Our Human Capital Stock is Growing 2.14% a Year

by Richard Vedder and Jordan Templeton:

This is another in a series of blogs on some of the most exciting research either of us has ever done (and one of us has been doing research for over 45 years). We estimate that the human capital stock of the United States rose from $54.782 trillion (in 2007 dollars) in 1980 to $97.022 trillion in 2007. That is a compounded annual rate of increase of 2.14 percent a year. About half of this reflects a growth in the working population, mostly from population growth but also partially from a rise in the employment-population ratio. But a significant amount of the growth also reflects a rise in human capital per worker, or per person. Human capital per person in 2007 dollars rose from $241,090 in 1980 to $321,217 in 2007, an increase of 1.07 percent a year.

But the disaggregation of the data provides even more interesting details:

1. Females contributed almost as much to the growth in the human capital stock as men ($20.655 trillion vs. $21.585 trillion), almost certainly the first substantial period in U.S. history where this is so.

2. Slightly over 60 percent of the increased human capital stock reflects increases in human productivity associated with post-formal school experiences, which is to say, roughly speaking "learning by doing." This component accounts for $25.492 trillion of the human capital stock increase, compared to a maximum of $16.648 trillion attributable to formal education. Moreover, some of that $16 trillion probably reflects in increases in human capital formation attributable to pre-schooling or extra-schooling characteristics, such as learning instilled by the family, genetic characteristics inherited at birth, etc.

3. Although we have not done all the analysis and calculations yet, it is almost certain that the expenditures on formal education since 1980 exceed the growth in the human capital stock attributable to education. Since some schooling expenditure is necessary to take account depreciation on the human capital stock (as workers retire and die and are replaced by a new generation), this in an of itself proves nothing. But it does suggest that the data we are collecting might be eventually insightful in determining whether education spending can be viewed largely as "human capital investment" or other things --consumption spending, income redistribution from taxpayers to educators, etc.

4. Over 100 percent of the increase in human capital associated with education is attributable to postsecondary education (the proportion of workers with no postsecondary education has fallen significantly, lowering human capital amongst this cohort). About 30 percent of the total growth in the human capital stock relates to the increase in the proportion of workers having bachelor's degrees or more, although again some of that may actually reflect pre-schooling created human capital. There are some data issues that make conclusions here murky, and lots of caveats that can be made about the methodology, which is based on the discounted present value of the earnings of workers.

This is a research effort that keeps on giving. Stay tuned for more.