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Human Capital

  • David Sapsford
  • Zafiris Tzannatos
Chapter
Part of the Texts in Economics book series

Abstract

The idea that education is a form of investment is not new and traces back (at least) to Adam Smith (1776, p. 101) who noted that

A man educated at the expense of much labour and time … may be compared to one … expensive machine … The work which he learns to perform … over and above the usual wages of common labour will replace the whole expense of his education.

In this respect the theory of human capital can be seen as an extension of investment theory in the sphere of human resources. The reason is that one may be willing to incur costs in the short run in return for higher benefits in the long run. In the present context an application of this observation is the following one: an 18-year-old may decide not to join the labour market and to stay on in the education system until he gets a university qualification because current costs (foregone earnings and education-related expenses) are lower than expected benefits (higher earnings for university graduates). As in the traditional theory of investment, the rate of discount of costs and benefits is a key determinant of the decision to invest in human capital.

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Copyright information

© David Sapsford and Zafiris Tzannatos 1993

Authors and Affiliations

  • David Sapsford
    • 1
  • Zafiris Tzannatos
    • 2
  1. 1.University of LancasterUK
  2. 2.World BankUSA

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