THE RETURNS TO ENDOGENOUS HUMAN CAPITAL IN PAKISTAN'S RURAL WAGE LABOUR MARKET

This paper estimates the private returns to human capital in Pakistani rural labour markets. The rich data used permit inclusion of several dimensions of human capital and control for endogeneity resulting from investment in human capital. The results suggest that, without data on determinants of human capital, it would not be possible to disentangle the separate effect of each dimension of human capital on wage differentials nor to distinguish human capital explanations for wage differentials from signalling and credentialist models. With control for endogeneity of human capital and selectivity into wage employment, cognitive achievement, but not schooling attainment separate from cognitive achievement nor long-run health status, affects wage differentials.     

Real options and human capital investment

This paper extends the standard human capital model with real options. Real options influence investment behavior when risky investments in human capital are irreversible and individuals can affect the timing of the investment. Option values make individuals more reluctant to invest in human capital and, as a result, required returns on the investment increase. Real options may help to explain a larger human capital premium for higher education, smaller responsiveness of higher educational investments to financial incentives, and larger sensitivity of higher educational investments to low-return outcomes and human capital risks. Higher tax rates (or lower subsidies) depress human capital investments, but to a lesser extent than in the standard human capital model if not all direct costs are tax-deductible. A flat income tax remains neutral if education expenditures are fully deductible.     

The Spatial Effects of Wage or Property Tax Differentials, and Local Government Choice between Tax Instruments

This paper considers the spatial effects (on wages, employment, and business capital as functions of location) of a localized differential in source-based wage tax rates or business property tax rates between (for example) a central city and the surrounding suburbs. A simple model is used in which business production uses only labor and capital inputs. Consumers have fixed residential locations but may commute to work. Wage and property tax differentials have effects that are similar in some ways but different in other ways. If given a choice, a local government would choose to set its business property tax rate equal to zero and use only a wage tax.     

Wage determination in late socialism: The case of Poland

Does economic transition necessitate a profound change in the inter-industry wage structure? This paper argues that principles of wage determination in centrally planned economies were not basically different from those prevailing in market economies. Even if the center became involved in wage setting, reward for human capital and the compensating differential had to be taken into consideration. Moreover, market power led to rent-sharing via wage bargaining and efficiency wages. Hence, this paper claims that wages in socialist economies were determined by similar factors to those in market economies. This is supported by comparison of inter-industry wage structures between socialist and capitalist countries and by results of the estimation of the wage equation for Poland. There is a noticeable degree of similarity in wage structures generated by both systems.I started this paper when I was a research visitor at the Centre of Economic Performance, London School of Economics and completed it when I was a visiting fellow at Princeton University. While at Princeton University I was financed as a Fulbright Fellow.I am grateful to David Card, Hartmut Lehmann, Marcus Rubin, Mark Schaffer and an anonymous referee for their helpful comments and suggestions. I also wish to thank the participants of the seminars at the Industrial Relations Section of Princeton University and at the University of Maryland for useful discussion. The usual disclaimer applies.     

Inter-generational effect of parental time and its policy implications

Motivated by the empirical fact that parents with more human capital spend more time teaching and taking care of their children, we develop and estimate a theoretical model in which altruistic parents pass their human capital on in two ways: goods investment and time investment. Based on the estimated model, we quantitatively assess how the two types of investment affect wage inequality and inter-generational mobility. Using the model to study the impacts of a public policy that taxes income to finance public schooling, we find significantly different policy effects in our model than in a model where time investment does not respond endogenously to the policy.     

Gender Differences in the Effect of Education on the Slope of Experience-Earnings Profiles

A bstract . TWO earnings models are estimated for men and women of the National Longitudinal Survey of Labor Market Experience of Youth (1979 to 1988). Model 1 (a standard human capital equation) indicates women receive a relatively higher earnings effect from another year of education and week of work, suggesting that narrowing of the wage gap can occur through increasing these. However, increases in female education of over 20%, or increases in weeks worked of over 100% are needed to bring female earnings to the level of white males. Model 2, which includes the interaction between education and work experience, shows that more educated men have steeper experience-earnings profiles while more educated women do not. This finding indicates different earnings growth patterns among similarly skilled and market attached men and women. Results imply that increasing female skills and work effort alone are insufficient in obtaining more equitable market outcomes and that the continuation of affirmative action policies are needed to achieve this goal.     

