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The Value and Risk of Human Capital

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  • Luca Benzoni
  • Olena Chyruk

Abstract

Human capital embodies the knowledge, skills, health and values that contribute to making people productive. These qualities, however, are hard to measure, and quantitative studies of human capital are typically based on the valuation of the lifetime income that a person generates in the labor market. This article surveys the theoretical and empirical literature that models a worker?s life-cycle earnings and identifies appropriate discount rates to translate those cash flows into a certainty equivalent of wealth. This paper begins with an overview of a stylized model of human capital valuation with exogenous labor income. The authors then discuss extensions to this framework that study the underlying economic sources of labor income shocks, the choices, such as work, leisure, retirement and investment in education, that people make over their life and their implications for human capital valuation and risk.

Suggested Citation

  • Luca Benzoni & Olena Chyruk, 2015. "The Value and Risk of Human Capital," Working Paper Series WP-2015-6, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-2015-06
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    References listed on IDEAS

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    2. Brant Abbott & Giovanni Gallipoli, 2022. "Permanent‐income inequality," Quantitative Economics, Econometric Society, vol. 13(3), pages 1023-1060, July.
    3. Angerer, Silvia & Bolvashenkova, Jana & Glätzle-Rützler, Daniela & Lergetporer, Philipp & Sutter, Matthias, 2023. "Children’s patience and school-track choices several years later: Linking experimental and field data," Journal of Public Economics, Elsevier, vol. 220(C).
    4. A.V. Sultanova & O.S. Chechina, 2016. "Human Capital as a Key Factor of Economic Growth in Crisis," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 71-78.
    5. Borys Grochulski & Yuzhe Zhang, 2019. "Wealth Effects with Endogenous Retirement," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 173-200.
    6. Silvia Angerer & Jana Bolvashenkova & Daniela Glätzle-Rützler & Philipp Lergetporer & Matthias Sutter, 2021. "Children’s patience and school-track choices several years later: Linking experimental and field data," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2021_12, Max Planck Institute for Research on Collective Goods.
    7. Etienne Dagorn & David Masclet & Thierry Penard, 2022. "The Behavioral Determinants of School Achievement: A Lab in the Field Experiment in Middle School," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2022-05, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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    More about this item

    Keywords

    human capital; labor income; employment;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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