Six Big Ideas
Human capital: The people's champion
Gary Becker made humans the central focus of economics. The second in our series on big economic ideas.
WHY do families in rich countries have fewer children?
Why do companies in poor countries often provide meals for their workers?
Why has each new generation spent more time in school than the one that came before?
Why have earnings of highly skilled workers risen even as their numbers have also increased?
Why should universities charge tuition fees?
This is an incredibly diverse array of questions.
The answers to some might seem intuitive; others are more perplexing.
For Gary Becker, an American economist who died in 2014, a common thread ran through them all: human capital.
Simply put, human capital refers to the abilities and qualities of people that make them productive.
Knowledge is the most important of these, but other factors, from a sense of punctuality to the state of someone's health, also matter.
Investment in human capital thus mainly refers to education but it also includes other things—the inoculation of values by parents, say, or a healthy diet.
Just as investing in physical capital—whether building a new factory or upgrading computers—can pay off for a company, so investments in human capital also pay off for people.
The earnings of well-educated individuals are generally higher than those of the wider population.
All this might sound obvious.
As far back as Adam Smith in the 18th century, economists had noted that production depended not just on equipment or land but also on peoples' abilities.
But before the 1950s, when Becker first examined links between education and incomes, little thought was given to how such abilities fit with economic theory or public policy.
Instead, economists' general practice was to treat labour as an undifferentiated mass of workers, lumping the skilled and unskilled together.
To the extent that topics such as training were thought about, the view was pessimistic.