An Alternative Measure of Human Capital Stock

An integrated approach for estimating the stock of human capital in the United States isdeveloped which eliminates well known problems associated with both the cost and income basedmethods currently in use. Historical information on the cost of the educational investment madein base entrants (individuals who enter the full time labor force immediately following highschool graduation) and the wage rate they receive upon entry into the work force is used tocompute a rental rate for human capital. The human capital stock for other cohorts of the workforce is then estimated using that rental rate and the reported earnings for each populationsubgroup. This method neutralizes the cost identification problems associated with the work ofKendrick and Eisner. It also allows a more realistic treatment of the depreciation andappreciation of human capital. When used to estimate a Cobb-Douglas production function ofthe U.S. economy for the period 1963-1988, this measure provided more explanatory power thanhours of labor.