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Abraham, Katharine G. 2010. Accounting for Investments in Formal Education.

Investment in human capital may take many forms. The time that parents spend with their children during the early childhood years can be thought of as an investment in the development of the children’s cognitive, emotional, and social abilities. Formal education, from the primary grades through college and postgraduate studies, represents a further investment in the development of students’ capacities. After leaving school, individuals may engage in structured training or less formal learning on the job. More broadly, medical care, diet, and exercise may be considered forms of investment in human capital. While few would quarrel with the idea that all of these investments may have significant value, measuring that value poses significant challenges. My goal in the present paper is to describe and critique alternative approaches to the measurement of investment in formal education The first section of the paper introduces the idea of an education satellite account in which both the costs of education and the returns to education would be tallied. The second section discusses measurement of the costs of education, and the third section addresses a variety of issues that may arise in attempting to value investment in education based on the projected returns to additional years of schooling. The construction of real output measures for formal education is considered briefly in the fourth section. Concluding observations are offered in the final section.