The theory of human capital pdf

Some of the early contributors the literature on human capital economics among which were Adam smith , Jean Bapitste say , John Stuart Mill , suggested that human beings are an investment which yield a return. Till date there is no consensus definition of Human Capital Alika and Aibieyi Noe states that human capital is the sum of the characteristics, life experiences, creativity, knowledge, energy, passion employees of companies invest in their work. Chen defined Human capital as the intangible resource of skills, effort, and time that workers bring to invest in their work.

All the literatures reviewed on the concept of human capital emphasize that there is need for more investment in workforce education and training for organizations to succeed in the global marketplace. It is premised on the principle of learning by doing and is usually executed by colleagues, supervisors, managers or mentors to equip employees with pre-determined job related skills. It may also include individual or group assignments and projects. The work itself is an essential part of the training provided Milhem et al And through this process particular skills the organization requires are impacted.

The individuals involved work, learn and develop expertise at the same time. Armstrong as cited in Chris obisi paper On-the-job training has been found to have a significant impact on job satisfaction, employee motivation and commitment.

The disadvantages on the job training has is that the value of the knowledge imparted is determined by the quality of the guidance and coaching provided , also the instructions may not be sufficient and the learner maybe distracted by the same environment and find it difficult to acquire basic skills quickly. To remedy these disadvantages train the trainers programs should be instituted to further develop the skills of in house trainers and supervisors Obisi.

Show More. Read More. Pmp Credential Benefits Words 6 Pages This certification it definitely a must have for certification for the project managers who want to achieve a better position in their career.

Impact Of Self Efficacy In The Workplace Words 4 Pages Given it is persuasive role on performance; therefore, it is serious important for managers or bosses to know the role of self-efficacy within the workplace Talkdesk, Organizational Conflict Analysis Words 4 Pages The functional view of organisational conflict always sees it as a productive tool, a tool that can allow staff members to increase their knowledge and skills.

Teamwork Definition Words 5 Pages Disciplines have adopted teamwork as essential in achieving success and their mission statements routinely allude to the importance of teamwork, utilizing such words as cooperation, coordination, collaboration, and Communication as key components.

Leading Change Management Words 7 Pages As important as it can be to see an organization financially grow, it is equally important to understand the needs and desires of employees.

The Importance Of Coaching In The Workplace Words 4 Pages Coaching is the process of equipping an employee like James with the tools, knowledge, and opportunities that are necessary for them to become better in handling their assigned responsibilities at the workplace.

Employee Shadowing Words 4 Pages They believe that our current training process of employee shadowing is outdated and do not reflect the learning styles of others. Leader-Scholar-Practitioner-SWOT Analysis Words 4 Pages I assume these factors will be beneficial in a long run because initially it may cost money but as time pass by all these factors will giving positive output.

The major reason, in my judgment, is that the theoretical and empirical analyses have been closely integrated, with the theory often inspired by empirical findings. Therefore, I am confident that the analysis of human capital will continue to be a fruitful field of research. Although important studies of the effects of human capital in the market sector can be expected, I anticipate that the excitement will be generated by studies of its effects in the nonmarket sector.

Major insights into the determinants of fertility, the production of health, the benefits from schooling to women who do not participate in the labor force, the productivity of marriage, and other topics will result from an integration of the theory of human capital with the allocation of time, household produc- tion functions, and the theory of choice. Fogel and S. Engerman, Time on the Cross, Boston, Schultz, ed. Introduction to the First Edition Some activities primarily affect future well-being; the main impact of others is in the present.

Some affect money income and others psychic income, that is, consumption. Sailing primarily affects consumption, on-the-job training primarily affects money income, and a college education could affect both. These effects may operate either through physical resources or through human resources. This study is con- cerned with activities that influence future monetary and psychic in- come by increasing the resources in people.

