Human Capital

Measuring the impact of human capital investment on macroeconomic performance, income, and inequality

The concept of human capital – an individual’s suite of knowledge, talents, experiences, and skills - originated at the University of Chicago in the 1950s. Human capital includes activities like education, healthcare, and job training. Gary Becker once described it as, “The embedding of resources in people.” As the more tangible forms of physical or financial capital can increase company profits and productivity, human capital can not only raise earnings but also improve health and wellbeing over the course of a person’s lifetime.

The concept of human capital has been instrumental in shaping 21st century economics. In the face of rapidly advancing technology, human capital becomes essential in both developing and taking advantage of new innovations. Since productivity depends largely on workers’ command of knowledge and information -- the most important form of capital in the economy today -- human capital theory predicts, and research has confirmed, that individuals with more education and work experience tend to have significantly higher incomes than their counterparts with less education.

Deeply rooted in the Chicago tradition, research in human capital has revolutionized our understanding of labor markets by identifying education, training, and health as vital components of a successful economy. Carving out space for these important pieces of the economic puzzle helps researchers examine growth and socioeconomic inequality through a different lens that better reflects the real world and can help shape and inform effective policy. The Becker Friedman Institute supports projects and programs that further insights into this key concept.