These economic value of the abilities and qualities of labor that influence productivity.


These qualities include higher education, technical or on-the-job training, health, and values such as punctuality. Investment in these qualities improves the abilities of the labor force. The result is greater output for the economy and higher income for the individual.

The Theory of Human Capital

In 1964, Nobel Prize winners and University of Chicago economists Gary Becker and Theodore Schultz created the theory of human capital. Becker realized the investment in workers was no different than investing in capital equipment, which is another factor of production. Becker pointed out that the cost of education included time as well as money. Attendees lost the opportunity to work, travel, or have children. People only pursued an education if the potential income gain was greater than the cost.

Measuring Human Capital


Before Becker's work, economists treated all labor units as the same. Becker differentiated between general and specific human capital. Specific human capital was training that would only benefit one company. General human capital would benefit the individual at any company. He found that companies would pay for specific human capital while individuals paid the general form. Firms wouldn't invest in workers who might then be poached by competitors.

Investing in Human Capital

Becker’s theory explained how investing in education benefited people, companies, and countries. That theory is supported by research. States with the highest education scores also have the highest incomes. The top 10 states spend 50% to 100% more on education than the average, according to the National Center for Education Statistics.The chart below shows the correlation between education level and median wages.

Human Capital & Education

A 2018 Federal Reserve study found that those with a college degree are paid 74% more than those with only a high school degree. This gives them enough income to save and acquire wealth. Education is necessary for economic mobility.Education creates wealth in three ways:

Human Capital and the Wealth Gap

Investment in human capital varies by race. The Federal Reserve's Survey of Consumer Finances found that white families had almost 10 times the median wealth in 2016 than did Black families.

Key Take Away's

1.) Human capital is the economic value of the abilities and qualities of labor that influence productivity.

2.) Education plays a big role in human capital, and it can lead to higher incomes and net worth's.

3.) There is still a large racial wealth gap and it needs to close in order to better allow different groups of people from various backgrounds the opportunity to invest in their human capital.

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