Payroll tax incidence when the tax varies by jurisdiction: The case of the U.S. unemployment insurance tax

Standard treatment of payroll tax incidence suggests that labor, both because of inelastic supply and because workers value the benefit financed by the tax, bears most of the tax. This note considers the special case of the U.S. unemployment insurance tax, which is a payroll tax that varies by jurisdiction (states). The model set forth in this paper allows for differing degrees of both labor mobility and substitutability between types of labor and capital. Contrary to the standard treatment, this paper predicts that some types of labor will avoid this particular type of payroll tax completely. I thank Daniel Hamermesh and seminar participants at the Upjohn Institute for Employment Research and at Oakland University for helpful comments on an earlier draft. I also gratefully acknowledge sabbatical support provided by Oakland University during the initial conceptualization of the ideas presented in this paper.     

MEASURING HUMAN CAPITAL AND ITS EFFECTS ON WAGE GROWTH

Abstract Ever since Mincer, years of labour market experience were used to approximate individual's general human capital, while years of seniority were used to approximate job‐specific human capital. This specification is restrictive because it assumes that starting wages at a new job depend only on job market experience. In this paper, I investigate the effects of human capital on wage growth by using a more flexible specification of the wage equation, which allows for a rich set of information on past employment spells to affect the starting wages. In addition, I endogenize the labour mobility decision. In order to illuminate the effects of human capital accumulation patterns on wage growth, I compare counterfactual career paths for representative individuals.     

Tax progression and training in a matching framework

This paper investigates the effect of tax progression on labour market outcomes in an equilibrium search model with wage bargain and endogenous training decisions. We find that the effect of tax progression on training depends crucially on which party invests and the tax function that is considered. When the firm invests, a higher tax progression may increase training levels. Moreover, when a complete contract is possible or when the firm invests, the optimal tax rate in a model with endogenous human capital is at least as high as in a model with exogenous human capital.     

Tax Regimes and Capital Gains Realizations

This paper contrasts the individual capital gains realization behavior between progressive and proportional tax regimes. Using a longitudinal panel of over 288,000 individuals in Sweden, I exploit the 1991 tax reform in Sweden that changed progressive capital gains tax rates ranging from 12% to 80% to a proportional tax rate of 30%. Using the proportional tax system to control for non-tax reasons to realize capital gains, I show that individuals are highly responsive to capital gains tax incentives created by temporary income changes under a progressive capital gains tax. More specifically, I find that individuals with temporary negative (positive) income changes sell (hold) shares that they would hold (sell) in the absence of temporary tax incentives. Further, I show that high-income individuals are more tax sensitive than low-income individuals. This result indicates that low-income individuals facing temporary negative income changes could trade predominantly for non-tax reasons.     

The structure of wages during the economic transition in Romania

I use cross-sectional individual data from the 1994 Integrated Household Survey (IHS) of Romania to analyze the determinants of male and female wages in public and private enterprises. Using quantile regression I estimate the rate of return to education and experience at different quantiles of the wage distribution. Higher levels of education are significantly associated with higher wages for both males and females in public firms. In private firms, only college education is correlated with significantly higher wages. I also find that there are no significant differences in the returns to human capital at the median and at the upper and lower tail of the distribution of gender-specific wages in each sector. Differences in individual characteristics are found to explain the highest portion of the male–female wage differential in Romania in both sectors.     

Sooner or Later? – Paradoxical Investment Effects of Capital Gains Taxation under Simultaneous Investment and Abandonment Flexibility

This paper analyzes the impact of capital gains taxation on investment timing decisions for risky investment projects with entry and exit flexibility under differential tax rates for ordinary income and capital gains. We investigate whether capital gains taxation influences immediate and delayed investments asymmetrically, given the optimal abandonment decision. If capital gains taxation induces a lock-in effect, this effect is anticipated in the investment timing decision. In contrast to prior research, our numerical simulations show that this lock-in effect of capital gains taxation can induce normal as well as paradoxical effects on investment timing under simultaneous entry and exit flexibility. A paradoxical timing effect, i.e., investment accelerated by capital gains taxation, especially emerges for high liquidation proceeds or, more conservative tax accounting, low interest rates, and low volatilities. In these cases, capital gains taxation reduces the value of the option to invest and hereby increases the propensity to invest immediately. As a second paradoxical tax effect, capital gains taxation may favor delayed real investment over financial investment. Facing these results, tax legislators should not use capital gains taxation as a short-term tax policy instrument to influence investors' timing decisions.     

