The Value of Human Capital Wealth
AbstractThe value of human capital wealth and its return process are important to quantify in order to study consumption behavior and portfolio allocation. This paper introduces a new approach to measure the value of an economy's total human capital wealth. By assuming that the consumption to wealth ratio is constant, we exploit aggregate consumption data to recover total wealth, and then use household non-human capital wealth data to recover the value of human capital wealth as a residual. Using U.S. data over the period 1952-2007, we find that human capital is approximately three-quarters of total wealth in the aggregate economy, and that this ratio is remarkably stable over time. Applying our methodology to a group of OECD countries yields similar results. We estimate the cointegrating relationship between our estimated measure of human wealth and labor compensation (income) to show that our consumption-based approach estimate of human capital is linked to one based on a labor-income approach. We next calculate the returns to human capital and find them to be as high as equity returns on average but much less volatile; positively correlated with returns on real estate and consumption growth, but negatively correlated to equity returns. Finally, we show that both human capital and equity returns are predictable by human capital's dividend to price ratio.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-174.
Date of creation: Mar 2011
Date of revision:
Household Wealth; Human Capital; Wealth Effect;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-24 (All new papers)
- NEP-HRM-2011-05-24 (Human Capital & Human Resource Management)
- NEP-MIC-2011-05-24 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Trinh Le & John Gibson & Les Oxley, 2003. "Cost- and Income-based Measures of Human Capital," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 271-307, 07.
- Christopher J. Malloy & Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2009. "Long-Run Stockholder Consumption Risk and Asset Returns," Journal of Finance, American Finance Association, vol. 64(6), pages 2427-2479, December.
- Stijn Van Nieuwerburgh & Hanno Lustig, 2005. "The Returns on Human Wealth: Good News on Wall Street is Bad News on Main Street," 2005 Meeting Papers 105, Society for Economic Dynamics.
- Akito Matsumoto & Charles Engel, 2009.
"The International Diversification Puzzle when Goods Prices are Sticky: It's Really about Exchange-Rate Hedging, not Equity Portfolios,"
IMF Working Papers
09/12, International Monetary Fund.
- Charles Engel & Akito Matsumoto, 2009. "The International Diversification Puzzle When Goods Prices Are Sticky: It's Really about Exchange-Rate Hedging, Not Equity Portfolios," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 155-88, July.
- Motohiro Yogo, 2004. "Estimating the Elasticity of Intertemporal Substitution When Instruments Are Weak," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 797-810, August.
- Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006.
"How Large Is the Housing Wealth Effect? A New Approach,"
NBER Working Papers
12746, National Bureau of Economic Research, Inc.
- Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," Economics Working Paper Archive 535, The Johns Hopkins University,Department of Economics.
- Carroll, Christopher D. & Otsuka, Misuzu & Slacalek, Jirka, 2006. "How large is the housing wealth effect? A new approach," CFS Working Paper Series 2006/35, Center for Financial Studies (CFS).
- Ravi Jagannathan & Zhenyu Wang, 1994.
"The Capm Is Alive And Well,"
- Ignacio Palacios-Huerta, 2001.
"An Empirical Analysis of the Risk Properties of Human Capital Returns,"
2001-10, Brown University, Department of Economics.
- Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, vol. 93(3), pages 948-964, June.
- Rahul Mukherjee, 2013. "Institutions, Corporate Governance and Capital Flows," IHEID Working Papers 10-2013, Economics Section, The Graduate Institute of International Studies.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tatsuji Makino).
If references are entirely missing, you can add them using this form.