These activities are called investments in human capital. The many forms of such investments include schooling, on-the-job training, medical care, migration, and searching for information about prices and incomes. They differ in their effects on earnings and con- sumption, in the amounts typically invested, in the size of returns, and in the extent to which the connection between investment and return is perceived. But all these investments improve skills, knowl- edge, or health, and thereby raise money or psychic incomes.

Recent years have witnessed intensive concern with and research on investment in human capital, much of it contributed or stimulated by T. The main motivating factor has probably been a reali- zation that the growth of physical capital, at least as conventionally measured, explains a relatively small part of the growth of income in most countries. Also behind this concern is the strong dependence of modern military technology on education and skills, the rapid growth in expenditures on education and health, the age-old quest for an understanding of the personal distribution of income, the recent growth in unemployment in the United States, the Leontief scarce-factor paradox, and several other important economic problems.

The result has been the accumulation of a tremendous amount of circumstantial evidence testifying to the economic importance of human capital, especially of education.

Probably the most impressive piece of evidence is that more highly educated and skilled persons almost always tend to earn more than others. This is true of developed countries as different as the United States and the Soviet Union, of underdeveloped countries as different as India and Cuba, and of the United States one hundred years ago as well as today.

Moreover, few if any countries have achieved a sustained period of economic de- velopment without having invested substantial amounts in their labor force, and most studies that have attempted quantitative assessments of contributions to growth have assigned an important role to investment in human capital.

Again, inequality in the distribution of earnings and income is generally positively related to inequality in education and other training. To take a final example, unemployment tends to be strongly related, usually inversely, to education.

Passions are easily aroused on this subject and even people who are generally in favor of education, medical care, and the like often dis- like the phrase "human capital" and still more any emphasis on its economic effects.

They are often the people who launch the most bitter attacks on research on human capital, partly because they fear that emphasis on the "material" effects of human capital detracts from its "cultural" effects, which to them are more important.

Those deny- ing the economic importance of education and other investments in human capital have attacked the circumstantial evidence in its favor. They argue that the correlation between earnings and investment in human capital is due to a correlation between ability and investment in human capital, or to the singling out of the most favorable groups, such as white male college graduates, and to the consequent neglect of women, dropouts, nonwhites, or high-school graduates.

They con- sider the true correlation to be very weak, and, therefore, a poor guide and of little help to people investing in human capital. This study hopes to contribute to knowledge in this area by going far beyond circumstantial evidence and analysis. Part One treats the theory of investment in human capital in detail and reveals its im- portance through the wide variety of economic phenomena that it en- compasses.

Chapter II derives a number of important effects of such investments on earnings and employment, while Chapter III shows how to estimate the total amount invested and how it changes when the anticipated gains change. Part Two presents various empirical tests of the theoretical analysis.

Costs as well as returns are considered, and estimates are presented not only for selected groups, such as white male college graduates, but also for typical college entrants sections 1 and 3 of Chapter IV. Detailed attention is paid to the effect of the correlation between education and ability, and to the variation in the gain from college sections 2 and 4 of Chapter IV.

Social as well as private gains are estimated, and both are compared to corresponding estimates for physical capital Chapter V. Chapter VI briefly extends the discussion to high-school education, considering social as well as private costs and returns, and the effect of differential ability sectipn 1. This chapter also tries to discover the secular trend in the United States during the twentieth century in the economic effects of high-school and college education section 2.

Chapter VII tests the implications of the theoretical analysis con- cerning the effect of human capital on the shape of age-earnings pro- files section 1. Also considered is the effect on the relation between age and the discounted value of subsequent earnings, which are called age-wealth profiles. These profiles are applied to the study of life- cycle variations in savings and consumption, and in a few other ways section 2.

Perhaps it is best to conclude the introduction by emphasizing that the attention paid to the economic effects of education and other human capital in this study is not in any way meant to imply that other effects are unimportant, or less important than the economic ones.

The advantages of a division of labor are no less real here than they are in research in general. I would like to urge simply that the economic effects are important and have been relatively neglected, at least until recently. Introduction A Ryerson lecturer is supposed to tell the audience what he or she has been doing to earn a living from the University. Therefore it is an appro- priate occasion for me to review what is known about human capital, especially the progress during the quarter-century since I published a book with that title.

