Earnings functions: Testing for the demand side

To analyze labor market phenomena, one may simultaneously grade workers (by education) and jobs (by level of difficulty and complexity). Human capital theory predicts earnings based on only worker quality. Thurow's version of a segmented labor market theory predicts that only the job level is relevant, and the assignment theory predicts that both variables are relevant. Using three different data sets for The Netherlands, testing demonstrates convincingly the superiority of the assignment theory.     

Civil wars beyond their borders: The human capital and health consequences of hosting refugees

In early 1994, Kagera - a region in northwestern Tanzania - was flooded by more than 500,000 refugees fleeing from the genocides of Burundi and Rwanda. I use this population shock and a series of topographic barriers that resulted in variation in refugee intensity to investigate the short- and long-run causal effects of hosting refugees on outcomes of local children. This strategy provides evidence of adverse impacts over one year after the shock: a worsening of children's anthropometrics (0.3 standard deviations), an increase in the incidence of infectious diseases (15-20 percentage points) and an increase in mortality for children under five (7 percentage points). I also find that intra- and inter-cohort variation in childhood exposure to the refugee crisis reduced height in early adulthood by 1.8 cm (1.2%), schooling by 0.2 years (7.1%) and literacy by 7 percentage points (8.6%). Designs using the distance to the border with Rwanda as an alternative identification strategy for refugee intensity support the findings. The estimates are robust across different samples, specifications and estimation methods and provide evidence of a previously undocumented indirect effect of civil wars on the well-being of children and subsequent economic growth in refugee-hosting communities.     

Risky human capital and deferred capital income taxation

We study the structure of optimal wedges and capital taxes in a dynamic Mirrlees economy with endogenous distribution of skills. Human capital is a private, stochastic state variable that drives the skill process of each individual. Building on the findings of the labor literature, we construct a tractable life-cycle model of human capital evolution with risky investment and stochastic depreciation. In this setting, we demonstrate the optimality of (a) a human capital premium, i.e., an excess return on human capital relative to physical capital, (b) a large intertemporal wedge early in the life-cycle, and (c) a non-zero intratemporal wedge even at the top of the skill distribution at all dates except the last date in the life-cycle. The main implication for the structure of optimal linear capital taxes is the necessity of deferred taxation of physical capital. The average marginal tax rate on physical capital held in every period is zero in present value. However, expected capital tax payments do not equal zero in every period. Necessarily, agents face negative expected capital tax payments early in the life-cycle and positive expected capital tax payments late in the life-cycle.     

Viewpoint: The human capital approach to inference

The purpose of this essay is to discuss two approaches to inference and how “human capital” can provide a way to combine them. The first approach, ubiquitous in economics, is based upon the Rubin–Holland potential outcomes model and relies upon randomized treatment to measure the causal effect of choice. The second approach, widely used in the pattern recognition and machine learning literatures, assumes that choice conditional upon current information is optimal (or at least high quality), and then provides techniques to generalize observed choice to new cases. The “human capital” approach combines these methods by using observed decisions by experts to reduce the dimensionality of the feature space and allow the categorization of decisions by their propensity score. The fact that the human capital of experts is heterogeneous implies that errors in decision making are inevitable. Moreover, under the appropriate conditions, these decisions are random conditional upon the propensity score. This in turn allows us to identify the conditional average treatment effect for a wider class of situations than would be possible with randomized control trials. This point is illustrated with data from medical decision making in the context of treating depression, heart disease and adverse childbirth events.     

Policies to foster human capital

This paper considers the sources of skill formation in a modern economy and emphasizes the importance of both cognitive and non-cognitive skills in producing economic and social success, and the importance of both formal academic institutions and families and firms as sources of learning. Skill formation is a dynamic process with strong synergistic components. Skill begets skill. Early investment promotes later investment. Non-cognitive skills and motivation are important determinants of success and these can be improved more successfully and at later ages than basic cognitive skills. Methods currently used to evaluate educational interventions ignore these non-cognitive skills and therefore substantially understate the benefits of early intervention programmes and mentoring and teenage motivation programmes. At current levels of investment, American society under-invests in the very young and over-invests in mature adults with low skills.     

Endogenous cycles and human capital

Existing evidence shows that human capital investment is countercyclical. In a dynamic model, I show that countercyclical investment in human capital arises as a result of a parametric combination relating to preferences and technologies. This countercyclical reaction is responsible for complex dynamics in the evolution of human capital, thus initiating a self-sustained sequence of events that generate endogenous cycles.     

