[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

This dental student improves his human capital by acquiring
valuable skills and knowledge.
those who only have a high school degree; those with a college degree earn more
than those who started college but never finished. A student has lower income while
in school but can expect to earn high incomes in the future. In addition, working
harder in school, and giving up leisure, may result in better grades and skills, which
in turn will result in higher wages in the future. Thus, students face a trade-off
between leisure and income today and income and consumption in the future.
Spending a year in college has its obvious costs—tuition, room, and board. But
there are also opportunity costs, in particular the income that would have been
received from a job. These are just as much part of the cost of going to school as
any direct tuition payments. Economists say that the investment in education produces
human capital, making an analogy to the physical capital investments that
businesses make in plant and equipment. Human capital is developed by formal
schooling, on-the-job training, and many other investments of time and money that
parents make in their children, individuals make in themselves, and employers make
in their employees.
The United States invests an enormous amount in human capital. In fact, the
cumulative value of human capital is greater than that of physical capital. As much
as two-thirds to three-fourths of all capital is human capital. This investment is
financed both publicly and privately. Local, state, and federal governments spend
about one-quarter of a trillion dollars a year on education. Government spending
on primary and secondary education is the largest category of expenditure at the
local and state levels, accounting for more than 20 percent of the total.
The enormous increase in education in the past fifty years is illustrated in Table
9.1. Among those 65 and older, more than 30 percent do not have a high school degree;
of those 25 to 44, only one in eight has not received a high school degree. Similarly,
the percentage with at least a bachelor’s degree is more than one and a half times as
high for those 25 to 44 as for those 65 and older.
204 ∂ CHAPTER 9 CAPITAL MARKETS