What has been called the human capital "revolu- tion" began about three decades ago. To most of you, capital means a bank account, one hundred shares of IBM, assembly lines, or steel plants in the Chicago area especially dur- ing a Ryerson lecture. These are all forms of capital in the sense that they yield income and other useful outputs over long periods of time. But I am going to talk about a different kind of capital. Schooling, a computer training course, expenditures on medical care, and lectures on the virtues of punctuality and honesty are capital too in the sense that they improve health, raise earnings, or add to a person's appreciation of 1 I appreciate the helpful comments of Guity Nashat, Sherwin Rosen, and George Stigler and the assistance of David Meltzer.

Consequently, it is fully in keeping with the capital concept as traditionally denned to say that ex- penditures on education, training, medical care, etc. However, these produce human, not physical or financial, capital because you cannot separate a person from his or her knowledge, skills, health, or values the way it is possible to move financial and physical assets while the owner stays put.

This embodiment of human capital in people is depressingly illustrated by the reactions of Hong Kong resi- dents to the takeover of Hong Kong in by China. Many local people are busy protecting against China's policies by selling off some of their local financial and physical assets in order to invest in safer foreign secu- rities and property.

At the same time, however, computer experts, top management, and other skilled personnel are leaving Hong Kong in droves to seek citizenship elsewhere. They cannot reduce the risk to their human capital from China by investing only part of the human capital abroad; they must go where their capital goes. It may seem odd now, but I hesitated a while before deciding to call my book Human Capital—and even hedged the risk by using a long subti- tle. In the early days, many people were criticizing this term and the underlying analysis because they believed it treated people like slaves or machines.

My, how the world has changed! The name and analysis are now readily accepted by most people not only in all the social sciences, but even in the media. I was surprised when a few months ago Business Week magazine had a cover story titled "Human Capital.

However, I should add that the concept of human capital remains sus- pect within academic circles that organize their thinking about social problems around a belief in the exploitation of labor by capital.

It is easy to appreciate the problems created for this view by the human capital concept. For if capital exploits labor, does human capital exploit labor too—in other words, do some workers exploit other workers? And are skilled workers and unskilled workers pitted against each other in the alleged class conflict between labor and capital?

If governments are to expropriate all capital to end such conflict, should they also expropriate human capital, so that governments would take over ownership of work- ers as well? You can see why an idea developed to understand the economic and social world has been thrust into ideological discussions. Yet the concept of human capital has been popular in Communist countries.

My book and those by Schultz and others on human capital are extensively used in the Soviet Union, Eastern Europe, and China. I will try to avoid technical analysis and jargon, and concentrate on showing how the analysis of investments in human capital helps in un- derstanding a large and varied class of behavior not only in the Western world, but also in developing countries and countries with very different cultures.

My discussion follows modern economics and assumes that these investments usually are rational responses to a calculus of expected costs and benefits. Education and Training Education and training are the most important investments in human capital. My book showed, and so have many other studies since then, that high school and college education in the United States greatly raise a person's income, even after netting out direct and indirect costs of schooling, and after adjusting for the better family backgrounds and greater abilities of more educated people.

Similar evidence is now avail- able for many points in time from over one hundred countries with dif- ferent cultures and economic systems. The earnings of more educated people are almost always well above average, although the gains are gen- erally larger in less-developed countries. Consider the differences in av- erage earnings between college and high school graduates in the United States during the past fifty years.

After being reasonably stable at be- tween 40 and 50 percent until the early s, they rose during that decade and then fell rather sharply. This fall during the s led some economists and the media to worry about "overeducated Americans" see Freeman, The concept of human capital itself fell into some disrepute.

But as Kevin Murphy and Finis Welch document in a recent study , the monetary gains from a college education rose sharply during the s to the highest level during these fifty years. The earnings ad- vantage of high school graduates over high school dropouts also in- creased.

