1. Developing US Human Capital
Maj Ryan Messer
NS 3041

2. Overview Defining Human Capital The Importance of Human Capital
Rates of Return for Various Education Levels
The Effects of Human Capital on the Economy
Measuring Human Capital
Policies for Enhancing Human Capital
Implications for US policy

3. Defining Human Capital (HC)
Human Capital = the sum total of skills within an individual
Not just natural skills, but those acquired through specialized training and education

4. The Importance of Developing Human Capital
Productivity is the efficiency with which we convert inputs into outputs – technology, skills
Globalization and Structural Changes have increased pressure on low-skilled workers
Options are:
Ignore globalization
Cut wages
Accept higher unemployment
Invest in Human Capital

5. Rates of Return for Various Education Levels
Poverty rate is twelve times higher for high school dropouts than for college graduates
In 1980’s, college grad made 40% more than a high school grad, today its 80% more
For every additional year of education beyond HS, income increases by ~10%

6. The Effects of HC on the Economy
Increase the rate of growth of Human Capital
Increased GDP

7. The Effects of HC on the Economy
Increase the rate of growth of Human Capital
Increased GDP
Increased Freedom

8. The Effects of HC on the Economy
Increase the rate of growth of Human Capital
Increased GDP
Increased Freedom
Increased Research and Development = Increased Innovation
How do you Measure HC Development?

9. Measuring Human Capital
Years of Education
Avg. years of education; 25-64
Assumes same quality in each country
Treats all degrees the same
10% increase in HC =
9% increase in GDP per capita
In US, 9% increase in GDP per 1.3 years

10. Measuring Human Capital
Attainment Rates
Compares the Present with the Past

11. Measuring Human Capital
Enrolment Rates
A View of Future Human Capital
Quality of Investment
High Quality and High Enrolment Requires a Significant Investment

12. Policies for Enhancing HC
Developing Human Capital starts at the youngest age possible
Spending should focus on Kindergarten – HS
Improve aid, grants and tax codes to make higher education affordable
Adam Smith saw two roles for the government
Support institutions facilitating commerce
Support educational institutions
Equal educational opportunities is more sustainable than transferring money from the rich to the poor

13. Implications for US Policy
This a long term investment, beyond two terms in office
In times like these, it is an expense America can get behind

14. Final Thoughts
“Investment in education pays the best interest” - Benjamin Franklin “The most valuable of all capital is that invested in human beings” – Alfred Marshall

15. Summary Defining Human Capital The Importance of Human Capital
Rates of Return for Various Education Levels
The Effects of Human Capital on the Economy
Measuring Human Capital
Policies for Enhancing Human Capital
Implications for US policy

16. Questions?

17. References
Bergheim, Stefen (2005). Human Capital is the Key to Growth, Deutsche Bank Research Bergheim, Stefen (2005). Global Growth Centres 2020, Deutsche Bank Research OECD (2004). Education at a Glance, Paris Smith, Adam (1776). The Wealth of Nations Wheelan, Charles (2002). Naked Economics: Undressing the Dismal Science, New York