Human Capital
Contents
List of Tables xiii List of Charts xvii
Preface to the Third Edition xix
Preface to the First Edition xxi
I. INTRODUCTION TO THE SECOND EDITION 3
INTRODUCTION TO THE FIRST EDITION 11
II. HUMAN CAPITAL REVISITED 15
1. Introduction 15
2. Education and Training 17
3. Human Capital and the Family 21
4. Human Capital and Economic Development 23
5. Conclusions 25
6. References 25
Part One: Theoretical Analysis
III. INVESTMENT IN HUMAN CAPITAL: EFFECTS ON EARNINGS 29
1. On-the-Job Training 30 General Training 33
Specific Training 40
2. Schooling 51
3. Other Knowledge 53
4. Productive Wage Increases 54
IV. INVESTMENT IN HUMAN CAPITAL: RATES OF RETURN 59
1. Relation between Earnings, Costs, and Rates of Return 59
Addendum: The Allocation of Time and Goods over Time 70
2. The Incentive to Invest 85
Number of Periods 85
Wage Differentials and Secular Changes 89
CONTENTS
Risk and Liquidity 91
Capital Markets and Knowledge 92
Some Effects of Human Capital 95
Examples 95
Ability and the Distribution of Earnings 97
Addendum: Education and the Distribution of Earnings:
A Statistical Formulation 102
Addendum: Human Capital and the Personal
Distribution of Income: An Analytical Approach 108
Supplement: Estimating the Effect of Family Background on
Earnings 131
Part Two: Empirical Analysis
V. RATES OF RETURN FROM COLLEGE EDUCATION 161
1. Money Rates of Return to White Male College
Graduates 162
Returns in 1939 162
Costs in 1939 166
Rates of Return in 1939 168
Rates of Return in 1949 169
2. Some Conceptual Difficulties 171
Correlation between "Ability" and Education 171
Correlation between Education and Other Human Capital 181
3. Rates of Return to Other College Persons 183
College Dropouts 183
Nonwhites 186
Women 192
Rural Persons 194
4. Variation in Rates of Return 195
VI. UNDERINVESTMENT IN COLLEGE EDUCATION? 205
1. Private Money Gains 205
2. Social Productivity Gains 208 3. Private Real Rates 212
VII. RATES OF RETURN FROM HIGH SCHOOL EDUCATION AND TRENDS
OVER TIME 215
1. The Rate of Return from High School Education 215
2. Trends in Rates of Return 219
After 1939 219
Before 1939 223
CONTENTS xi
VIII. AGE, EARNINGS, WEALTH, AND HUMAN CAPITAL 228
1. Age-Earnings Profiles 230 2. Age-Wealth Profiles 237
LX. SUMMARY AND CONCLUSIONS 245
1. Summary 245
2. Future Research 248
3. Concluding Comments 251
Part Three: Economy-Wide Changes
INTRODUCTION 255
X. HUMAN CAPITAL AND THE RISE AND FALL OF FAMILIES, BY
GARY S. BECKER AND NIGEL TOMES 257
1. Introduction 257
2. Earnings and Human Capital 260 Perfect Capital Markets 260
Imperfect Access to Capital 266
3. Assets and Consumption 274 4. Fertility and Marriage 280
5. Empirical Studies 282
6. Summary and Discussion 290
References 294
XI. THE DIVISION OF LABOR, COORDINATION COSTS, AND
KNOWLEDGE, BY GARY S. BECKER AND KEVIN M. MURPHY 299
1. Introduction 299
2. Division of Labor among Tasks 300
3. Coordination Costs 304
4. Knowledge and Specialization 306 5. Extent of the Market 309
6. The Growth in Specialization and Knowledge 311
7. The Division of Labor between Sectors:
Teachers and Workers 314
8. Summary 318 Appendix 319
References 320
XII. HUMAN CAPITAL, FERTILITY, AND ECONOMIC GROWTH, BY
GARY S. BECKER, KEVIN M. MURPHY, AND ROBERT TAMURA 323
1. Introduction 323
2. Basic Properties of the Model 325
3. Fertility and Growth 331
Xll CONTENTS
4. Comparative Advantage in the Production of
Human Capital 337
5. Discussion 344
6. Concluding Remarks 347
References 348
APPENDIXES
A. SOURCES AND METHODS 351
1. Incomes 351
a. The Basic Data 351
b. Under- and Overreporting 354
c. Unemployment 355
d. Coverage in 1939 357
e. Taxes 358
/ Urban-Rural Distribution 360
g. Hours of Work 360
2. Costs 361
a. Earnings of Students 361
b. Direct Private Costs 364
