Human Capital Measurement: A Survey

After a short history of the concept of human capital (henceforth HC) in economic thought (Section 1), this study presents the two main methods for estimating the value of the stock of HC – the retrospective and prospective one – with a review of the models proposed (Section 2). These methods are linked both to the theory of HC investment as a rational choice (Section 3), the literature analysing the contribution of HC investment to economic growth and the HC estimating method through educational attainment (Section 4). The more recent literature on HC as a latent variable is also assessed (Section 5) and a new method of estimation where HC is seen both as an unknown function of formative indicators and as a ‘latent effect’ underlying earned income is proposed (Section 6). Section 7 concludes.