Misallocation of Human Capital: The Austrian Perspective
|Author:||Bc. Jakub Skala|
|Year:||2014 - summer|
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:|
|Abstract:||Higher education is often considered as one of the safest and most profitable investments in
human capital. There are, however, signals that this sector has been experiencing
unsustainable economic boom in the United States. This study examines the ability of
Austrian Business Cycle Theory to explain the possibility of such boom, i.e. to explain the
potential systematic errors in the allocation of human capital. We find that respective
allocation is driven by the similar market forces as the allocation of physical capital and
hence, that it may fall victim to the same, or similar false market signals, thus creating the
cycle of boom and bust. Credit expansion in the sector of student loans can be the trigger then.
Furthermore, we study the actual development in this sector and find that empirical evidence
provides many reasons to believe that there has actually been unsustainable boom i.e. an
economic bubble in the sector of post-secondary education in the United States.