Crossing the Finish Line: A Review Article

Human capital production in the U.S. economy is no longer what it used to be. Graduation rates for high school and college have fallen (Card and Lemieux 2001; Heckman and Lafontaine 2007). As a result, the rate of growth of the stock of human capital has slowed considerably (Goldin and Katz 2008). At the same time, other countries are improving their educational attainment. Although the United States still has the highest rate of tertiary attainment (Ehrlich 2007), this accomplishment should not be taken for granted. As recently as 1998, the United States ranked third in tertiary graduation rate among the OECD countries. By 2006, it barely made it into the top 10 (OECD 2008). Quantity is only one part of the problem because the human capital produced is also of lower quality. Out of the 30 OECD countries that participated in the 2006 Program for International Student Assessment, U.S. students ranked twenty-fifth (OECD 2007). Human capital is an important source of long-run growth (e.g., Lucas 1988; Becker, Murphy, and Tamura 1990; Romer 1990; Ehrlich and Lui 1991), so it is necessary to reverse this situation. Following up on the seminal contributions by Schultz (1959), Becker (1964), and Ben-Porath (1967), recent research has shown that the production of human capital starts before birth and continues over the entire life cycle (e.g., Cunha and Heckman 2007). It is produced by families (e.g., Cunha, Heckman, and Schennach, forthcoming) and schools (Rivkin, Hanushek, and Kain 2005; Todd and Wolpin 2007). In the late adolescent and early adulthood years, human capital investments are made via formal schooling (a college or post-baccalaureate education) or in the labor market via learning by doing and on-the-job training (e.g., Keane and Wolpin 1997, 2001, 2006; Cameron and Heckman 1998, 2001; Heckman, Lochner, and Taber 1998; Heckman, Lochner, and Cossa 2002). The market for higher education has been the focus of much research by economists (e.g., Clotfelter and Rothschild 1993; Hoxby 2004). A