Human Capital Policy

Abstract

This paper considers alternative policies for promoting skill formation that are targeted todifferent stages of the life cycle. We demonstrate the importance of both cognitive andnoncognitive skills that are formed early in the life cycle in accounting for racial, ethnic andfamily background gaps in schooling and other dimensions of socioeconomic success. Mostof the gaps in college attendance and delay are determined by early family factors. Childrenfrom better families and with high ability earn higher returns to schooling. We find only alimited role for tuition policy or family income supplements in eliminating schooling andcollege attendance gaps. At most 8% of American youth are credit constrained in thetraditional usage of that term. The evidence points to a high return to early interventions anda low return to remedial or compensatory interventions later in the life cycle. Skill and abilitybeget future skill and ability. At current levels of funding, traditional policies like tuitionsubsidies, improvements in school quality, job training and tax rebates are unlikely to beeffective in closing gaps.

Keywords: human capital, life cycle

JEL Classification: J31