Talk about overeducated Americans has vanished, and it has been replaced by concern once more about whether the United States provides adequate quality and quantity of education and other training. These concerns are stimulated by tough economic competition from a renewed Europe, Japan, Korea, and other Asian countries, by sluggish rates of productivity advance in the United States during the past fifteen years, by a large drop in SAT scores, and by the dismal performance of American high school students on international tests in mathematics.

The trend has been disastrous for the 15 percent of all students and much larger percentage of inner- city blacks who fail to complete high school. Their real wage rates have fallen by more than 30 percent since the early s.

Whether because of school problems, family instability, or other forces, young people with- out a college education are not being adequately prepared for work in modern economies. A Labor Department commission on labor quality, of which I am a member, is considering what can be done to improve the quality of work- ers in the United States.

The concerns that led to the creation of this commission have stimulated renewed academic interest in the analysis of human capital, which illustrates how research in social sciences re- sponds, sometimes excessively, to public policy issues. The fraction of high school graduates who entered college fell during the middle of the seventies when benefits from a college education dropped, and it rose again in the eighties when the benefits greatly in- creased.

This caused an unexpected boom in college enrollments dur- ing the past few years, despite the relatively few people who are reaching college age. So, alas, the large rise in applications to our College in re- cent years is not due solely to more widespread appreciation of the su- perb education it provides.

Many educators expected enrollments in the eighties to decline not only for demographic reasons, but also because college tuition was rising rapidly.

They were wrong because they failed to appreciate that benefits from college rose even faster than costs, and that high school graduates respond to changes in both benefits and costs. One might believe that enrollments in college would be easy to pre- dict since the number of persons graduating from high school can be predicted quite closely. But demographic-based college enrollment fore- casts have been wide of the mark during the past twenty years, as Steve Stigler and I, especially Steve, showed in a subcommittee report a few years ago to the Baker Commission.

Such forecasts ignored the changing incentives to women, blacks, and older persons to enroll in college. That human capital investments tend to respond rationally to benefits and costs is clearly indicated by changes in the education of women.

Prior to the s in the United States, women were more likely than men to graduate from high school but less likely to continue on to col- lege. Women shunned math, sciences, economics, and law, and gravi- tated toward teaching, home economics, foreign languages, and litera- ture. All this has changed radically. The enormous increase in the participation of married women is the most important labor force change during the past twenty-five years.

Many women now take little time off from their jobs even to have chil- dren. As a result, the value to women of market skills has increased enor- mously, and they are shunning traditional "women's fields" to enter ac- counting, law, medicine, engineering, and other subjects that pay well. Indeed, women now comprise one-third or so of enrollments in law, business, and medical schools, and many home economics departments have either shut down or are emphasizing the "new home economics," which is a true branch of economics.

The same trends in women's education are found in Great Britain, France, Scandinavia, Taiwan, Japan, Mexico, and other countries with large increases in the labor force participation of women, even when attitudes toward women differ greatly from those now prevalent in Eu- rope and the United States.

Whenever the labor force participation of married women has increased sharply, changes in the gains from work for pay have had a more powerful effect on the behavior of women than have traditional ideas about the proper role of women. Job opportunities for women at first improved slowly as they started to move up in business and the professions during the past several de- cades.

But the trend accelerated sharply after the late s. The ratio of the earnings of full-time working women and men has increased more rapidly since than during any previous period in our history, and women are becoming much more prominent in many highly skilled jobs. Improvements in the economic position of black women have been especially rapid, and they now earn just about as much as white women.

Although the civil rights movement clearly contributed to greater job opportunities for women and other minorities, it is far from the whole story. This can be seen from the fact that women progressed most rapidly under the Reagan administration, which was opposed to affirmative ac- tion and did not have an active Civil Rights Commission. In my judg- ment, women advanced primarily because of their greater attachment to the labor force.

