PRINClPLES IN THE VALUATION OF HUMAN CAPITAL

Abstract

Human capital concepts and measures have been applied and misapplied to an increasing variety of economic problem areas, two of which are examined.One of these is measurement of human capital gains and losses through migration. First requirements here are specification of the gaining or losing entities and of the relevant welfare functions. Alternatives in these respects are outlined. It is then argued that an appropriately adapted Fisherian present‐value assessment of human capital is normally the correct measure. Replacement costs are a legitimate substitute only for young migrants with little cumulated learning through experience and even then they have usually been fallaciously applied. Probability adjustments for migration and re‐migration are required in both cost and present‐value assessments of human capital effects of migration‐relevant policy alternatives, but the nature of those adjustments differs with the measurement approach used.For longitudinal analysis of contributions of human capital to economic growth, all measures of human capital stocks are inappropriate. A first principle of such analysis is measurement of resource inputs as flows. A coordinate principle requires that disaggregation be carried as far as necessary to distinguish essentially homogeneous categories of labor inputs. Though a way of separating out the schooling versus on‐the‐job‐experience components of human capital is illustrated, it requires some strong assumptions. Splitting men into abstracted human capital components is better avoided in growth analysis. Furthermore, categorization of labor‐force sub‐groups could equally well provide the basis for rate‐of‐return assessments of marginal changes in the pace of investments in humans. Such assessments would incorporate the main elements of capital theory except valuation of the capital asset itself.Ultimately, human resource measurements for use in major public policy decisions relating to either growth or migration (or both) must incorporate modifications or error components that allow for development phenomena that elude marginal assessments. Among developing countries especially, a consideration of educational diffusion processes and dynamic productivity scale effects, for example, could have critical measurement and policy implications.