A LABOR INCOME-BASED MEASURE OF THE VALUE OF HUMAN-CAPITAL - AN APPLICATION TO THE STATES OF THE UNITED-STATES

We argue that a sensible measure of the aggregate value of human capit al is the ratio of total labor income per capita to the wage of a pers on with zero years of schooling. The reason is that total labor income not only incorporates human capital but also physical capital: given human capital regions with higher physical capital will tend to have h igher wages for all workers and, therefore, higher labor income. We fi nd that one way to net out the effect of aggregate physical capital on labor income is to divide labor income by the wage of a zero-schoolin g worker. For the average U.S. state, our measure suggests that the va lue of human capital during the 1980s grew at a much larger rate than schooling. The reason has to do with movements in the relative product ivities of the different workers: in some sense, some workers and some types of schooling became more relevant in the 1980s and, as a result , measured human capital increased.