This in turn was stimulated by a large decline in fertil- ity, a rapid increase in divorce, and the growing importance of the ser- vice sector. Human capital analysis assumes that schooling raises earn- ings and productivity mainly by providing knowledge, skills, and a way of analyzing problems. An alternative view, however, denies that school- ing does much to improve productivity, and instead it stresses "creden- tialism"—that degrees and education convey information about the un- derlying abilities, persistence, and other valuable traits of people.

Credentialism obviously exists. But many kinds of evidence suggest that credentialism does not explain most of the positive association be- tween earnings and schooling. The main problem with credentialism is that companies do not want information on success at schoolwork, but on abilities and performance in the context of working life: the discipline imposed by factories, the need to please customers and get along with fellow employees, and so forth.

Success in the flexible, individualistic, and rather undisciplined university atmosphere in most countries and in high schools in the United States does not convey much relevant information.

I tell my classes that eccentrics and nuts can last much longer as students than as workers, and they respond that the same is true of professors. A cheaper and more efficient way to provide information to employ- ers is for teenagers to enter directly into the labor force, as they did prior to the industrial revolution.

Far more would be learned about their work-related abilities and other characteristics after six years of work ex- perience than after six additional years of schooling. High school and college education has spread extensively in modern economies because the additional knowledge and information acquired in school is so im- portant in technologically advanced economies.

I should add that advo- cates of the credentialism approach have become rather silent in recent years with the growing concerns about schools and labor quality in the United States. Of course, learning and training also occur outside of schools, espe- cially on jobs. Even college graduates are not well prepared for the labor market when they leave school, and they are fitted into their jobs through formal and informal training programs. The amount of on-the- job training ranges from an hour or so at simple jobs like dishwashing to several years at complicated tasks like engineering in an auto plant.

The limited information available indicates that on-the-job training is an important source of the very large increase in earnings as workers gain greater experience at work. And recent bold estimates by Jacob Mincer suggest that the total investment in on-the-job training may be almost as large as the investment in education.

After a few years of frequent job changes, most workers settle down and remain with the same company for a long time. Workers and their employers get bonded together in large part because of the on-the-job learning and training.

It also appears that job changes are much less frequent in Japan than in the United States mainly because on-the-job investments in work- ers are greater in Japan. My friends in the humanities like Dick Stern may complain that so far I have only mentioned "money," or they might say "mere money. Fortunately, nothing in the concept of human capital implies that monetary incen- tives need be more important than cultural and nonmonetary ones.

Obviously, it is much easier to quantify the monetary side, but, never- theless, progress has been made on other aspects. Many studies show that education promotes health, reduces smoking, raises the propensity to vote, improves birth control knowledge, and stimulates the apprecia- tion of classical music, literature, and even tennis.

In an ingenious study that relies heavily on economic theory, Bob Michael quantifies some non-monetary benefits of education. His results and those of oth- ers indicate that such benefits of schooling are quite large, although for most people they are apparently smaller than monetary benefits. Human Capital and the Family No discussion of human capital can omit the influence of families on the knowledge, skills, values, and habits of their children. Parents who severely beat their children cause lasting damage, while at the other end of the spectrum, sympathetic and firm parents help motivate their children.

Large differences among young children grow over time with age and schooling because children learn more easily when they are better pre- pared. Therefore, even small differences among children in the prepara- tion provided by their families are frequently multiplied over time into large differences when they are teenagers.

This is why the labor market cannot do much for school dropouts who can hardly read and never developed good work habits, and why it is so difficult to devise policies to help these groups. Parents have a large influence on the education, marital stability, and many other dimensions of their children's lives. The term "underclass" describes families in which low education, welfare dependence, early pregnancy, and marital instability pass from parents to children.

In light of this, it is rather surprising that although earnings of parents and chil- dren are positively related, the relation is not strong. Earnings of parents and chil- dren appear to be a little more strongly related when parents are poorer.

