Impact of property rights in human capital on regional factor proportions

Abstract

Although the case for treating human capital as a productive factor is clear, its introduction presents complications since ownership of (or property rights in) human capital cannot be separated from the ownership of (or property rights in) labor itself. Consider a two-region economy. When labor moves in response to economic differentials, human capital also moves. This may have the effect of necessitating a revision in the standard theoretical conclusion that with more than two factors of production, factor rewards and factor proportions will be equalized between the regions. This theoretical model demonstrates that an equilibrium will be achieved in which both the capital/labor ratios and the quantity of investment per worker in human capital differ from one another by precisely the amount necessary to produce the same return to capital in both regions as well as an equalization of the total wage rates which represent the combined return to both labor and human capital