Human capital theory
i. Knowledge, ability and skills obtained through a person’s “investment” in acquiring them are called human capital (HC).
Human capital theory in modern economics is
pioneered by T. Shultz and G. Becker, both became Nobel Prize laureates partly because of their
contributions to HC.
HC theory is the cornerstone of modern economics. The theory is used to explain many labor market phenomena.
The costs of investment in HC are in the forms of a) direct monetary expenses; b) forgone earnings or “opportunity cost”; and c) psychic losses because learning is often difficult and tedious.
Like any investment, investment in HC is for a
future return, in the form of higher future earnings. In classic HC theory, an individual’s HC investment decision is based on a cost-benefit analysis like in any investment decision.
Lost age of worker
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