Education-investment in human capital-is at least as important as investment in physical capital for a country’s long-run economic success. In the United States, each year of schooling has historically raised a person’s wage on average by about 10 percent. In less developed countries, where human capital is especially scarce, the gap between the wages of educated and uneducated workers is even larger. Thus one way government policy can enhance the standard of living is to provide good schools and to encourage the population to take advantage of then Investment in human capital, like investment in physical capital, has an opportunity cost. When students are in school, they forgo the wages they could have earned. In less developed countries, children often drop out of school at an early age, even though the benefit of additional schooling is very high, simply because their labor is needed to help support the family Some economists have argued that human capital is particularly important for economic growth because human capital conveys positive externalities. An externality is the effect of one person’s actions on the well-being of a bystander. An educated person, for instance, might generate new ideas about how best to produce goods and services. If these ideas enter society’s pool of knowledge so everyone can use them then the ideas are an external benefit of education. In this case, the return to schooling for society is even greater than the return for the individual. This argument would justify the large subsidies to human capital vestment that we observe in the form of public education One problem facing some poor countries is the brain drain-the emigration of many of the most highly educated workers to rich countries, where these workers can enjoy a higher standard of living If human capital does have positive externalities, then this brain drain makes those people left behind poorer than they otherwise would be. This problem offers policymakers a dilemma. On the one hand, the United States and other rich countries have the best systems of higher education, and it would seem natural for poor countries to send their best students abroad to earn higher degrees. On the other hand, those students who have spear time abroad may choose not to return home, and this brain drain will reduce the poor nation’s stock of human capital even further.
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