Valuing Human Capital as an Asset
Human capital—an individual’s knowledge, skills, and competencies contributing to their overall well-being—is a primary driver of economic growth and earnings potential. The U.S. national accounts, however, lack an official measurement of this intangible asset and its central role in long-run economic growth. U.S. Bureau of Economic Analysis (BEA) researcher Justine Mallatt addresses the omission by proposing to capture the full economic significance of education and its contribution to gross domestic product (GDP).
In a recent working paper, Mallatt produces an accounting framework that values human capital as an asset by tracking its stock and investment over time, with formal education spending and investment as the foundation for measuring human capital generation. Current accounting practices treat education spending as consumption during the year it occurs rather than as an investment generating future returns. The research details previous researchers’ approaches and methods for measuring education as investment. The accounting framework uses two complementary approaches from the literature to measure human capital: a cost-based approach that values human capital based on the inputs used to generate it and an income-based approach that values the resulting expected increase in lifetime earnings due to the generation of additional human capital.
Covering 1994–2023, the results produced by the proposed framework demonstrate how investment spending and returns on formal education generate future gains in an individual’s lifetime earnings. This accounting framework quantifies the substantial role of education in national wealth and economic growth, producing human capital investment estimates comparable in scale to all other forms of capital investment combined. Recognizing this human capital investment in the national accounts, the author explains, could provide a more complete picture of national wealth, improve long-term fiscal growth projections, and enable researchers and policymakers to make more informed decisions about international competitiveness, workforce development strategies, and education policies.
Mallatt’s contribution to the existing discussion is an accounting framework incorporating human capital into the national accounts, documenting how it raises the level of GDP and how it alters GDP growth over time. The study finds that from 1994 to 2023, incorporating cost-based investment raises nominal GDP by an average of about 2.6 percent, while income-based measures raise it by 22 percent (chart 1). The framework also shows that the direction of this effect on GDP growth depends on enrollment behavior: during the Great Recession, rising college enrollment acted as a counter-cyclical cushion, while falling enrollment during the COVID–19 pandemic deepened the measured contraction (chart 2). Additionally, the study calculates an internal rate of return on educational attainment by comparing the value of educational inputs and outputs, bridging macroeconomic accounting with the microeconomics literature on returns to education.
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