Investment In Human Capital Schultz – 3 The old concept For the most part, the government restricted education to the elite rather than the majority. Workers, the workers and the poor remained largely uneducated
4 Early civilizations valued large numbers of people for protection, hunting and gathering. Developing societies valued individuals first in terms of how good they were – and later in terms of what they could produce.
Investment In Human Capital Schultz
5 Early US view Adam Smith’s The Wealth of Nations (1776) included human capital in the fixed capital of equipment used in the production of goods. The skills acquired by the company members as part of the investment resources. A revolutionary concept for the time, which naturally arose from discussions about the importance of an educated society to their democratic republican government. Unfortunately, Smith saw this investment in human capital only as production-related vocational training for workers. He missed the larger context of the contribution of educated workers to the economy and society at large.
Schultz, Theodore W. (1961) Investment In Human Capital
6 A New Concept Until Theodore W. Schultz’s work on investment in human capital became widely accepted in the 1960s, society valued work primarily for its physical rather than its intellectual qualities. . The work of Theodore Schultz in the 20th century advanced the idea that investment has economic value in the minds of producers of goods and services to society at large. His profound concept of investment in human capital won him the 1979 Nobel Prize in Economics. Schultz’s work became the basis for establishing investment in education as an essential contribution to the economic development of society. Theodore W. Schultz, “Investment in Human Capital,” American Economic Review 51 (March 1961), p.
7 Now a Popular View The World Bank’s World Development Report and other journal reports have shown that investment in education explains sustainable development in many countries and underdevelopment in others.
Provides a better workforce Creates new products and services that improve the quality of life Increases revenue for social programs Reduces the costs of social service programs for those with higher education Creates better neighborhoods safe  World Bank Report, World Development Report, 1991, The Challenge of Development (Oxford: World Bank and Oxford University Press, 1991) Credit creation with economic growth. The Economist wrote in “Where Tigers Breed: A Survey of Asia’s Emerging Technologies” vol. 321,n However, many of the reports written in the Economist making such loans were published before the economy collapsed in the Pacific Rim.
High School Leaving $20,000/year High School $30,000/year Bachelor’s Degree $50,000/year Master’s Degree $60,000/year Doctorate $78,000/year Professional $93,000/year SOURCE: US Department of Commerce, Census Bureau, Current Population Reports , Series P-60 , “Cash Income of Families, Households, and Individuals in the United States”, “Income, Poverty, and the Valuation of Non-Cash Benefits”, various years; and Series P-60, “Money Income in the United States”, various years. (Created April 2001.) Table Notes, Male Only, Income. The income of women with the same level of education is consistently lower. Median earnings, US, age 25 and over, full-time employment, 2000. Source: US Department of Commerce, Bureau of the Census, 2001.
Pdf) Investment Of Enterprises In The Development Of Human Capital
10 Education & Lifestyle A person with a bachelor’s degree earns, on average, about 2 ½ times more than they leave high school.
The high school dropout who earns about $20,000 a year will earn $800,000 over his working life. If he pays a 10% federal tax rate on these funds, he has contributed $80,000 in federal taxes. Earnings excluding federal taxes of $720,000 over his lifetime
12 College Graduate If the college graduate earns about $50,000 a year for 40 years of his working life, he will receive $2,000,000. If she pays a federal tax rate of 20% on that money, she has contributed $400,000 in federal taxable income less $1,600,000 in federal taxes over her lifetime.
Annual Dropout Earnings $20,000 $50,000 Lifetime Earnings $800,000 $2,000,000 Total Fed. Taxes * $80,000 $400,000 Gross earnings less taxes $720,000 $1,600,000 * Over 40 years of working life
Human Capital Estimates For Indian States
More education, more taxes. More discretionary income More $$$$ to stimulate the economy More $$$$ to the tax base More $$$$ to charities Less social programs Less crime
Age 20-24 without a diploma 70% with a diploma 82% with an AA degree % with a BA degree % Age 25 and over without a diploma 43% with a degree % with an AA degree 78% with a BA degree 80% Employed has a higher level of education people. The higher the education, the more the workers participate, the higher the income, the higher the taxes paid, the more goods and services are sold. purchase, the less need for various social services and prisons. SOURCE: US Department of Labor, Bureau of Labor Statistics, Office of Employment and Unemployment Statistics, Current Population Survey, 2000.
