Opportunity Cost

Human Capital - Opportunity Cost "Human Capital." Gary S. Becker. Human Capital. 1975. The Library of Economics and Liberty web site: (http://www.econlib.org/library/Enc/HumanCapital.html). Purpose of Article: Gary Becker's article establishes that investment in human capital through education and training leads to increases in the standard of living and overall productivity of both the economy and the individual.

At the individual level, Becker uses the concept of opportunity cost to analyse the trends in higher education among various segments of society and at the macro level, Becker establishes the benefits of investing in human capital. Economic Concepts Discussed: There are a whole range of economic concepts implicit in "Human Capital": human capital as an important resource, opportunity cost, cost-benefit analysis, long run cost, the 'creation of wealth,' subsidy, and wage discrimination.

The principal concept in "Human Capital" is the importance of an educated workforce in economic growth in creating increases in productivity through specialization of labor and discoveries of new technologies: "...investment can be a source of growth. The discovery of.. is called 'technical progress'...all countries.. experienced rising standards of living over long periods of time.. progressive, technological change" (McCain III, Roger Ashton. Essential Principles of Economics: A Hypermedia Text. Chapter 1.iii).

Becker also uses the principle of opportunity cost to point out how decisions on 'investing in education' are made: "The benefits..."opportunity cost" is the income...could earn by working full-time.

And during the eighties this forgone income, unlike tuition, did not rise in real terms." Linked to this is the concept of Long Run Cost or investment planning and cost-benefit analysis: "Many studies...education...greatly raise a person's income, even after netting out direct and indirect costs of schooling." In other words, investing in education reaps long-term benefits, even if it means an opportunity cost in the short run, by leading to the 'creation of wealth': "It is the great multiplication of the productions of all the different arts..

universal opulence which extends itself to the lowest ranks..." (Smith Adam. Wealth of Nations. Modern Library edition. p11). Subsidy is another concept that is implicit in "Human Capital." By clearly establishing the linkages between education and training to the 'creation of wealth,' Becker is perhaps indicating that it is well worth Governments investing in subsidization of education. Wage discrimination is also an indirect implication as Becker talks about the premium earned by college graduates.

This has been a long debated subject in economics: "There may be no simple system of payment (such as supply and demand or equal pay for equal work) that will allow a socially useful enterprise with increasing returns to scale to exist" (McCain III, Roger Ashton. Essential Principles of Economics: A Hypermedia Text. Chapter 1.iii). Conclusion: Continued investment in education is critical to bring about breakthroughs in science and technology, which in turn will lead to increases in productivity and the 'creation of.