人力资本投资结构及其经济增长效应——基于扩展MRW模型的内生增长理论与实证研究

本文针对已有的关于人力资本投资的理论研究往往只关注人力资本投资数量而忽视人力投资结构研究的现状，把教育和健康看作是两种资本，分析了人力资本投资的具体构成形式。假设人力资本由教育资本和健康资本按照Cobb-Douglas生产技术形式组合生成。通过扩展Mankiw、Romer和Weil（1992）模型（简称MRW模型），构建了一个内生经济增长模型。理论分析结果表明，人力资本投资结构制约着经济增长，人力资本投资数量和结构都对经济产生重要影响。最后，本文以理论分析为基础构建计量经济模型，利用1978-2004年中国29个省市的面板数据实证分析了教育资本和健康资本对中国经济增长的影响。     

Capital structure,investment unanimity,and public goods: the case for social responsibility

This paper examines the concepts of optimal capital structure and investment in an economy where government’s role is the provision of a public good. That public good is financed through current tax revenues and the sale of government securities. Absent such complications, traditional finance theory has established the equivalence among (competitive) value maximization, unanimity, and Pareto optimality. In the setting of this paper, however, the market value of government securities is not determined by the value of public good production, and the correspondence between value maximization, Parto optimality, and unanimity will not generally hold without significant restrictions on the tax structure. Otherwise, value maximization is neither an optimal nor unanimously supported objective for the firm.     

Who benefits from privileged peers? Evidence from siblings in schools

By comparing siblings attending the same school at different points in time, we investigate whether the effect of peer quality on long-term labor market outcomes varies with parental background. We find that exposure to better peers—who have higher mean parental education—increases lifetime earnings of disadvantaged students, coming from families with low parental education, but penalizes privileged students from better educated families. These results suggest that desegregation policies that allocate disadvantaged students to schools with better peers produce long-term benefits. We discuss mechanisms and show that human capital accumulation, ordinal rank and network effects contribute to explain our findings.     

Regional Wage Gaps,Education and Informality in an Emerging Country: The Case of Colombia

This paper uses Colombian micro-data to analyze the role of education and informality in regional wage differentials. The hypothesis is that apart from differences in the endowment of human capital, regional heterogeneity in the incidence of informality is another important source of regional wage inequality in emerging countries. This is confirmed by the evidence from Colombia, which also reveals remarkable spatial heterogeneity in the wage return to individuals’ characteristics. Regional heterogeneity in returns to education is especially intense in the upper part of the wage distribution. In turn, heterogeneity in the informal pay penalty is more relevant at the bottom.     

Human Capital Investment and Work Incentives

Traditional human capital theory based on the work by Gary Becker shows that firms do not invest in general human capital but offer firm‐specific training that is only useful for the training firm. I extend the traditional approach by adding two natural assumptions—workers cannot be forced to acquire new knowledge, and they exert unobservable effort to produce valuable output for their employer. I show under which conditions firms do not offer firm‐specific training but invest in general human capital, which increases the workers' outside option. This investment behavior is well in line with the documented prevalence of industry‐specific and occupation‐specific human capital over firm‐specific human capital.     

FDI activity and worker compensation: evidence from US non-manufacturing industries

This study examines worker compensation effects of FDI activity in US non-manufacturing industry sectors. A clustered standard error correction is used when estimating wage and non-wage compensation equations, with special attention given to FDI’s effect by worker educational attainment and union status. Wage findings reveal an FDI-wage premium for highly educated non-union workers and FDI-union rent erosion for all educational-gender groups excluding females with low educational attainment. Non-wage compensation analysis reveals FDI activity is generally associated with significantly higher probabilities of workers receiving employer financed non-wage compensation for union and non-union workers regardless of their level of educational attainment.     

Taxing capital is a good idea: The role of idiosyncratic risk in an OLG model

We investigate an overlapping generations (OLG) model in which agents who live for two periods receive idiosyncratic productivity shocks when they are old. We show that, around zero tax equilibria, we can always construct a combination of a small capital tax and a lump-sum transfer that are Pareto-improving. As Dávila et al. (Econometrica (2012)) show, a capital reduction in one period raises the welfare level of agents who are old in that period, but lowers that of the young agents, because it reduces their wages. We show that the government can compensate for these wage losses by additionally taxing the old agents, such that their welfare gains remain positive. Our result is unchanged when earnings are uncertain at young age.     

The Role of Symmetry between the Revenue and the Expenditure Side of the Government Budget in the Debate about the Potential Negative Effects of Tax Competition

The effects of capital tax competition are reconsidered in this paper incorporating the argument that the expenditure structure of public budget should reflect its revenue structure. The paper offers a small open economy model where capital and labour tax revenues are used exclusively on the provision of public inputs. It is shown that if the revenue side of the government budget exactly matches the expenditure side that is if industrial public goods are financed by both private production factors with the weights reflecting the contributions of public inputs to the private factor productivity then public inputs are provided optimally even in the presence of tax competition.