Those who did not graduate from high school: Make less money than all other groups. Vote as often. They are incarcerated at much higher rates than either the general population or the public aggregated by other levels of education
A significant portion of the lower incarceration rates is due to the higher wages that high school graduates earn compared to high school dropouts. A 1% increase in US high school graduation would save up to $1.4 billion per year in reduced crime costs and bring $1,170 to $2,100 for each additional high school graduate * Lochner, L. et Moretti, E. “Impact “Education on Crime: Evidence from Prisoners, Arrests, and Self-Reports” Joint Center for Research on Poverty, Policy Brief, Volume 4; no. 5, p. 26
A Socialist Alternative To Human Capital Theory?
Voting Frequency Voluntary Health Insurance Community Contributions Recreation Cultural Activities Births within or before Marriage Criminal Prenatal Care
1-3 years 4 years college high school high school ++ US Congress % 42 % % % % President % % % % % % % % Source: National Center for Education Statistics, The State of Education, 1996, Indicator 37 , Voting behavior by level of education.
People with a higher level of education tend to have health insurance compared to those with a lower level of education.
In 1999, people with a college degree or higher were 300% more likely to have health insurance than those without a high school diploma.
Pdf) Evaluation Of Investment In Human Capital Economical Effectiveness
Those with health insurance are more likely to maintain their health through regular checkups and a healthy lifestyle. They also put less pressure on social networks and public hospitals
Without Health Insurance No HS Diploma 27% HS Graduate 18% Some College 15% AA Degree 13% Bachelors or Above 8% Source: U.S. Census Bureau, Current Population Survey, March 2000.
26 Education & Health Recent research is finding biological evidence of the potential protective effect of education on a person’s health. A recent study finds a link between more years of formal education and being less likely to show dementia symptoms of Alzheimer’s disease by the age of 22. Those with formal education showed less of the disease’s impact over their lifetime, and were the disease had less effect on their cognitive test scores. Researchers surveyed members of a religious order with an average of 18 years of formal education. Scientists self-examined their brains and interviewed their friends after they died to collect data.  Bennett, D.A., Wilson, R.S., Schneider, J.A., Evans, D.A., Mendes de Leon, C.F., Arnold, S.E., Barnes, L.L. and Bienias, JL Elderly.” June 2003, Neurology, 60: Available online at:
Those with a higher level of education tend to be more involved than those with a lower level of education. They provide important services to neighbors and their children that would otherwise not be provided or would have to be paid for through tax or tax increases.
Human Capital Risks: Is Your Business Doing What It Takes?
2/3 of college graduates did some kind of volunteer work in a year, compared to between 30% and 43% of school leavers
% of population Average number of volunteer hours/week elementary school 30% some high school 43% hours HS Graduate % Hours Commerce, Engineering, Business School Graduate % College Graduate Hours % Hours Source: Saxon-Harrold, Susan KE, Murray Weitzman, and The Gallup Organization, Inc. Donations and Volunteerism in the United States: 1999 Edition. (Copyright and published by INDEPENDENT SECTOR, Washington, DC, 2000.
People with lower incomes tend to give fewer dollars in total but a greater percentage of their income to charities.
Household Income All Households Submitted Average $$$$ % of household income under $10.% $10,000 – 19.% $20,000 – 29.% $40,000 – 49.% $75,000 – 99. % $100,000 and over % KE Source: Susan-Saxon , Murray Weitzman and the Gallup Organization, Inc., Giving and Volunteering in the United States, 1999 edition. (Copyright and published by INDEPENDENT SECTOR, Washington, DC, 2000 ).
Human Capital Development Econnnnnnnnn Human Dev
% of Average Charity Family Type $$$ Donation Arts, Culture % $221 Education % $382 Environment % $194 Health % $234 Human Services % $250 Public, Social Services % $134 Youth Empowerment % $174 Source: Hodgkinson, Virginia, Murray Weitzman, and the Gallupman Organization, Inc., provide
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