Wednesday, February 1, 2012

Human capital is extremely important for the U.S. economy

A great post with a great graphic from Alex Tabarrok on human capital.

The BEA estimates that a $738 trillion human capital stock dwarfs the $45 trillion physical capital stock. Even if you estimate human capital stock more conservatively, the difference is still massive.

Still putting some ideas together, but I hope to be exploring these issues in more detail with a grant proposal I'm writing to the Sloan Foundation with my co-author on the NBER engineering work. If we get this (he already has a relationship with and grants from them, so I think its a good bet), I will hopefully be able to replace my teaching assistantship stipend with this grant money and have a stream of support through my dissertation writing too.

The literature I'm interested in is science and engineering occupation and schooling decisions, questions of whether expectations about the return on those investments are myopic (some of the earlier work by Richard Freeman) or more rational (more recent work by Sherwin Rosen). In addition to data on actual labor market conditions in these fields, our data has information on student expectations of their own labor market outcomes, as well as detailed information on how they finance their education. Anyway - we are moving out of the industrial age. Human capital stock is what really matters in economies like ours.

Now that I've given that summary, I'm also curious - does anyone know of any applications of Tobin's q to thinking about human capital investments? It seems like it would be really straightforward to apply it, but so far in a little searching around I haven't turned up anything.


  1. Would you apply Keynes's conventional coefficient of risk and weight in this research on "science and engineering occupation and schooling decisions"? Just curious.

    1. Probably not explicitly.

      But it's not unrelated. Keynes said that we deal with uncertainty about the future by weighting information that is more proximate to us in time higher than other information. This insight shows up in the expectation literature as "myopic" expectations.

      I do think a thorough discussion of the rationality behind myopic expectations (if that is indeed confirmed) would involve a lot of the same points that Keynes made. But you don't always want to reinvent the wheel. I doubt I'd use that "conventional coefficient of risk and weight" directly in an analysis so far removed from Keynesian theory.

      But labor economists definitely have ways of talking about that sort of thing, so the insight itself would not be lost.

  2. What does the comparison between human capital stock and physical capital stock mean? The two things are complementary. If there were no physical capital we would all die, and we wouldn't exist if there were no human capital.

    1. Yes - no one should confuse my enthusiasm with the view that we ought to dispense with physical capital!

    2. I realize that. But, the whole business of comparing the amount of human capital to the amount of physical capital is dubious. Its clear that human capital is very important these days, but that can't be quantified in any absolute and defensible way. We can compare one point in time with another and say that human capital is more important now than then, but that's about it.


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