An Alternative Measure of Human Capital Stock
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An integrated approach for estimating the stock of human capital in the United States is
developed which eliminates well known problems associated with both the cost and income based
methods currently in use. Historical information on the cost of the educational investment made
in base entrants (individuals who enter the full time labor force immediately following high
school graduation) and the wage rate they receive upon entry into the work force is used to
compute a rental rate for human capital. The human capital stock for other cohorts of the work
force is then estimated using that rental rate and the reported earnings for each population
subgroup. This method neutralizes the cost identification problems associated with the work of
Kendrick and Eisner. It also allows a more realistic treatment of the depreciation and
appreciation of human capital. When used to estimate a Cobb-Douglas production function of
the U.S. economy for the period 1963-1988, this measure provided more explanatory power than
hours of labor.