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

with Xavier Sala-i-Martin


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 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 labour income is to divide labor income by the wage of 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 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.
You cannot download a copy of this paper. It was published as:
Mulligan, Casey B. and Xavier Sala-i-Martin. "A Labor-Income-Based Measure of the Value of Human Capital: An Applicatio n to the States of the United States." Japan and the World Economy,. 9(2), July 1997: 159-91.

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