A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States

64 Pages Posted: 7 Jul 2000 Last revised: 21 Sep 2010

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Xavier Sala-i-Martin

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Date Written: February 1995

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.

Suggested Citation

Mulligan, Casey B. and Sala-i-Martin, Francesc Xavier, A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States (February 1995). NBER Working Paper No. w5018. Available at SSRN: https://ssrn.com/abstract=225797

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

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Chicago, IL 60637
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National Bureau of Economic Research (NBER)

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Francesc Xavier Sala-i-Martin

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

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New York, NY 10027
United States
212-854-7055 (Phone)

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