The Human Capital Stock Growth Slowdown

By Richard Vedder and Jordan Templeton

Last month, we suggested that the human capital stock of the United States has grown slightly more than two percent a year since 1980. Our explorations on this issue continue, and as we uncover new estimates, we learn new insights.

Somewhere in the past decade or so, there has been a rather significant slowdown in the growth in the human capital stock, at least in the way we measure it. We have divided the period 1974 to 2007 into three 11 year periods. We estimate the the growth in the human capital stock was 2.70 percent a year from 1974 to 1985, and nearly as much, 2.57 percent a year, from 1985 to 1996. But we estimate the growth rate fell almost by one-half after 1996, to a 1.34 percent rate annually for the 1996to 2007 period. We are the first to admit that one can quibble about the way we measure human capital, and we have ignored the possibility that the discount rate used in valuing the human capital stock may vary over time. Nonetheless, the slowdown is startling, and perhaps consistent with the arguments of Harvard's Claudia Goldin and Lawrence Katz, who have written a book claiming the slowdown in educational attainment growth is imperiling America's future.

Why might there have been a human capital growth slowdown? Many factors are at work. Some human capital growth, for example, comes from immigration, and we have not analyzed at all how changing immigrant patterns might have impacted growth rates. But a slowdown in college completion rates is probably NOT the major culprit for the slowdown as Goldin and Katz would no doubt suggest. From 1985 to 1996, a period of high human capital growth, the proportion of the human capital stock possessed by individuals with a college degree rose from 39 to 44 percent --5 percent points. In the 1996 to 2007 slower growth period, the percent of the human capital stock possessed by college graduates rose by 7 percent points (from 44 to 51).

We are also finding that, over time, a growing part of the lifetime income differentials between high school and college graduates is explained by post-college productivity gains --learning by doing. A very large and generally growing portion of the lifetime earnings differential favoring college graduates comes AFTER college is over. Perhaps college develops critical learning skills that allow for more post-graduate learning, but that is just a conjecture. We are pretty certain that much of what we might attribute to the impact of college training actually reflects work and learning experiences acquired informally later in life.

Human capital per worker in an inflation adjusted sense rose dramatically less than the overall capital stock growth, reflecting increasing numbers of employed Americans. The overall average human capital per worker in 2007 dollars rose from $535,663 in 1974 to $653,041 in 2007. Again, the increase was concentrated in the period before 1996, with virtually no growth since.

This project is potentially the most important research being carried out at CCAP, and we are planning on expanding it in a variety of ways in the months ahead.