A:

A relative or absolute decline in human capital is most commonly associated with unemployment, the inability to keep up with technological innovations, physical injury or mental decomposition. Economists and business analysts have studied the impact of wage rate growth or decline following different life events, such as earning a degree or returning to work following an extended hiatus, with mixed and controversial results.

"Human capital" is the colloquial title granted to the economic value of workers. Human capital correlates to the ability of a worker to generate returns based on his or her own skills, knowledge and labor services. It's easy to guess at what influences human capital, such as levels of education or on-the-job training. It's much more difficult to actually assign a cardinal-number value to human capital and measure it over time; it wouldn't really make sense to say that the return on investment ROI of a specific human-capital investment has decreased by 5%, because there are no measurable units by which to track knowledge or ingenuity.

Markets trade labor services, not human capital; the two concepts are related but not synonymous. Labor services command a market price based on an individual's marginal revenue product (MRP), which can be thought of as the combination of work effort or effectiveness and the rental return on human capital, which has no cardinal numbers and can't be estimated. Despite the impossibility of definitively measuring the present discounted value of future rents for human capital, its close association with wage rates does allow for estimations as to which variables are negatively correlated with human capital returns. It's only possible to make guesses about which life events can hurt a worker's ability to increase his or her wealth.

Unemployment and Human Capital

In economic theory, specialization increases MRP by making the worker more efficient at producing a good or service. If specialization is achieved through repetition, training and focus, then it would be easy to assume that the cessation of repetition, training and focus would cause MRP to decrease. Workers who are unemployed for long periods of time are unlikely to maintain their previous levels of specialization or may find that their past skills are less in-demand than before.

The positive correlation between specialization and wage rate has led many economists to claim that human capital deprecation is directly caused by interruptions in a work career, such as periods of unemployment. Some have suggested that the unequal burdens placed on women during marriage, such as housekeeping and child rearing, are directly responsible for gender wage gap – a theory called the marital asymmetry hypothesis – because the opportunity cost of being married is vocational specialization.

Technology and Human Capital

If human capital is the ability to generate wealth from unique labor skills, then training and an understanding of prevailing work techniques are important inputs. The employee who fails to adopt to new techniques or technology may find his or her human capital has depreciated relative to his or her competitors, who are better able to keep up with these changes. This relative depreciation is somewhat different than the absolute deterioration caused by unemployment, but the real impact on wages may be similar.

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