A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States / Casey B. Mulligan, Xavier Sala-i-Martin.

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Mulligan, Casey B

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5018.Publication details: Cambridge, Mass. National Bureau of Economic Research 1995.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We argue that a sensible measure of the aggregate value of human capital is the ratio of total labor income per capita to the wage of a person with zero years of schooling. The reason for that is that total labor income not only incorporates human capital, but also physical capital: given human capital, regions with higher physical capital will tend to have higher wages for all workers and, therefore, higher labor income. We find that one way to net out the effect of aggregate physical capital on labor income is to divide labor income by the wage of a zero-schooling worker. For the average U.S. state, our measure suggests that the value of human capital during the 1980s grew at a much larger rate than schooling. The reason has to do with movements in the relative productivities of the different workers: in some sense, some workers and some types of schooling became a lot more relevant in the 1980s and, as a result, measured human capital increased.

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Previous	nber w5015 The Deficit Gamble /	nber w5016 Measuring Aggregate Human Capital /	nber w5017 The Illusion of Failure: Trends in the Self-Reported Health of the U.S. Elderly /	nber w5018 A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States /	nber w5019 The International Diversification Puzzle is Worse Than You Think /	nber w5020 Strategic Trade Policy /	nber w5021 International Trade and Open Access Renewable Resources: The Small Open Economy Case /	Next

February 1995.

We argue that a sensible measure of the aggregate value of human capital is the ratio of total labor income per capita to the wage of a person with zero years of schooling. The reason for that is that total labor income not only incorporates human capital, but also physical capital: given human capital, regions with higher physical capital will tend to have higher wages for all workers and, therefore, higher labor income. We find that one way to net out the effect of aggregate physical capital on labor income is to divide labor income by the wage of a zero-schooling worker. For the average U.S. state, our measure suggests that the value of human capital during the 1980s grew at a much larger rate than schooling. The reason has to do with movements in the relative productivities of the different workers: in some sense, some workers and some types of schooling became a lot more relevant in the 1980s and, as a result, measured human capital increased.