NCPA - National Center for Policy Analysis

"Investing" In "Human Capital"

May 22, 1997

Politicians have learned that to sell a new program to the American people, call it "investment" -- not "spending." Thus training and education becomes an "investment in human capital" -- thereby combining two feel-good economic words in a single phrase.

"Human capital is a very important concept that is sometimes used to justify any kind of government program," says economist Gary Becker of the University of Chicago -- who won a Nobel Prize for pioneering work in the field of human capital. He also warns that the phrase is often mistakenly used to justify entitlements.

A number of analysts say that many programs so described in the past have been far from successful.

  • There is little evidence that the $20 billion spent annually on federal job training programs is having a positive effect.
  • A study by University of Chicago economist James Heckman found that young men who went through the federal government's Job Training Partnership program actually earned less afterwards than those who didn't.
  • But the $55 billion a year the private sector spends on job training pays dividends in the form of 26 percent to 33 percent higher pay to the beneficiaries of private training, according to the Labor Department.

The reason for the disparity of results may be that private employers know what skills they need and what skills their employees lack. But government programs like the Job Corps emphasize such skills as construction, where opportunities are few.

Traits such as a willingness to take a job which is not ideal and stick to it, to be supervised by people one doesn't like, and to go to work when you don't feel well are not easily taught, points out Richard Berman of the Employment Policies Institute, but are important to the development of "human capital."

Labor specialists say that government mandates such as minimum wage laws price low skilled workers out of the job market, denying them an opportunity to acquire some of these positive traits employers seek and will, in time, rewards with big bucks.

Source: Anna J. Bray, "Clinton's Latest 'Investment' Tip," Investor's Business Daily, May 22, 1997.


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