12E.1.3 The Age of Human Capital (Excerpt)
Human capital is a way for people to invest in themselves. It is different from physical capital because it is the set of knowledge and skills someone gains from education, training, and experience. Goods and services would not be produced without physical and human capital. When you choose to take a job, volunteer, or take an elective course, you are building your human capital. To compete in the twenty-first century economy, it may be necessary to get training or education past the high school diploma to have a good-paying job.
What are you interested in as a career? What can you do to build your human capital in order to make you more able to reach your goals?
Gary Becker received the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 1992. Becker applied economic analysis to study social issues; his prize lecture in 1992 was titled The Economic Way of Looking at Life. Becker asserted that economics guides personal decisions. Becker focused his discussion on how people use cost–benefit analysis to make everyday decisions.
Human capital refers to the knowledge, information, ideas, skills, and health of individuals. This is the “age of human capital” in the sense that human capital is by far the most important form of capital in modern economies. The economic successes of individuals, and also of whole economies, depends on how extensively and effectively people invest in themselves.
Studies suggest that capital invested in men and women constitutes over 70 percent of the total capital in the United States. The total invested in schooling, on-the-job training, health, information, and research and development is surely over 20 percent of gross domestic product. Technology may be the driver of a modern economy, especially of its high-tech sector, but human capital is certainly the fuel.
An economy like that of the United States is called a capitalist economy, but a more accurate term is human capital or a knowledge capital economy. While all forms of capital are important, including machinery, factories, and financial capital, human capital is the most significant.