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A labor-income-based measure of the value of human capital: An application to the States of the United States

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  • Casey B. Mulligan
  • Xavier Sala-i-Martin

Abstract

We argue that a sensible measure of the aggregate value of human capital is the ratio of total labor income per capita to the wage of a person with zero years of schooling. The reason for that is that total labor income not only incorporates human capital, but also physical capital: given human capital, regions with higher physical capital will tend to have higher wages for all workers and, therefore, higher labor income. We find that one way to net out the effect of aggregate physical capital on labor income is to divide labor income by the wage of a zero-schooling worker. For the average U.S. state, our measure suggests that the value of human capital during the 1980s grew at a much larger rate than schooling. The reason has to do with movements in the relative productivities of the different workers: in some sense, some workers and some types of schooling became a lot more relevant in the 1980s and, as a result, measured human capital increased.
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Suggested Citation

  • Casey B. Mulligan & Xavier Sala-i-Martin, 1994. "A labor-income-based measure of the value of human capital: An application to the States of the United States," Economics Working Papers 106, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 1994.
    • Handle: RePEc:upf:upfgen:106
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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