Human Capital Theory

Discipline: Economics

With its roots in the work of British economists Sir William Petty (1623-1687) and Adam Smith (1723-1790), human capital theory was extensively developed by American economists Gary Becker (1930- ) and THEODORE SCHULTZ (1902-1998).

It postulates that expenditure on training and education is costly, and should be considered an investment since it is undertaken with a view to increasing personal incomes.

The human capital approach is often used to explain occupational wage differentials.

English philosophers John Locke (1632-1704) and John Stuart Mill (1806-1873), Scottish economist Adam Smith (1723-1790) and German social theorist Karl Marx (1818-1883) all argued that training, not natural ability, was important in understanding differentials.

Human capital can be viewed in general terms, such as the ability to read and write, or in specific terms, such as the acquisition of a particular skill with a limited industrial application. Critics of the theory argue that it is difficult to separate human capital investment from personal consumption.

Also see: search theory

G S Becker, Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (New York, 1964)


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