It is easy to see why children's and parents' earnings may be closer in poorer families. Richer families can pay for the training of their chil- dren, including the earnings foregone when children spend time in training rather than at work. Many poorer parents would be willing to lend their children money to help them obtain further training if the parents could expect to get paid back later when they are old.

But chil- dren may not carry out their part of the bargain, especially in highly mobile societies where children often live far from their parents. One solution is for governments to lend money to students when their parents are unable or unwilling to finance the training.

The federal gov- ernment has developed an extensive loan program to help students fi- nance college education. Unfortunately the program has serious flaws, including low caps on the maximum amounts that can be borrowed, misplaced and excessive subsidies, and shockingly high default rates. In addition to explicit loans, some direct subsidies to schools may, in effect, also be "loans" to students which they repay later with taxes that help finance support for the elderly.

By combining publicly subsidized school- ing with a social security system, countries may have found a very crude and indirect, but perhaps reasonably effective, way to provide loans to children that get repaid when the parents are old and collect retirement benefits see Becker and Murphy, Families divide their total spending on children between number of children and the amount spent per child.

The number of children and spending per child tend to be negatively related. The reason is simple. An increased number of children raises the effective cost of adding to the spending on each child, because an additional dollar or hour of time spent on each child then means a larger total addition to spending.

Similarly, an increase in the dollars or time spent on each child raises the cost of having an additional child. Consequently, even a modest tax on births can have a large negative effect on the number of children and a large positive effect on the amount spent on each child. China imposed heavy, not modest, taxes and other penalties on large families during the past decade, especially in urban areas. It is revealing about the cross-cultural relevance of this analysis that sharp declines in urban fertility have been accompanied by discussions in the Chinese press of the "emperor child.

Differences among ethnic groups in the United States are fascinating. Groups with small families generally spend a lot on each child's education and training, while those with big families spend much less. The Japanese, Chinese, Jews, and Cubans have small families and the children become well educated, while Mexicans, Puerto Ricans, and blacks have big families and the education of children suffers. I should add that the Mormons are an interesting exception, for they have both very large families and high levels of achievement.

It should come as no surprise that children from the ethnic groups with small families and large investments in human capital typically rise faster and further in the United States' income-occupation hierarchy than do children from other groups.

Malthus' famous prediction that people marry earlier and birth rates rise when incomes increase was decisively contradicted by the industrial revolution, whose effects became evident only shortly after publication of the second edition of his book on population. This is a common para- dox: a great book gets contradicted by events not long after publication. The contradiction to Malthus' theory is that fertility fell sharply, rather than rose, as per capita incomes grew in Great Britain, the United States, France, Germany, Sweden, and other Western countries.

Rapid advances in education and other training accompanied the sharp declines in fer- tility. Parents did spend more on children when their incomes rose—as Malthus predicted—but they spent a lot more on each child and had fewer children, as human capital theory predicts. Similar changes occur in other cultures when they experience rapid economic growth. Taiwan's birth rate was cut in half from to , while the fraction of high school graduates doubled after Taiwan took off in the s toward its remarkable economic growth.

Mexico's birth rate did not fall much during its rapid economic growth in the s and s. But since birth rates have fallen by more than one-third, and school enrollments have expanded rapidly. Human Capital and Economic Development Economic analysis has no trouble explaining why, throughout history, few countries have experienced very long periods of persistent growth in income per person.

For if per capita income growth is caused by the growth of land and physical capital per worker, diminishing returns from additional capital and land eventually eliminate further growth. Presumably, the answer lies in the expansion of scientific and techni- cal knowledge that raises the productivity of labor and other inputs in production. The systematic application of scientific knowledge to pro- duction of goods has greatly increased the value of education, technical schooling, and on-the-job training as the growth of knowledge has be- come embodied in people—in scientists, scholars, technicians, manag- ers, and other contributors to output.

It is clear that all countries which have managed persistent growth in income have also had large increases in the education and training of their labor forces. First, elementary school education becomes universal, then high school education spreads rapidly, and finally children from middle income and poorer families begin going to college.