Crises and human capital accumulation

Abstract.  This paper studies the effects of crises on human capital formation. Theoretically, a crisis undermines total factor productivity, which reduces the return to working and to accumulating physical capital. If the crisis is temporary, young agents will study now and work later. Human capital rises. To test our model we rely on inflation crises as our main empirical proxy. Using GMM panel procedures, our analysis for 86 countries in 1970–2000 confirms the positive effects of crises on human capital. Our main findings survive several robustness tests. JEL classification: E31, D90     

Growth,fertility and human capital: A survey

This paper surveys recent work on endogenous fertility and endogenous growth. These models provide the building blocks for a theory of development. They are capable of explaining income and fertility differentials between rich and poor countries. They can produce switching behavior, countries that transform themselves from no growth economies into high growth economies. The fertility and growth effects of social security programs are also examined. Finally models with increasing returns to population are presented. They are capable of reproducing very long term relationships between human capital, fertility and economic growth.     

AIDS and economic growth: A human capital approach

Using a model that combines growth and health capital equations this study analyses the impact of HIV/AIDS on economic growth. The econometric results indicate that the epidemic's effects have been substantial; in Africa the marginal impact on income per capita of a 1% increase in HIV prevalence rate is minus 0.59%. Even in countries with lower HIV prevalence rates the marginal impacts are non-trivial. Hence while the human and social costs of the HIV/AIDS epidemic are major causes for concern, these results indicate that the macroeconomic affects of the HIV/AIDS epidemic are important.     

Inside Europe: human capital and economic growth revisited

This paper investigates the impact of human capital on the process of innovation and technology catch-up in European Union countries. Based on the framework proposed by Benhabib and Spiegel (in: Aghion and Durlauf (eds) Handbook of economic growth, 1A, North-Holland, Amsterdam, 2005), a panel data model is estimated from 1950 to 2011 using the improved total factor productivity and human capital variables included in PWT 8.0. Following Vandenbussche et al. (J Econ Growth 11(2):97–127, 2006) we also analyse the differential impact of skilled and unskilled human capital on growth. The empirical analysis applies instrumental variables panel data methods which resolve the endogeneity bias. Our results show robust evidence of the significant direct and indirect effects of human capital on the process of total factor productivity (TFP henceforth) growth in euro area countries. When we analyse the impact of different kinds of human capital on different ways of increasing TFP we conclude that, regardless of academic level, the quantity of unskilled human capital boosts imitation in EU countries while, by contrast, highly qualified human capital is essential for growth through innovation.     

ADN to BSN: lessons from human capital theory

Currently, approximately 16% of associate degree nursing (ADN) graduates acquire baccalaureate or higher degrees. Human capital analysis demonstrated negative to minimal average returns on investment (ROI) in BSN education. Increasing the ROI may influence ADNs to pursue baccalaureate education and can be an effective strategy for meeting the projected need for BSN-prepared nurses.     

Endogenous capital market imperfections,human capital,and intergenerational mobility

In this paper, capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers. We develop a growth model with linear OLG wealth dynamics, where agents are heterogeneous in terms of observable wealth and ability, which is private information. We show that banks react to this informational asymmetry by granting higher loans to talented borrowers. This, in turn, helps poor and talented agents to become educated and catch up with the rich agents. Furthermore, the credit market friction leads to greater human capital accumulation.     

Endogenous capital market imperfections, human capital, and intergenerational mobility

In this paper, capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers. We develop a growth model with linear OLG wealth dynamics, where agents are heterogeneous in terms of observable wealth and ability, which is private information. We show that banks react to this informational asymmetry by granting higher loans to talented borrowers. This, in turn, helps poor and talented agents to become educated and catch up with the rich agents. Furthermore, the credit market friction leads to greater human capital accumulation.     

教化投资:人力资本投资的新形式

本文针对现有的人力资本理论将人力资本投资形式局限于教育、培训、医疗、保健和迁移,而对其他投资形式关注不足的现实,认为适应于现代经济生活相关的思想观念、价值取向和道德规范,需要相关投入才会形成,这些投入也是人力资本投资不可或缺的形式,笔者将其概括为教化投资。经济转型过程凸显了教化投资的重要性。教化投资增强了人力资本的资源配置能力,在扩大个体人力资本存量的同时,还提升了社会经济价值,增加了社会资本。     

Growth and social security: the role of human capital

This paper studies the growth and efficiency effects of pay-as-you-go financed social security when human capital is the engine of growth. Employing a variant of the Lucas model [Lucas, R.E., 1988. On the mechanics of economic development. Journal of Monetary Economics 22, 3–42.] with overlapping generations, it is shown that a properly designed, unfunded social security system leads to higher output growth than a fully funded one. Furthermore, the economy with an unfunded social security is efficient, while the other one is not. These results stand in sharp contrast to those obtained in models where the reason for economic growth is physical capital accumulation.     

