggregate versus idiosyncratic shocks; human capital; human capital investment; labor income risk; life-cycle earnings (search for similar items in EconPapers)
JEL-codes: G10 G12 J22 J24 J26 J31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (12)

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Working Paper: The Value and Risk of Human Capital (2015)
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