ABSTRACT
Even though economists have little reason to be very proud of the accomplishments of their discipline over the last decades, one economic concept that was developed already in the 1960s has stood the test of time, and that is the concept of human capital. Just as a firm needs physical capital such as buildings, machines, and raw materials to realize its production, human individuals can only be productive in the labour market if they have adequate knowledge and skills at their disposal. By investing time and money on education, people can enhance their human capital and become more productive. In addition to preferences for diffferent types of work, innate ability determines how much each individual invests in her/his human capital. After entering the labour market, workers will acquire additional human capital in the form of experience and on-the-job learning. However, this is not the whole story. Existing human capital — just like the machines in the factory — is subject to wear and tear and consequently to depreciation. One of the explanatory factors is a person’s ageing, which may result in a slower pace of pushing the buttons, less endurance, or what has come to be known as ‘senior moments’ (‘I remember her face, but I cannot reproduce her name at this moment’). Another major factor is technological development. The higher the pace of technological innovation, the sooner individuals’ knowledge and skills become obsolete and the higher the need for maintenance of existing knowledge and skills and investing in new forms of human capital. Some knowledge and skills depreciate more rapidly than others.