Parental involvement and Children's human capital: A tax-subsidy experiment

Parental time with children has a significant influence on early childhood development, future accumulation of a wide array of cognitive and non-cognitive skills and the ultimate success of the child. The model presented in this article features endogenous fertility and labour supply while distinguishing between various types of parental time spent with children. We conduct a quantitative analysis to investigate the importance of the role of family for children's skill formation. In the model, parents are subsidized for spending publicly verifiable productive time with their children. Such intervention can significantly enhance the human capital of children, yet it affects the overall labour supply of the primary caretaker in an ambiguous way.     

Intergenerational Earnings Mobility Revisited: Estimates Based on Lifetime Earnings*

Using Norwegian intergenerational data, which include a substantial part of the life‐cycle earnings for children and almost the entire life‐cycle earnings for their fathers, we present new estimates of intergenerational mobility. Extending the length of fathers’ earnings window from 5 to 25 years increases estimated elasticities. Increasing the age at which fathers’ earnings are observed has the opposite effect. Biases in the estimated elasticities are related to both transitory earnings variation and life‐cycle measurement error; the former appear to be more important than the latter. Estimation bias stemming from persistence in transitory innovations plays only a minor role. Our findings indicate that intergenerational earnings mobility in Norway might have been strongly overstated in many earlier studies with shorter earnings histories. Some of our new estimates are twice as large as earlier estimates.     

Unemployment and deterioration of human capital

The paper deals with the deterioration of human capital during spells of unemployment. In our model the probability of leaving the unemployment pool decreases with the duration of unemployment. It can be shown that with a linear deterioration function and a simple distribution function for the reservation productivity of firms, unemployment duration is suitably described by a distribution of the Gompertz-Makeham type. In a numerical simulation it could be demonstrated that deterioration of human capital during unemployment affects the relation between vacancies and unemployment in a specific way: in the case of labour market slackness the steady-state Beveridge curve bends away markedly from the standard u-v-curve in an outward direction while in a situation of almost full employment the effects are negligible. For higher deterioration parameters the Beveridge curve may even be upward sloping in a situation of excess supply on the labour market, implying the existence of multiple equilibria. Empirical estimation of the distribution function with German labour market data 1984–1987 reveals that the multiple equilibrium case is likely to be relevant in reality.For valuable comments and suggestions I am grateful to W.Franz, A.Hamerle and an anonymous referee. Responsibility for remaining errors remains with the author.     

Growth and human capital: good data,good results

We present a new data set for years of schooling across countries for the 1960–2000 period. The series are constructed from the OECD database on educational attainment and from surveys published by UNESCO. Two features that improve the quality of our data with respect to other series, particularly for series in first-differences, are the use of surveys based on uniform classification systems of education over time, and an intensified use of information by age groups. As a result of the improvement in quality, these new series can be used as a direct substitute for Barro and Lee’s (2001; Oxford Economic Papers, 3, 541–563) data in empirical research. In standard cross-country growth regressions we find that our series yield significant coefficients for schooling. In panel data estimates our series are also significant even when the regressions account for the accumulation of physical capital. Moreover, the estimated macro return is consistent with those reported in labour studies. These results differ from the typical findings of the earlier literature and are a consequence of the reduction in measurement error in the series.      

Mineral wealth and human capital accumulation: a nonparametric approach

This article uses a nonparametric approach to investigate the nexus between mineral wealth and human capital accumulation across countries. Higher mineral wealth is associated with elevated levels of human capital in a cross-section of countries. Matching the overall level of economic development and political instability and violence, weakens but does not reverse this conclusion. These results are economically significant. Moving up from the bottom to the top quartile for subsoil wealth per capita decreases illiteracy by ≈ 12% among young and adult females. Conversely, moving down from the top to the bottom quartile for subsoil wealth per capita decreases the average years of primary and total education by ≈ 1.5 years for females. Results are consistent with Hirschman's conjecture that enclave economies have weaker production linkages but stronger government revenue linkages than other activities. Most importantly, this article argues that caution should be exercised when discouraging countries from exploiting their mineral wealth, especially for countries where human capital is scarce.

I know, [there is] no safe depositary of the ultimate powers of society, but the people themselves; and if we think them not enlightened enough to exercise their control with wholesome discretion, the remedy is not to take it from them, but to inform their discretion by education. This is the true corrective of abuses of constitutional power.