Human Capital

Human capital indicates the value of human capacities and human capital of each labor are not all the same, and as a whole the education, experience and capacities of a human have an economic value. Based on this point, “Investment in human capital” means it can improve the quality and level of production through education and training.

According to Chapman and Withers (2001), for individuals the major costs of the investment are opportunity cost caused by the absence from the labour force and tuition fees and other direct costs for education, and the major benefits are the higher earning after completion of the study. For society, the major costs are expenditure on education with the benefits being entire social economic development and some externalities, such as reduced criminal activity, insightful public debate and deliberate voting behaviour. Moreover, in a rapidly evolving future the need for higher educated student become imperative.

According to Chapman and Withers (2001), it analyses the data of the ABS’ Income Distribution Surveys in 1981/82 and 1994/95. In these surveys, individuals at 17 leaving school can be divided into four parts: no further education; undertake a two year Diploma and TAFE; four year degree at university; university and master. With the result that marginal internal rate of return for the educational investments is in the range of 5-13 per cent per year. And IROR increased from 1981/82 to 1994/95.

For the social educational investments, in Hanushek and Kimko, 2000, they test the influence of educational quality to economic growth over 30 years in 139 countries compared with the effect of changes in schooling quantities.

The result shows that increases in workforce quality have a greater influence on economic growth than quantities. For example, on average a one standard deviation increase in test scores adds about 1.0 per cent to a country’s GDP per capita annual growth rate. By contrast to achieve a one per cent increase in the annual growth rate of a country’s GDP per capita would require on average that workers had nine additional years of education.

Reference:

Chapman, Bruce and Glenn Withers (2001), “Human capital accumulation: education and immigration”, in John Nieuwenhuysen et al. (eds.), Reshaping Australia’s Economy: Growth with Equity and Sustainability, Melbourne: Cambridge University Press, pp. 242-267.

Hanushek, E. A., and Kimko, D.D., (2000), “Schooling, Labor-Force Quality, and the Growth of Nations”, American Economic Review, December: 1184-1208.