Skip to main content

Human-capital theory

Human-capital theory This is a moden extension of Adam Smith's explanation of wage differentials by the so-called net (dis)advantages between different employments. The costs of learning the job are a very important component of net advantage and have led economists such as Gary S. Becker and Jacob Mincer to claim that, other things being equal, personal incomes vary according to the amount of investment in human capital; that is, the education and training undertaken by individuals or groups of workers. A further expectation is that widespread investment in human capital creates in the labour-force the skill-base indispensable for economic growth. The survival of the human-capital reservoir was said, for example, to explain the rapid reconstruction achieved by the defeated powers of the Second World War.

Human capital arises out of any activity able to raise individual worker productivity. In practice full-time education is, too readily, taken as the principal example. For workers, investment in human capital involves both direct costs, and costs in foregone earnings. Workers making the investment decisions compare the attractiveness of alternative future income and consumption streams, some of which offer enhanced future income, in exchange for higher present training costs and deferred consumption. Returns on societal investment in human capital may in principle be calculated in an analogous way.

Even in economics, critics of human-capital theory point to the difficulty of measuring key concepts, including future income and the central idea of human capital itself. Not all investments in education guarantee an advance in productivity as judged by employers or the market. In particular, there is the problem of measuring both worker productivity and the future income attached to career openings, except in near-tautological fashion by reference to actual earnings differences which the theory purports to explain. Empirical studies have suggested that, though some of the observed variation in earnings is likely to be due to skills learned, the proportion of unexplained variance is still high, and must be an attribute of the imperfect structure and functioning of the labour-market, rather than of the productivities of the individuals constituting the labour supply.

Human-capital theory has attracted much criticism from sociologists of education and training. In the Marxist renaissance of the 1960s, it was attacked for legitimating so-called bourgeois individualism, especially in the United States where the theory originated and flourished. It was also accused of blaming individuals for the defects of the system, making pseudo-capitalists out of workers, and fudging the real conflict of interest between the two. However, even discounting these essentially political criticisms, human-capital theory can be regarded as a species of rational-exchange theory and open to a standard critique, by sociologists, of individualist explanations of economic phenomena.

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Human-capital theory." A Dictionary of Sociology. . 8 Apr. 2019 <>.

"Human-capital theory." A Dictionary of Sociology. . (April 8, 2019).

"Human-capital theory." A Dictionary of Sociology. . Retrieved April 08, 2019 from

Learn more about citation styles

Citation styles gives you the ability to cite reference entries and articles according to common styles from the Modern Language Association (MLA), The Chicago Manual of Style, and the American Psychological Association (APA).

Within the “Cite this article” tool, pick a style to see how all available information looks when formatted according to that style. Then, copy and paste the text into your bibliography or works cited list.

Because each style has its own formatting nuances that evolve over time and not all information is available for every reference entry or article, cannot guarantee each citation it generates. Therefore, it’s best to use citations as a starting point before checking the style against your school or publication’s requirements and the most-recent information available at these sites:

Modern Language Association

The Chicago Manual of Style

American Psychological Association

  • Most online reference entries and articles do not have page numbers. Therefore, that information is unavailable for most content. However, the date of retrieval is often important. Refer to each style’s convention regarding the best way to format page numbers and retrieval dates.
  • In addition to the MLA, Chicago, and APA styles, your school, university, publication, or institution may have its own requirements for citations. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list.