Mark Huggett, Greg Kaplan

This paper posits a notion of the value of an individual's human capital and the associated return on human capital. These concepts are examined using U.S. data on male earnings and financial asset returns. We decompose the value of human capital into a bond, a stock and a residual value component. We find that (1) the bond component of human capital is larger than the stock component at all ages, (2) the value of human capital is far below the value implied by discounting earnings at the risk-free rate, (3) mean human capital returns exceed stock returns early in life and decline with age and (4) human capital returns and stock returns have a small positive correlation over the working lifetime.

JEL Codes
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
E21: Macroeconomics: Consumption; Saving; Wealth
G12: Asset Pricing; Trading volume; Bond Interest Rates
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
value of human capital
return on human capital