2. A MODEL OF HUMAN CAPITAL VALUATION Valuinghumancapitalinvolvesthepricingofnontradablefuturecashflowsthataworkerwillearn inthelabormarket.Suchanexerciserequirestwobasicingredients:amodelfortheworker’searnings over the life cycle and an appropriate rate at which to discount those cash flows. Section 2.1 outlines a standard model for the worker’s labor income and surveys the studies that provide empirical support for it. Section 2.2 presents a stylized life-cycle model of consumption and savings decisions that determines a discount rate for human capital valuation. In Section 2.3, we provide an overview of the financial economics literature that combines these two ingredients to study the value of human capital.