HUMAN CAPITAL

The quality of labor in a country's workforce can directly influence a nation's economic growth. Investment in vocational training and education, which improves the quality of labor, is called investment in human capital. As an individual becomes more skilled and educated, productivity or output of work may increase, along with income. The concept of human capital can provide justification for wage and salary differentials by age and occupation. Education and training in skill development can create human capital just as construction of a building creates physical capital.

Some economists assert that a society should allocate resources to educational and training services similar to the allocation of resources for physical capital. Costs would be incurred in expectation of future benefits. However, unlike physical capital, human capital is not a guarantee and cannot be repossessed in settlement of a debt. The key question has been whether or not benefits exceed expenditures by a sufficient amount.

Until the mid-nineteenth century, education expenditures were primarily generated by the private sector. By the 1850s all states had developed programs for funding public schools. As late as the early twentieth century, most people considered education that was beyond the primary grades to be a luxury—particularly among low-income groups. However literacy rates continued to move upward and since 1940, education levels have consistently climbed. In 1940 24 percent of the U.S. population had high school diplomas and 4.6 percent earned college degrees. By 1996 almost 82 percent had completed four years of high school and almost 24 percent had completed four or more years of college. By attending college or vocational training programs, individuals were able to invest in themselves. Firms invested in human capital with on-thejob training. Government invested in human capital by offering programs to improve health, quality free schooling, including vocational and on-the-job training, and by providing student loans.