Working Paper: NBER ID: w21238
Authors: Mark Huggett; Greg Kaplan
Abstract: This paper examines the value of an individual’s human capital and the associated return on human capital 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 and (2) the stock component of the value of human capital is smaller than the bond component at all ages. The stock component averages less than 35 percent of the value of human capital at each age.
Keywords: Human Capital; Portfolio Choice; Earnings Risk
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 |
|---|---|
| increased idiosyncratic earnings risk (G19) | lower valuations of human capital (J17) |
| risk aversion (D81) | portfolio allocation decisions (G11) |
| positive conditional correlation between stock returns and aggregate component of earnings (C10) | positive stock component of human capital (J24) |