Human capital theory was born solving Solow’s unexplained-growth residual

Evidence

Specifically, Schultz believed that investment in education could help explain a hitherto perplexing problem in the calculation of national economic growth, one that had been identified by the founding figure of neoclassical growth economics, Solow. In two seminal articles in the field, Solow reported that only a small part of the rapid economic growth of the United States in the early twentieth century could be attributed to increases in the size of the labor force or physical capital—the sources of investment traditionally thought to account for GDP growth. Schultz thought that the problem could be resolved if one took into account the sustained increase in private and public investments in education that had occurred over this period, an increase that was not the result of any conscious policy decision but that nevertheless had had the desirable effect of greatly improving GDP. Human capital investment, then, was the missing production factor in growth economics. — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 249

Categorization

• DEFINE: Explains the intellectual origin of human capital: a technical fix for the residual factor in neoclassical growth accounting.
• XREF: connects to: Human capital theory originated with a neo-Keynesian, not Chicago neoliberals — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 248; Innovation is redefined as the income of invested human capital — Michel Foucault, The Birth of Biopolitics: Lectures at…, 1206; Human capital theory originated to solve growth accounting’s unexplained residual — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 249

Broader Connections

• Innovation is redefined as the income of invested human capital #expands (0.82) — Michel Foucault, The Birth of Biopolitics, 1206