Working Paper: NBER ID: w18066
Authors: Mark Huggett; Greg Kaplan
Abstract: 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 find that (1) the value of human capital is far below the value implied by discounting earnings at the risk-free rate, (2) mean human capital returns exceed stock returns early in life and decline with age, (3) the stock component of the value of human capital is smaller than the bond component at all ages and (4) human capital returns and stock returns have a small positive correlation over the working lifetime.
Keywords: Human Capital; Asset Pricing; Earnings; Returns
JEL Codes: D91; E21; G12; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Value of human capital (J24) | Present value of future earnings (J17) |
| Substantial idiosyncratic earnings risk (D81) | Present value of future earnings (J17) |
| Mean returns to human capital (J24) | Stock returns (G12) |
| Stochastic discount factor (D15) | Human capital returns (J24) |
| Stock component of human capital value (J24) | Bond component of human capital value (J24) |
| Human capital returns (J24) | Stock returns (G12) |