c. Direct Social Costs 367
B. MATHEMATICAL DISCUSSION OF RELATION BETWEEN AGE,
EARNINGS, AND WEALTH 370
AUTHOR INDEX 377
SUBJECT INDEX 381
Tables
1. Results of Regressing Natural Log of Earnings on Education for 1959
Earnings of White Males Aged 25 to 64 in the South and Non-South 106
2. Actual Earning Differentials between Urban, Native White, Male College and High School Graduates in 1939 at Various Ages 164
3. Alternative Estimates of Rates of Return to 1939 Cohort of Native White Male College Graduates 169
4. Earning Differentials between White Male College and High School Grad-uates in 1949 at Various Ages 170
5. Several Measures of Ability at Different Educational Levels 172
6. Median Salaries of Illinois, Minnesota, and Rochester Men, by Rank in High School Graduating Class and by Intelligence Test Score 176
7. Average and Marginal Market Discrimination against Nonwhites for Vari-ous Age and Education Classes, by Region, 1939 189
8. Family Incomes of Married Men and Women in 1960, by Education and Years after First Job 194
9. Coefficients of Variation in After-Tax Income of White Males, by Age and Years of Education, 1939 and 1949 196
10. Coefficients of Variation in Mortality and Cohort Incomes for College and High School Graduates, by Age, 1939 and 1949 198
11. Coefficients of Variation in the Returns to College Graduates, by Age, 1939 and 1949 202
12. Investment in College Education Relative to Physical Capital for Selected Years 213
13. Average I. Q. at Several Educational Levels 216
Xlll
XIV TABLES
14. Investment in High School Education, College Education, and Physical Capital, 1900-1956 218
15. Private Rates of Return from College and High School Education for Se-lected Years since 1939 220
16. Percentage of Population with High School and College Education in 1940, 1950, and 1957 222
17. Income Differentials between College and High School Graduates at Vari-ous Ages and for Scattered Years since 1904 224
18. Income Differentials between High School and Elementary School Gradu-ates at Various Ages and for Scattered Years since 1900 in Current and 1958 Dollars 225
19. Net After-Tax Incomes of White Males in 1939 and 1949, by Age and Years of Education 230
20. Estimated Incomes of Cohorts at Different Educational Levels 234
21. Annual Rates of Income Change between Successive Age Classes for 1939 Cohorts at Different Educational Levels 236
22. Regressions of Son's Income or Earnings on Father's Income or Earnings in Linear, Semilog, and Log-linear Form 284
23. Regressions of Son's Wealth on Father's and Grandfather's Wealth 288
A-l. Open-End Means Used in Calculating 1949 Incomes 352
A-2. Three Estimates of Before-Tax Income Differentials between Education Classes in 1949 353
A-3. Fraction of White Males Reporting No Income in 1949, by Age and Educa-tion Class 354
A-4. Comparison of Incomes Reported by Census and Commerce for 1946 and 1954 355
A-5. Adjustment for Unemployment in 1939, by Education Class 356
A-6. Average Earnings of Census College Graduates and Independent Doctors, Dentists, and Lawyers in 1939 358
A-7. Fraction of Native Whites and Urban Whites Included in 1939 Data, by Age and Education 359
A-8. Distribution of Persons of Different Educational Levels, by Size of Place of Residence, 1939 360
TABLES XV
A-9. Average Hours Worked in 1939, by Educational Level 361
A-10. Alternative Estimates of Fraction of Earnings of High School Graduates of Same Age Received by College Students 362
A-ll. Alternative Estimates of Earnings of Persons Aged 14-17 with Eight Years of Schooling, 1949 364
A-12. Alternative Estimates of Fraction of Earnings of Elementary School Grad-uates of the Same Age Received by High School Students 365
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Contents
