How To Measure Human Capital: A Short Review

This paper focuses on the most important estimation approaches of human capital. These approaches can be labeled as either monetary or non-monetary methods of estimation. The three major monetary methods of human capital are the prospective method, the retrospective method and the integrated approach. The income-based approach (prospective method) estimates human capital based on the present value of a person’s future income stream. The cost-based approach (retrospective method) is centered on the “production” costs of human capital, trying to determine the costs of producing human capital by adding up the education and schooling costs. The integrated approach is a mixture of the prospective and retrospective method. On the other side, the non-monetary measures are essentially education-based indicators, such as the literacy rate, the school enrollment rate or the average years of education.