Human Capital Theory: Investing in Outcomes

Human capital theory was developed by the neoclassical economists Gary Becker and Theodore Schultz. While both have made considerable contributions to the human capital approach, Becker’s book, Human Capital, published in 1964, is considered by many as a foundational text. For Becker, human capital, in the form of education, training, and knowledge, is similar to other forms of capital but differs significantly in one key way; human capital in the form of knowledge and skills cannot be given away. According to Becker, “Human capital analysis assumes that schooling raises earnings and productivity mainly by providing knowledge, skills, and a way of analyzing problems” (1993, p. 19). Becker summarizes saying that “the evidence is now quite strong of a close link between investments in human capital and growth” (p. 324). In this way, the human capital approach recognizes the important role of education because it “frames education as an investment opportunity whereby education is valued primarily as a capital good to meet the ends of economic and social transformation” (Joshi & Smith, 2012, p. 180).

Within this view, human capital, in the form of skills, knowledge, and abilities, acquired at a particular stage of life, influences learning at that time and in subsequent stages of life (Carneiro & Heckman, 2002). Child development research informs this view by noting that different types of abilities are most likely acquired at critical stages in the life cycle. In the research discussed below human capital theory examines how human capital acquired at earlier stages of development influences a variety of economic and social outcomes later in the life cycle. Of particular interest to this chapter are studies that illustrate the rate of return and impact of early education programs on workforce participation and productivity.

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