A skeptic might respond that the expansion in education as countries get richer no more implies that education causes growth than does a larger num- ber of dishwashers in richer countries imply that dishwashers are an en- gine of growth. However, even economists know the difference between correlation and causation, and have developed rather straightforward methods for determining how much of income growth is caused by a growth in hu- man capital.

In an excellent study for the United States, Edward Denison finds that the increase in schooling of the average worker be- tween and explains about one-fourth of the rise in per capita income during this period.

He is unable to explain much of the re- maining growth. I like to believe that this is mainly because he cannot measure the effects on earnings of improvements over time in health, on-the-job training, and other kinds of human capital. The outstanding economic records ofJapan, Taiwan, and other Asian economies in recent decades dramatically illustrate the importance of human capital to growth. Lacking natural resources—e.

It surely is no accident, for example, that Japan's system of lifetime employment at large companies originated after World War II when they began to upgrade their technology rapidly partly by investing heavily in the train- ing of employees.

The lifetime system is not explained just by the tradi- tional Japanese culture that emphasizes loyalty toward groups, for job changes in Japan were frequent during the first half of this century see Hashimoto and Raisian, Education is of little use in traditional agri- culture because farming methods and knowledge are then readily passed on from parents to children.

Farmers in countries with tradi- tional economies are among the least educated members of the labor force. By contrast, modern farmers must deal with hybrids, breeding methods, fertilizers, complicated equipment, and intricate futures mar- kets for commodities. Education is of great value since it helps farmers adapt more quickly to new hybrids and other new technologies see Welch, Therefore, it is no surprise that farmers are about as well educated as industrial workers in modern economies.

Education and training is also helpful in coping with changing tech- nologies and advancing productivity in the manufacturing and service sectors. Recent studies show that more rapidly progressing industries do attract better-educated workers and provide greater training on the job see Mincer and Higuchi, ; Gill, Conclusions We have reached the end of my visit.

Perhaps I have succeeded in con- veying the enormous energy devoted to the analysis of human capital during the past quarter-century and the impressive advances of analyti- cal techniques and the accumulation of empirical regularities. Much is now known for many countries about the effects of education on earn- ings, occupation, employment, and unemployment of both men and women and various races and ethnic groups. Much too is known about the link between birth rates and investments in education and training, how families influence the human capital of their children, and the rela- tion between investments in human capital and economic progress.

I indicated earlier that human capital analysis has been motivated partly by a desire to evaluate proposals to improve the quality of the work force through schooling, training, medical services, and child care. But its main purpose as far as I am concerned is to remove a little of the mystery from the economic and social world that we live in. References Becker, Gary S. Denison, Edward F.

Trends in American Economic Growth, Washington, D. Freeman, Richard. The Overeducated American. New York: Academic Press, Hashimoto, Masanori, and John Raisian.

Michael, Robert T. The Effect of Education on Efficiency in Consumption. Mincer, Jacob, and Yoshio Higuchi. Murphy, Kevin M.

Welch, Finis. Part One Theoretical Analysis "The most valuable of all capital is that invested in human beings. In order to set these estimates in the proper context, a brief formulation of the theory of investment in human capital was undertaken. It soon became clear to me, however, that more than a restatement was called for; while important and pioneering work had been done on the economic return to various occupations and education classes,2 there had been few, if any, attempts to treat the process of investing in people from a general viewpoint or to work out a broad set of em- pirical implications.

I began then to prepare a general analysis of in- vestment in human capital. Friedman and S. Stigler and D. In recent years, of course, there has been considerable work, especially by T. Among these phenomena are the following: 1 Earnings typically in- crease with age at a decreasing rate.

Both the rate of increase and the rate of retardation tend to be positively related to the level of skill. What a diverse and even confusing array!

Yet all these, as well as many other important empirical implications, can be derived from very simple theoretical arguments. The purpose here is to set out these arguments in general form, with the emphasis placed on empirical im- plications, although little empirical material is presented.

