assets that can be bought or sold, the returns to higher educational qualifications or better skills in the workplace take the form of higher incomes. An individual who completes a course of education or training adds to the supply of people with higher qualifications or skills. The resulting income stream can be decomposed into a rise in labor services and the price of these services or wage rate. The increase in labor services contributes to output growth in proportion to the wage rate.

Investments in tangible assets were the subject of the STEP board's first report, Investing for Productivity and Prosperity (Board on Science, Technology and Economic Policy, 1994). These investments appear on the balance sheets of firms, industries, and the nation as a whole as buildings, equipment, and inventories. The benefits of these investments appear on the income statements of these same economic units as profits, rents, and royalties. Investments in tangible assets accounted for more than 45 percent of U.S. economic growth over the postwar period.1

Investments in human capital, especially through formal education, are a very significant source of U.S. economic growth. These investments do not appear on the balance sheets of individuals receiving the education or the institutions providing it. However, increases in labor incomes make it possible to measure the investments and assess their contributions to economic growth. Investments in human capital accounted for almost 30 percent of U.S. economic growth over the postwar period.

Another way of quantifying the role of investments in human capital is to compare them to investments in tangible assets. Barbara M. Fraumeni and I have shown that investments in human capital in the United States have been more than three times those in tangible assets during the postwar period. We also compared wealth in the form of human capital with wealth in the form of tangible assets. Given the long-lasting character of investments in human capital, affecting the incomes of investors throughout their working lives, it is not surprising that human wealth is more than 10 times nonhuman wealth. (Jorgenson and Fraumeni, 1995)

Investment in education has been one of the great, if almost unheralded, achievements of the postwar American economy. This investment program has taken place ''off the books," represented by the U.S. national income and product accounts, the measuring rod of the U.S. economy. However, investment in education has been quantified and compared with other forms of investment. The magnitude of the benefits of higher educational attainments to American society has been truly staggering!

The year 1983 was an important milestone in charting the course of educational investments. The proportion of the youngest of the "prime-age" cohorts of workers aged 25–34 years who had not graduated from high school reached a low


For further details, see Bureau of Labor Statistics (1994).

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