Fri, March 29, 2024

Simon Says: Investing in ‘human capital’ is important

Universities and K-12 schools are in the business of human capital development. Human capital is education, training, and other forms of learning.

Human capital is seen as an investment, just like physical capital, where the costs are paid upfront and the returns are received later. A recent paper by David Deming in the Journal of Economic Perspectives reviews our knowledge of human capital.

An extra year of schooling increases earnings by about 10 percent. Given that the share of the world’s population that has at least some secondary school education increased from 13 percent in 1950 to 51 percent in 2010, this is a substantial increase in the quality of life of the world’s population. In the United States, human capital accounts for about a third of the variation in wages.

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This increase in human capital not only increases income but is associated with other desirable outcomes, such as better health. Moreover, the higher incomes result in lower long-term fiscal costs as higher incomes generate higher tax revenues.

More schooling has been shown to increase income potential.

Higher per-pupil spending on public K-12 schools increases educational attainment and adult wages. However, there is no consensus on what that spending should be on.

For example, teacher training sometimes increases attainment, but sometimes does not. Providing computers at home or in school generally has no impact. Paying students for performance, or providing teacher incentives, rarely works.

One area of consensus is in basic math and literacy. Here, smaller class sizes, better school facilities, and more instructional time consistently improve educational outcomes. Given these mixed results, Deming suggests giving money to schools and allowing them the flexibility to spend how they see fit, accompanied by strong internal accountability, maybe the best solution.

Much less is known about how to improve higher-order skills such as teamwork and problem-solving. Given that 80 percent of employers rate teamwork as an important or very important job feature, it is imperative that universities and high schools develop curriculum to improve teamwork in their students.

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