List of Tables xiii List of Charts xvii
Preface to the Third Edition xix
Preface to the First Edition xxi
I. INTRODUCTION TO THE SECOND EDITION 3
INTRODUCTION TO THE FIRST EDITION 11
II. HUMAN CAPITAL REVISITED 15
1. Introduction 15
2. Education and Training 17
3. Human Capital and the Family 21
4. Human Capital and Economic Development 23
5. Conclusions 25
6. References 25
Part One: Theoretical Analysis
III. INVESTMENT IN HUMAN CAPITAL: EFFECTS ON EARNINGS 29
1. On-the-Job Training 30 General Training 33
Specific Training 40
2. Schooling 51
3. Other Knowledge 53
4. Productive Wage Increases 54
IV. INVESTMENT IN HUMAN CAPITAL: RATES OF RETURN 59
1. Relation between Earnings, Costs, and Rates of Return 59
Addendum: The Allocation of Time and Goods over Time 70
2. The Incentive to Invest 85
Number of Periods 85
Wage Differentials and Secular Changes 89
CONTENTS
Risk and Liquidity 91
Capital Markets and Knowledge 92
Some Effects of Human Capital 95
Examples 95
Ability and the Distribution of Earnings 97
Addendum: Education and the Distribution of Earnings:
A Statistical Formulation 102
Addendum: Human Capital and the Personal
Distribution of Income: An Analytical Approach 108
Supplement: Estimating the Effect of Family Background on
Earnings 131
Part Two: Empirical Analysis
V. RATES OF RETURN FROM COLLEGE EDUCATION 161
1. Money Rates of Return to White Male College
Graduates 162
Returns in 1939 162
Costs in 1939 166
Rates of Return in 1939 168
Rates of Return in 1949 169
2. Some Conceptual Difficulties 171
Correlation between "Ability" and Education 171
Correlation between Education and Other Human Capital 181
3. Rates of Return to Other College Persons 183
College Dropouts 183
Nonwhites 186
Women 192
Rural Persons 194
4. Variation in Rates of Return 195
VI. UNDERINVESTMENT IN COLLEGE EDUCATION? 205
1. Private Money Gains 205
2. Social Productivity Gains 208 3. Private Real Rates 212
VII. RATES OF RETURN FROM HIGH SCHOOL EDUCATION AND TRENDS
OVER TIME 215
1. The Rate of Return from High School Education 215
2. Trends in Rates of Return 219
After 1939 219
Before 1939 223
CONTENTS xi
VIII. AGE, EARNINGS, WEALTH, AND HUMAN CAPITAL 228
1. Age-Earnings Profiles 230 2. Age-Wealth Profiles 237
LX. SUMMARY AND CONCLUSIONS 245
1. Summary 245
2. Future Research 248
3. Concluding Comments 251
Part Three: Economy-Wide Changes
INTRODUCTION 255
X. HUMAN CAPITAL AND THE RISE AND FALL OF FAMILIES, BY
GARY S. BECKER AND NIGEL TOMES 257
1. Introduction 257
2. Earnings and Human Capital 260 Perfect Capital Markets 260
Imperfect Access to Capital 266
3. Assets and Consumption 274 4. Fertility and Marriage 280
5. Empirical Studies 282
6. Summary and Discussion 290
References 294
XI. THE DIVISION OF LABOR, COORDINATION COSTS, AND
KNOWLEDGE, BY GARY S. BECKER AND KEVIN M. MURPHY 299
1. Introduction 299
2. Division of Labor among Tasks 300
3. Coordination Costs 304
4. Knowledge and Specialization 306 5. Extent of the Market 309
6. The Growth in Specialization and Knowledge 311
7. The Division of Labor between Sectors:
Teachers and Workers 314
8. Summary 318 Appendix 319
References 320
XII. HUMAN CAPITAL, FERTILITY, AND ECONOMIC GROWTH, BY
GARY S. BECKER, KEVIN M. MURPHY, AND ROBERT TAMURA 323
1. Introduction 323
2. Basic Properties of the Model 325
3. Fertility and Growth 331
Xll CONTENTS
4. Comparative Advantage in the Production of
Human Capital 337
5. Discussion 344
6. Concluding Remarks 347
References 348
APPENDIXES
A. SOURCES AND METHODS 351
1. Incomes 351
a. The Basic Data 351
b. Under- and Overreporting 354
c. Unemployment 355
d. Coverage in 1939 357
e. Taxes 358
/ Urban-Rural Distribution 360
g. Hours of Work 360
2. Costs 361
a. Earnings of Students 361
b. Direct Private Costs 364
