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Human Capital

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Handbook of Cliometrics

Abstract

Human capital is the stock of skills that the labor force possesses. The flow of these skills is forthcoming when the return to investment exceeds the cost (both direct and indirect). Returns to these skills are private in the sense that an individual’s productive capacity increases with more of them. But there are often externalities that increase the productive capacity of others when human capital is increased. This essay discusses these concepts historically and focuses on two major components of human capital: education and training, and health. The institutions that encourage human capital investment are discussed, as is the role of human capital in economic growth. The notion that the study of human capital is inherently historical is emphasized and defended.

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Notes

  1. 1.

    Fisher cites J.S. Nicholson, “The Living Capital of the United Kingdom,” for the term “living capital” as opposed to “dead capital.”

  2. 2.

    A Google “N Gram” of the term “human capital” reveals that there was virtually no usage in the English language until the late 1950s. After the 1950s the usage of the term increased until today, with a somewhat greater uptick in the 1990s than previously.

  3. 3.

    For an understanding of the “residual” in economic growth, see the original Solow (1957) article or an economic growth theory textbook such as Barro and Sala-i-Martin (2003).

  4. 4.

    See the calculations in Robert Gallman’s chapter in Davis et al. (1972) and those in Denison (1962).

  5. 5.

    The calculation is larger in Denison’s work than in Goldin and Katz (2008). But both of these are a lower bound for a host of reasons including the endogenous nature of capital and, most importantly, the externalities from having a more educated workforce and population.

  6. 6.

    The data needed to assess this point are very thin and consist of earnings for various occupations.

  7. 7.

    See Goldin and Katz (2008, Table 1.3).

  8. 8.

    Hippocrates left records of this finding.

  9. 9.

    Mark Twain provides a similar answer in A Connecticut Yankee in King Arthur’s Court.

  10. 10.

    Fogel (1989) provides a definitive treatment of the subject.

  11. 11.

    See Goldin (1976) on slavery in US cities from 1820 to 1860.

  12. 12.

    The figure for the United States beginning with 1880 includes the South and all races. Thus, the underlying data are even higher for the white population and that outside the US South, which had and still has lower schooling rates than the North and the West.

  13. 13.

    Although most were “common” school districts, a large fraction was fiscally independent. There are about 16,000 largely independent school districts today. See Goldin and Katz (2008), Chapters 3 and 4.

  14. 14.

    On the quantity and quality of education for African-Americans and whites in US history, see Card and Krueger (1992a). A related article of theirs (Card and Krueger 1992b) shows that the quality of schools, as measured by pupil/teacher ratios, average term length, and teacher salaries, positively affects rates of return to education at the state level.

  15. 15.

    Many places have added two other transitions: preschool to kindergarten and middle school or junior high school to high school.

  16. 16.

    Goldin and Katz (2008), Chaps. 4 and 5

  17. 17.

    This result is given in Goldin and Katz (2008), Table 2.5.

  18. 18.

    For a discussion of higher education in the United States, see Goldin and Katz (1999, 2008).

  19. 19.

    For example, state equalization plans have restricted the degree to which separate districts can raise funds, and states have transferred resources to poorer districts. States have passed more stringent high school graduation standards, and “No Child Left Behind,” passed in 2002, has forced states to have higher standards at all grades.

  20. 20.

    See Weil (2007) for a clever way to separate the effects of health on income from the reverse causality.

  21. 21.

    The division among the three phases is the author’s, not necessarily that of the various contributors to the literature.

  22. 22.

    On the changing relationship between health and economic development, see Preston (1975).

  23. 23.

    See Cutler et al. (2006), Fig. 3 for US data and Floud et al. (2011), Fig. 4.5 for England and Wales.

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Correspondence to Claudia Goldin .

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Goldin, C. (2016). Human Capital. In: Diebolt, C., Haupert, M. (eds) Handbook of Cliometrics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40406-1_23

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