Systematic empirical work appears in Part Two. In this chapter a lengthy discussion of on-the-job training is presented and then, much more briefly, discussions of investment in schooling;, information, and health. On-the-job training is dealt with so elaborately not because it is more important than other kinds of investment in human capital—although its importance is often underrated—but because it clearly illustrates the effect of human capital on earnings, employment, and other economic variables.

For example, the close con- nection between indirect and direct costs and the effect of human capital on earnings at different ages are vividly brought out. T h e extended discussion of on-the-job training paves the way for much briefer discussions of other kinds of investment in human beings.

On-the-job Training Theories of firm behavior, no matter how they differ in other respects, almost invariably ignore the effect of the productive process itself on worker productivity. I now intend to do just that, placing special em- phasis on the broader economic implications. Many workers increase their productivity by learning new skills and perfecting old ones while on the job. Presumably, future productivity can be improved only at a cost, for otherwise there would be an un- limited demand for training.

Included in cost are the value placed on the time and effort of trainees, the "teaching" provided by others, and the equipment and materials used. Review of Educational Research, 39 1 Chen, D. World Bank Institute Working Paper, Cohn, Elchanan, and Terry G. The Economics of Education. Cortada, J. The knowledge management yearbook Cornacchione, E. Dess, G. Beyond productivity: How leading companies achieve superior performance by leveraging their human capital.

New York, NY: Amacom. Dobbs, R. Human capital and screening theories: Implications for human resource development. New York. Harper Business. Fitz-Enz, J. The roi of human capital: measuring the economic value of employee performance.

Fuchs, V. Differences in hourly earnings between men and women. Monthly Labor Review, Labaree, D. Public goods, private goods: The American struggle over educational goals. American Educational Research Journal, 34 1 , Lengnick-Hall, M.

Human resource management in the knowledge economy: New challenges, new roles, new capabilities. Berrett-Koehler Publishers. Lucas, R. On the mechanics of economic development. Econometric Society Monographs, 29 1 , MacKenzie, C. Advances in Developing Human Resources, 16 1 , Metcalfe, B. Theorizing advances in international human resource development.

Human Resource Development International, 8 4 , An exchange: The theory of human capital and the earnings of women: Women's earnings reexamined. The Journal of Human Resources, 13 1 , Mincer, J. On-the-job training: Costs, returns, and some implications. The Journal of Political Economy, 70 5 , Nafukho, F. Human capital theory: implications for human resource development.

Human Resource Development International, 7 4 , Paprock, K. National human resource development in transitioning societies in the developing world: Introductory overview.

Advances in developing human resources, 8 1 , Potocky-Tripodi, M. The role of social capital in immigrant and refugee economic adaptation. Journal of Social Service Research, 31 1 , Pritchett, L. Where has all the education gone? The World Bank Economic Review, 15 3 , Provo, J. Measuring human capital. Advances in Developing Human Resources, 2 1 , Time trends of the returns to education: Cross- national evidence.

Economics of Education Review, 8 3 , Psacharopoulos, G. Returns to investment in education: A global update. World development, 22 9 , Swanson, R. Human resource development and its underlying theory. Human Resource Development International, 4 3 , Economic foundation of human resource development: Advancing the theory and practice of the discipline.

Advances in Developing Human Resources. Foundations of human resource development. Schultz, T. Economic Value of Education. Sjaastad, L. The costs and returns of human migration. Wang, G. Neoclassical and institutional economics as foundations for human resource development theory. Human Resource Development Review, 4 1 , Development economics: A foundation for HRD policy studies in developing countries. Economics and human resource development: A rejoinder.

Human Resource development review, 7 3 , Wilson, J. International human resource development: Learning, education and training for individuals and organizations. Kogan Page Publishers. Related Papers. By David Bills. Education and development. By Sahira Jameel. Education in Development Theory. By Susanne Ress. Understanding the Corporate University phenomenon: a human capital theory perspective. By Greg Wang and Jessica Li.

Motivating Learning and the Development of Human Capital.