c. Direct Social Costs 367
B. MATHEMATICAL DISCUSSION OF RELATION BETWEEN AGE,
EARNINGS, AND WEALTH 370
AUTHOR INDEX 377
SUBJECT INDEX 381
Tables
1. Results of Regressing Natural Log of Earnings on Education for 1959
Earnings of White Males Aged 25 to 64 in the South and Non-South 106
2. Actual Earning Differentials between Urban, Native White, Male College and High School Graduates in 1939 at Various Ages 164
3. Alternative Estimates of Rates of Return to 1939 Cohort of Native White Male College Graduates 169
4. Earning Differentials between White Male College and High School Grad-uates in 1949 at Various Ages 170
5. Several Measures of Ability at Different Educational Levels 172
6. Median Salaries of Illinois, Minnesota, and Rochester Men, by Rank in High School Graduating Class and by Intelligence Test Score 176
7. Average and Marginal Market Discrimination against Nonwhites for Vari-ous Age and Education Classes, by Region, 1939 189
8. Family Incomes of Married Men and Women in 1960, by Education and Years after First Job 194
9. Coefficients of Variation in After-Tax Income of White Males, by Age and Years of Education, 1939 and 1949 196
10. Coefficients of Variation in Mortality and Cohort Incomes for College and High School Graduates, by Age, 1939 and 1949 198
11. Coefficients of Variation in the Returns to College Graduates, by Age, 1939 and 1949 202
12. Investment in College Education Relative to Physical Capital for Selected Years 213
13. Average I. Q. at Several Educational Levels 216
Xlll
XIV TABLES
14. Investment in High School Education, College Education, and Physical Capital, 1900-1956 218
15. Private Rates of Return from College and High School Education for Se-lected Years since 1939 220
16. Percentage of Population with High School and College Education in 1940, 1950, and 1957 222
17. Income Differentials between College and High School Graduates at Vari-ous Ages and for Scattered Years since 1904 224
18. Income Differentials between High School and Elementary School Gradu-ates at Various Ages and for Scattered Years since 1900 in Current and 1958 Dollars 225
19. Net After-Tax Incomes of White Males in 1939 and 1949, by Age and Years of Education 230
20. Estimated Incomes of Cohorts at Different Educational Levels 234
21. Annual Rates of Income Change between Successive Age Classes for 1939 Cohorts at Different Educational Levels 236
22. Regressions of Son's Income or Earnings on Father's Income or Earnings in Linear, Semilog, and Log-linear Form 284
23. Regressions of Son's Wealth on Father's and Grandfather's Wealth 288
A-l. Open-End Means Used in Calculating 1949 Incomes 352
A-2. Three Estimates of Before-Tax Income Differentials between Education Classes in 1949 353
A-3. Fraction of White Males Reporting No Income in 1949, by Age and Educa-tion Class 354
A-4. Comparison of Incomes Reported by Census and Commerce for 1946 and 1954 355
A-5. Adjustment for Unemployment in 1939, by Education Class 356
A-6. Average Earnings of Census College Graduates and Independent Doctors, Dentists, and Lawyers in 1939 358
A-7. Fraction of Native Whites and Urban Whites Included in 1939 Data, by Age and Education 359
A-8. Distribution of Persons of Different Educational Levels, by Size of Place of Residence, 1939 360
TABLES XV
A-9. Average Hours Worked in 1939, by Educational Level 361
A-10. Alternative Estimates of Fraction of Earnings of High School Graduates of Same Age Received by College Students 362
A-ll. Alternative Estimates of Earnings of Persons Aged 14-17 with Eight Years of Schooling, 1949 364
A-12. Alternative Estimates of Fraction of Earnings of Elementary School Grad-uates of the Same Age Received by High School Students 365
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