Human Capital Contribution to Output: A Theoretical Framework

The output share, denoted as si=Yi/Y, is a measure of the proportion of output contributed by a particular factor of production. The output elasticity of human capital, βi, is a key parameter in determining the contribution of human capital to output, with siβi representing the magnitude of this effect. The average output of human capital, denoted as β and calculated as the weighted sum of siβi over all factors, provides a useful metric for assessing the overall impact of human capital on output. Finally, the proportion of human capital stock, Hi/H, is a critical determinant of the overall level of output. The value of βi is derived from the C-D production function, which assumes constant returns to scale.