Staff Report 448

Human Capital Values and Returns: Bounds Implied By Earnings and Asset Returns Data

Mark Huggett
Greg Kaplan | University of Chicago and Opportunity and Inclusive Growth Institute Advisor

Published July 23, 2010

We provide theory for calculating bounds on both the value of an individual’s human capital and the return on an individual’s human capital, given knowledge of the process governing earnings and financial asset returns. We calculate bounds using U.S. data on male earnings and financial asset returns. The large idiosyncratic component of earnings risk implies that bounds on values and returns are quite loose. However, when aggregate shocks are the only source of earnings risk, both bounds are tight.

Published In: Journal of Economic Theory (Vol. 146, No. 3, May 2011, pp. 897-919)

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